Youdao Q2 2026 Earnings Call Summary

1Key Financial Results and Metrics

Net Revenues: RMB 1.5 billion (USD 216.2 million), up 3.5% year-over-year.

Operating Profit: RMB 111.5 million, nearly fourfold increase year-over-year; eighth consecutive quarter of profitability.

Net Income: RMB 73.8 million (USD 10.9 million), compared to a net loss of RMB 17.8 million in Q2 2025.

Net Operating Cash Flow: RMB 334.2 million, up 80.7% year-over-year.

Gross Margins:

Learning Services: 65.5% (up from 59.8% YoY).

Online Marketing Services: 28.7% (up from 25.8% YoY).

Smart Devices: 32.8% (down from 41.5% YoY).

Retention Rate: Over 75% for Youdao Lingshi.

2Strategic Updates and Business Highlights

AI Technology: Continued integration of AI, particularly with the launch of Confucius 4, enhancing capabilities in translation, voice, and math learning.

Learning Services: Revenues increased by 20.9% to RMB 795.6 million, driven by strong performance in AI-powered tutoring services.

Smart Devices: Despite a 31.5% revenue decline to RMB 86.8 million, the Youdao Dictionary Pen maintained a leading sales position during the 618 Shopping Festival.

Marketing Services: Revenues decreased by 7.7% to RMB 584.4 million, reflecting a strategic shift towards higher-margin opportunities.

3Forward Guidance and Outlook

Continued Focus on AI: Plans to expand AI capabilities in voice and math learning, with new product launches expected in September.

Online Marketing Services: Anticipated gross margin improvements and continued focus on profitable growth over rapid expansion.

Smart Devices: Expected recovery in gross margin to over 40% in the second half of the year, driven by product launches and engineering improvements.

4Bad News, Challenges, or Points of Concern

Declining Revenue in Smart Devices: Significant year-over-year revenue drop due to reduced demand and rising costs in the consumer electronics sector.

Online Marketing Revenue Decline: A strategic focus on higher-quality engagements led to a decrease in revenue, indicating potential short-term headwinds.

Cost Pressures: The smart devices segment faces ongoing cost pressures from rising memory costs, impacting profitability.

5Notable Q&A Insights

AI Integration: Management emphasized the core strengths of their AI model in voice and math learning, with plans for further product launches leveraging these capabilities.

Lingshi's AI Features: The AI Essay Grading feature has gained user recognition, with plans for further enhancements to improve learning efficiency and user engagement.

Outlook for Marketing Services: Management expressed confidence in improving profitability and expanding their advertiser base, particularly in high-growth sectors like AI applications. Overall, Youdao's Q2 2026 results reflect a solid performance driven by AI advancements, despite challenges in the smart devices segment and online marketing revenues. The company remains focused on leveraging its AI capabilities for future growth.