Youdao, Inc.

Q2 net revenues were RMB 1.5 billion, up 3.5% year over year. Gross profit was RMB 716.9 million, up 17.6% year over year, and operating profit reached RMB 111.5 million, nearly fourfold year over year, with operating income margin at 7.6% versus 2% a year ago. Net income attributable to ordinary shareholders was RMB 73.8 million versus a net loss of RMB 17.8 million last year; non-GAAP net income was RMB 90.6 million versus RMB 12.5 million. By segment, learning services revenue was RMB 795.6 million (+20.9%), online marketing services RMB 584.4 million (-7.7%), and smart devices RMB 86.8 million (-31.5%). Gross margin was 65.5% for learning services, 28.7% for online marketing services, and 32.8% for smart devices. Net cash provided by operating activities was RMB 334.2 million, and cash, cash equivalents, restricted cash, and short-term investments totaled RMB 849.3 million at quarter end. Management did not give full-company revenue or EPS guidance for the next quarter/full year, but said online marketing gross margin should continue improving year over year in Q3, smart device gross margin is expected to recover to over 40% in the second half, and the company expects stronger gross margin performance and meaningful operating profit improvement in 2H 2026.

Feng Zhou framed the quarter as evidence that Youdao’s AI-native strategy is translating into better products and better economics. He emphasized strength in translation, voice/audio, and math learning, and said the company plans to launch more voice-related models and multiple new AI agent and model products in September. His tone was constructive and confident, with repeated focus on practical AI adoption across learning and advertising.

Peng Su highlighted that total net revenues were RMB 1.5 billion, gross profit was RMB 716.9 million, operating expenses were RMB 605.3 million, and operating income margin improved to 7.6%. He pointed to gross margin improvements in learning services to 65.5% and online marketing to 28.7%, while noting smart devices gross margin fell to 32.8% because of lower demand and weaker hardware scale. He also cited strong operating cash flow of RMB 334.2 million and ending liquidity of RMB 849.3 million in cash, restricted cash, and short-term investments.

Analysts focused mainly on how AI will deepen across products, the outlook for AI Essay Grading in Lingshi, online marketing margins, and gross margin trends. Management said the core LLM strengths are translation, advanced voice/audio, and mathematics, and that more voice models and AI agent products are slated for launch in September. On advertising, management said margin should keep improving in Q3 as they emphasize higher-ROI campaigns and AI tools; on gross margin overall, they expect learning economies of scale to continue and smart device margin to recover to over 40% in 2H 2026.