DAO — Youdao, Inc.

Summary of Youdao's Q4 2025 Earnings Call

1. Key Financial Results and Metrics

• Q4 2025 Performance:

  • Net revenues: RMB 1.6 billion (USD 223.7 million), up 16.8% YoY.
  • Operating profit: RMB 60.2 million, a 113% increase QoQ but down 28.5% YoY.
  • Net income attributable to ordinary shareholders: RMB 48.2 million (USD 6.9 million), down from RMB 83 million YoY.
  • Non-GAAP net income: RMB 58.7 million (USD 8.4 million), down from RMB 99.8 million YoY.
  • Net cash flow from operating activities: RMB 184.2 million (USD 26.3 million), up 16.4% YoY.

• Full Year 2025 Performance:

  • Total net revenues: RMB 5.9 billion (USD 845 million), a 5% increase YoY.
  • Operating profit: RMB 221.3 million, up 48.7% YoY.
  • First full year of positive net cash inflow from operating activities: RMB 55.2 million.

2. Strategic Updates and Business Highlights

• Learning Services:

  • Q4 revenues: RMB 727.2 million, up 17.7% YoY, driven by AI-driven subscription services.
  • Youdao Lingshi showed strong performance with over 40% revenue growth YoY and improved retention rates.
  • New AI features such as English AI Essay grading tool and Scholar AI launched to enhance user engagement.

• Online Marketing Services:

  • Q4 revenues: RMB 660.9 million, up 37.2% YoY, fueled by demand from NetEase Group and international markets.
  • Gross margin improved sequentially to 27.8% despite a YoY decline, attributed to strategic client acquisition and technological upgrades.

• Smart Devices:

  • Q4 revenues: RMB 176.5 million, down 26.6% YoY, with a focus on improving operational health.
  • Continued success of flagship products like the Youdao Dictionary Pen.

3. Forward Guidance and Outlook

• 2026 Goals:
  • Aim for double-digit growth in Learning Services, leveraging AI capabilities.
  • Continued focus on expanding online marketing services, particularly in international markets and programmatic advertising.
  • Emphasis on technological advancements and AI agents to enhance product offerings and user engagement.

4. Challenges and Points of Concern

• Declining Metrics:

  • Year-over-year decline in net income and non-GAAP net income in Q4.
  • Smart Devices segment faced significant revenue decline, indicating potential challenges in consumer demand.

• Competitive Pressures:

  • The need to maintain profitability while investing in innovation and customer acquisition could strain resources.
  • Risks associated with market competition in both learning services and advertising sectors.

5. Notable Q&A Insights

• Management expressed confidence in the growth of Youdao Lingshi and the overall Learning Services segment for 2026.
• Plans to enhance customer acquisition through organic traffic and AI-driven channels were discussed.
• The potential impact of AI agents was highlighted, particularly in advertising and learning applications, indicating a strategic pivot towards more intelligent, user-centric solutions.
• Management emphasized a balanced approach to cash flow management, prioritizing operating cash flow while being open to strategic investments.

In summary, Youdao demonstrated solid revenue growth in Q4 2025 and achieved significant milestones in profitability and cash flow. However, challenges remain, particularly in the Smart Devices segment and overall net income performance. The company's strategic focus on AI-driven innovations positions it well for future growth, but competitive pressures and market dynamics will require careful navigation.