#China #AI Solutions #Hangzhou #Youdao #financial report

Youdao's Third Quarter 2025 Financial Results

Overview

Youdao, Inc. (NYSE: DAO), an innovative AI-driven solutions provider focusing on the learning and advertising sectors, recently disclosed its unaudited financial results for the third quarter of 2025, concluding on September 30. The quarter revealed a diverging financial narrative, showcasing both growth and decline across various segments.

Financial Highlights

The total net revenues reached RMB 1,628.5 million (approximately USD 228.8 million), marking a modest 3.6% increase compared to the same period in 2024. The company experienced a drop in net revenues from learning services, down 16.2% to RMB 643.1 million (USD 90.3 million), as well as a significant decline in the smart devices sector, which fell 22.1%, tallying RMB 245.8 million (USD 34.5 million). In contrast, the online marketing services segment surged by an impressive 51.1%, generating RMB 739.7 million (USD 103.9 million).

Gross Profit and Margins

Gross profit for the quarter was RMB 687.9 million (USD 96.6 million), reflecting a 12.9% decrease from RMB 789.5 million in Q3 2024. The gross margin plunged to 42.2%, down from 50.2% from the previous year, primarily due to diminishing margins in online marketing services.

Unique Challenges in Learning Services

The decline in learning services revenue has been attributed to a strategic shift towards a more disciplined approach in customer acquisition focused on maximizing ROI. This strategy, while resulting in a decrease in short-term revenues, is perceived as strengthening the operational resilience of the company. In the smart devices sector, the dip stems from a reduced demand for such products.

Insights from Leadership

Dr. Feng Zhou, Chief Executive Officer of Youdao, emphasized that the company is reinforcing its AI-native strategy to bolster technological capabilities and create significant user value. He noted that Youdao's online marketing services growth was driven by strong demand from the NetEase group and international markets. Additionally, the newly launched Youdao Lingshi service saw over a 40% rise in gross billings year-over-year.

Operational Expenses and Performance

The total operating expenses in Q3 2025 amounted to RMB 659.6 million (USD 92.7 million), slightly lower than RMB 682.2 million a year prior. Sales and marketing expenses decreased due to a strategy to cut costs, while research and development expenditures rose as efforts to enhance product offerings intensified.

Income and Losses

Income from operations plummeted 73.7% to RMB 28.3 million (USD 4.0 million), with an associated operational margin of 1.7%, substantially lower than the 6.8% seen a year prior. Net income attributable to ordinary shareholders hovered near zero, in stark contrast to RMB 86.3 million in Q3 2024, with the non-GAAP net income being RMB 9.2 million (USD 1.3 million).

Cash Flow and Future Objectives

As of September 30, 2025, Youdao's liquidity position included cash and equivalents totaling RMB 557.7 million (USD 78.3 million), a decrease from RMB 662.6 million at the end of 2024. Notably, the company’s cash flow from operating activities showed a net outflow for the third quarter, presented at RMB 58.6 million (USD 8.2 million). Future business viability hinges on effective implementation of growth strategies amidst a fluctuating regulatory landscape, alongside securing financing for sustained operations.

Conclusion

Looking forward, Youdao remains optimistic about achieving its annual targets, aiming to generate stronger year-over-year growth in operational profitability and potentially reach cash-flow breakeven for the first time. As they continue refining their AI applications and expanding client bases, stakeholders are keenly watching the company's developments as it navigates its mixed performance landscape.