Youdao Reports Second Quarter 2025 Unaudited Financial Results

, /PRNewswire/ -- Youdao, Inc. ("Youdao" or the "Company") (NYSE: DAO), an AI-powered solutions provider specializing in artificial intelligence applications for the learning and advertising verticals, today announced its unaudited financial results for the second quarter ended June 30, 2025. Second Quarter 2025 Financial Highlights Total net revenues were RMB1.4 billion (US$197.9 million), representing a 7.2% increase from the same period in 2024.- Net revenues from learning services were RMB657.8 million (US$91.8 million), representing a 2.2% increase from the same period in 2024.- Net revenues from smart devices were RMB126.8 million (US$17.7 million), representing a 23.9% decrease from the same period in 2024. - Net revenues from online marketing services were RMB632.9 million (US$88.3 million), representing a 23.8% increase from the same period in 2024. Gross margin was 43.0%, compared with 48.2% for the same period in 2024. Income from operations was RMB28.8 million (US$4.0 million), compared with loss from operations of RMB72.6 million for the same period in 2024. Basic and diluted net loss per American depositary share ("ADS") attributable to ordinary shareholders were RMB0.15 (US$0.02), compared with RMB0.85 for the same period of 2024. Non-GAAP basic and diluted net income per ADS attributable to ordinary shareholders were RMB0.11 (US$0.02) and RMB0.10 (US$0.01), respectively, compared with non-GAAP basic and diluted net loss per ADS attributable to ordinary shareholders of RMB0.82 for the same period of 2024. "Strong execution of our AI Native Strategy drove robust financial results in the second quarter, highlighted by our first-ever profitable second quarter. We released our latest Large Language Model (LLM) Confucius 3 in the second quarter, and open-sourced our Confucius 3-Math. Product wise, we launched the AI Essay Grading function in Youdao Lingshi, leading to a historical high of the retention rate. We also released AI Ad Placement Optimizer enabling end-to-end AI decision-making for our online marketing services. In addition, we deepened the exploration of new AI application scenarios, driving total sales of AI-driven subscription services to approximately 30% year-over-year growth," said Dr. Feng Zhou, Chief Executive Officer and Director of Youdao. "Looking ahead, we will continue advancing our AI Native Strategy through scenario-driven optimization of our LLMs and accelerated technological innovation and implementation across learning and advertising, aiming to further boost learners' productivity and elevate advertising return on investment. We remain committed to sustainably creating customer value while strengthening our financial metrics," Dr. Zhou concluded. Second Quarter 2025 Financial Results Net Revenues Net revenues for the second quarter of 2025 were RMB1.4 billion (US$197.9 million), representing a 7.2% increase from RMB1.3 billion for the same period of 2024. Net revenues from learning services were RMB657.8 million (US$91.8 million) for the second quarter of 2025, representing a 2.2% increase from RMB643.8 million for the same period of 2024. Net revenues from smart devices were RMB126.8 million (US$17.7 million) for the second quarter of 2025, representing a 23.9% decrease from RMB166.7 million for the same period of 2024, primarily due to the declined demands of consumer electronics in the second quarter of 2025. Net revenues from online marketing services were RMB632.9 million (US$88.3 million) for the second quarter of 2025, representing a 23.8% increase from RMB511.2 million for the same period of 2024. The year-over-year increase was mainly attributable to the increased demands from gaming industry and overseas markets, which was driven by our continued investments in AI technology. Gross Profit and Gross Margin Gross profit for the second quarter of 2025 was RMB609.4 million (US$85.1 million), representing a 4.3% decrease from RMB636.8 million for the same period of 2024. Gross margin was 43.0% for the second quarter of 2025, compared with 48.2% for the same period of 2024. Gross margin for learning services was 59.8% for the second quarter of 2025, kept flat the same period of 2024. Gross margin for smart devices increased to 41.5% for the second quarter of 2025 from 30.3% for the same period of 2024. The improvement was mainly attributable to the higher gross margin arising from the newly launched Youdao Dictionary Pen since the second half of 2024. Gross margin for online marketing services was 25.8% for the second quarter of 2025, compared with 39.1% for the same period of 2024. The decrease was mainly attributable to our strategic expansion of our client base for advertising services. As the collaboration with new clients remains in its nascent stage, the gross margin for these clients holds potential for future improvement. Operating Expenses Total operating expenses for the second quarter of 2025 were RMB580.6 million (US$81.0 million), compared with RMB709.3 million for the same period of last year. Sales and marketing expenses for the second quarter of 2025 were RMB401.8 million (US$56.1 million), representing a decrease of 22.1% from RMB515.7 million for the same period of 2024. This decrease was attributable to the reduced marketing expenditures in learning services in the second quarter of 2025. Research and development expenses for the second quarter of 2025 were RMB128.3 million (US$17.9 million), representing a decrease of 16.1% from RMB153.0 million for the same period of 2024. The decrease was primarily due to the decreased headcount for research and development employees, leading to payroll savings in the second quarter of 2025. General and administrative expenses for the second quarter of 2025 were RMB50.4 million (US$7.0 million), representing an increase of 24.1% from RMB40.6 million for the same period of 2024. The increase was mainly attributable to an increase in employee related expenses and expected credit losses on our accounts receivables in the second quarter of 2025. Income/(Loss) from Operations As a result of the foregoing, income from operations for the second quarter of 2025 was RMB28.8 million (US$4.0 million), compared with loss from operations of RMB72.6 million for the same period in 2024. The margin of income from operations was 2.0%, compared with margin of loss from operations of 5.5% for the same period of last year. Others, Net Others, net for the second quarter of 2025 were RMB29.1 million (US$4.1 million) net loss, compared with RMB0.9 million net loss for the same period of 2024. Others, net for the second quarter of 2025 mainly included RMB25.7 million (US$3.6 million) impairment loss arising from certain long-term investments. Net (Loss)/Income Attributable to Youdao's Ordinary Shareholders Net loss attributable to Youdao's ordinary shareholders for the second quarter of 2025 was RMB17.8 million (US$2.5 million), compared with RMB99.5 million for the same period of last year. Non-GAAP net income attributable to Youdao's ordinary shareholders for the second quarter of 2025 was RMB12.5 million (US$1.7 million), compared with non-GAAP net loss attributable to Youdao's ordinary shareholders of RMB96.0 million for the same period of last year. Basic and diluted net loss per ADS attributable to ordinary shareholders for the second quarter of 2025 was RMB0.15 (US$0.02), compared with RMB0.85 for the same period of 2024. Non-GAAP basic and diluted net income per ADS attributable to ordinary shareholders was RMB0.11 (US$0.02) and RMB0.10 (US$0.01), respectively, compared with non-GAAP basic and diluted net loss per ADS attributable to ordinary shareholders of RMB0.82 for the same period of 2024. Other Information As of June 30, 2025, Youdao's cash, cash equivalents, current and non-current restricted cash, and short-term investments totaled RMB617.0 million (US$86.1 million), compared with RMB662.6 million as of December 31, 2024. For the second quarter of 2025, net cash provided by operating activities was RMB185.0 million (US$25.8 million). Youdao's ability to continue as a going concern is dependent on management's ability to implement an effective business plan amid a changing regulatory environment, generate operating cash flows, and secure external financing for future development. To support Youdao's future business, NetEase Group has agreed to provide financial support for ongoing operations in the next thirty-six months starting from May 2024. As of June 30, 2025, Youdao has received various forms of financial support from the NetEase Group, including, among others, RMB878.0 million in short-term loan, and US$130.7 million in long-term loans maturing on March 31, 2027 drawn from the US$300.0 million revolving loan facility. As of June 30, 2025, the Company's contract liabilities, which mainly consisted of deferred revenues generated from Youdao's learning services, were RMB856.7 million (US$119.6 million), compared with RMB961.0 million as of December 31, 2024. Share Repurchase Program On November 17, 2022, the Company announced that its board of directors had authorized the Company to adopt a share repurchase program in accordance with applicable laws and regulations for up to US$20 million of its Class A ordinary shares (including in the form of ADSs) during a period of up to 36 months. This amount was subsequently increased to US$40.0 million in August 2023. As of June 30, 2025, the Company had repurchased a total of approximately 7.5 million ADSs for a total consideration of approximately US$33.8 million in the open market under the share repurchase program. Conference Call Youdao's management team will host a teleconference call with simultaneous webcast at 6:00 a.m. Eastern Time on Thursday, August 14, 2025 (Beijing/Hong Kong Time: 6:00 p.m., Thursday, August 14, 2025). Youdao's management will be on the call to discuss the financial results and answer questions. Dial-in details for the earnings conference call are as follows: United States (toll free): +1-888-346-8982 International: +1-412-902-4272 Mainland China (toll free): 400-120-1203 Hong Kong (toll free): 800-905-945 Hong Kong: +852-3018-4992 Conference ID: 7085699 A live and archived webcast of the conference call will be available on the Company's investor relations website at http://ir.youdao.com. A replay of the conference call will be accessible by phone one hour after the conclusion of the live call at the following numbers, until August 21, 2025: United States: +1-877-344-7529 International: +1-412-317-0088 Replay Access Code: 7085699 About Youdao, Inc. Youdao, Inc. (NYSE: DAO) is strategically positioned as an AI-powered solutions provider specializing in artificial intelligence applications for the learning and advertising verticals. Youdao now mainly offers learning services, online marketing services and smart devices – all powered by advanced technologies. Youdao was founded in 2006 as part of NetEase, Inc. (NASDAQ: NTES; HKEX: 9999), a leading internet technology company in China. For more information, please visit: http://ir.youdao.com. Non-GAAP Measures Youdao considers and uses non-GAAP financial measures, such as non-GAAP net income/(loss) attributable to the Company's ordinary shareholders and non-GAAP basic and diluted net income/(loss) per ADS, as supplemental metrics in reviewing and assessing its operating performance and formulating its business plan. The presentation of non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Youdao defines non-GAAP net income/(loss) attributable to the Company's ordinary shareholders as net income/(loss) attributable to the Company's ordinary shareholders excluding share-based compensation expenses, impairment of long-term investments, gain from fair value change of long-term investment and adjustment for GAAP to non-GAAP reconciling item for the income/(loss) attributable to noncontrolling interests. Non-GAAP net income/(loss) attributable to the Company's ordinary shareholders enables Youdao's management to assess its operating results without considering the impact of these items, which are non-cash charges in nature. Youdao believes that these non-GAAP financial measures provide useful information to investors in understanding and evaluating the Company's current operating performance and prospects in the same manner as management does, if they so choose. Non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. Non-GAAP financial measures have limitations as analytical tools, which possibly do not reflect all items of expense that affect our operations. In addition, the non-GAAP financial measures Youdao uses may differ from the non-GAAP measures uses by other companies, including peer companies, and therefore their comparability may be limited. For more information on these non-GAAP financial measures, please see the table captioned "Unaudited Reconciliation of GAAP and Non-GAAP Results" set forth at the end of this release. The accompanying table has more details on the reconciliation between our GAAP financial measures that are mostly directly comparable to non-GAAP financial measures. Youdao encourages you to review its financial information in its entirety and not rely on a single financial measure. Exchange Rate Information This announcement contains translations of certain RMB amounts into U.S. dollars ("US$") at specified rates solely for the convenience of the reader. Unless otherwise stated, all translations from RMB to US$ were made at the rate of RMB7.1636 to US$1.00, the exchange rate on June 30, 2025 set forth in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or US$ amounts referred could be converted into US$ or RMB, as the case may be, at any particular rate or at all. Safe Harbor Statement This press release contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties, and a number of factors could cause actual results to differ materially from those contained in any forward-looking statement. In some cases, forward-looking statements can be identified by words or phrases such as "may," "will," "expect," "anticipate," "target," "aim," "estimate," "intend," "plan," "believe," "potential," "continue," "is/are likely to" or other similar expressions. The Company may also make written or oral forward-looking statements in its reports filed with, or furnished to, the U.S. Securities and Exchange Commission, in its annual reports to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Further information regarding such risks, uncertainties or factors is included in the Company's filings with the SEC. All information provided in this press release is as of the date of this press release, and the Company does not undertake any duty to update such information, except as required under applicable law. For investor and media inquiries, please contact: In China:Jeffrey WangYoudao, Inc.Tel: +86-10-8255-8163 ext. 89980E-mail: [email protected] Piacente Financial CommunicationsHelen WuTel: +86-10-6508-0677E-mail: [email protected] In the United States:Piacente Financial Communications Brandi PiacenteTel: +1-212-481-2050E-mail: [email protected] YOUDAO, INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (RMB and USD in thousands) As of December 31, As of June 30, As of June 30, 2024 2025 2025 RMB RMB USD (1) Assets Current assets: Cash and cash equivalents 592,721 536,228 74,855 Restricted cash 3,567 2,924 408 Short-term investments 63,064 74,695 10,427 Accounts receivable, net 418,644 329,523 46,000 Inventories 174,741 166,288 23,213 Amounts due from NetEase Group 79,700 322,428 45,009 Prepayment and other current assets 154,331 141,197 19,710 Total current assets 1,486,768 1,573,283 219,622 Non-current assets: Property, equipment and software, net 46,725 45,381 6,335 Operating lease right-of-use assets, net 68,494 49,596 6,923 Long-term investments 72,380 31,785 4,437 Goodwill 109,944 109,944 15,348 Other assets, net 30,084 31,087 4,339 Total non-current assets 327,627 267,793 37,382 Total assets 1,814,395 1,841,076 257,004 Liabilities and Shareholders' Deficit Current liabilities: Accounts payables 145,148 99,659 13,912 Payroll payable 264,520 209,735 29,278 Amounts due to NetEase Group 21,997 46,825 6,537 Contract liabilities 961,024 856,684 119,588 Taxes payable 37,603 51,823 7,234 Accrued liabilities and other payables 638,660 738,837 103,138 Short-term loan from NetEase Group 878,000 878,000 122,564 Total current liabilities 2,946,952 2,881,563 402,251 Non-current liabilities: Long-term lease liabilities 25,566 14,685 2,050 Long-term loans from NetEase Group 913,000 935,999 130,660 Other non-current liabilities 18,189 19,116 2,669 Total non-current liabilities 956,755 969,800 135,379 Total liabilities 3,903,707 3,851,363 537,630 Shareholders' deficit: Youdao's shareholders' deficit (2,139,958) (2,059,016) (287,428) Noncontrolling interests 50,646 48,729 6,802 Total shareholders' deficit (2,089,312) (2,010,287) (280,626) Total liabilities and shareholders' deficit 1,814,395 1,841,076 257,004 Note 1: The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate of USD1.00=RMB7.1636 on the last trading day of June (June 30, 2025) as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. YOUDAO, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (RMB and USD in thousands, except share and per ADS data) Three Months Ended Six Months Ended June 30, March 31, June 30, June 30, June 30, June 30, 2024 2025 2025 2025 2024 2025 RMB RMB RMB USD (1) RMB RMB Net revenues: Learning services 643,762 602,414 657,838 91,831 1,361,758 1,260,252 Smart devices 166,722 190,498 126,821 17,704 347,920 317,319 Online marketing services 511,237 505,350 632,882 88,346 1,003,902 1,138,232 Total net revenues 1,321,721 1,298,262 1,417,541 197,881 2,713,580 2,715,803 Cost of revenues (2) (684,942) (684,035) (808,181) (112,817) (1,395,298) (1,492,216) Gross profit 636,779 614,227 609,360 85,064 1,318,282 1,223,587 Operating expenses: Sales and marketing expenses (2) (515,711) (357,641) (401,826) (56,093) (971,151) (759,467) Research and development expenses (2) (152,987) (115,474) (128,321) (17,913) (299,710) (243,795) General and administrative expenses (2) (40,634) (37,071) (50,414) (7,038) (90,050) (87,485) Total operating expenses (709,332) (510,186) (580,561) (81,044) (1,360,911) (1,090,747) (Loss)/Income from operations (72,553) 104,041 28,799 4,020 (42,629) 132,840 Interest income 917 517 628 88 1,892 1,145 Interest expense (20,816) (16,104) (16,566) (2,313) (41,150) (32,670) Others, net (909) (960) (29,118) (4,065) 1,983 (30,078) (Loss)/Income before tax (93,361) 87,494 (16,257) (2,270) (79,904) 71,237 Income tax expenses (7,053) (9,895) (4,279) (597) (6,025) (14,174) Net (loss)/income (100,414) 77,599 (20,536) (2,867) (85,929) 57,063 Net loss/(income) attributable to noncontrolling interests 939 (856) 2,773 387 (1,114) 1,917 Net (loss)/income attributable to ordinary shareholders of the Company (99,475) 76,743 (17,763) (2,480) (87,043) 58,980 Basic net (loss)/income per ADS (0.85) 0.65 (0.15) (0.02) (0.74) 0.50 Diluted net (loss)/income per ADS (0.85) 0.64 (0.15) (0.02) (0.74) 0.49 Shares used in computing basic net (loss)/income per ADS 117,173,272 117,594,976 117,868,295 117,868,295 117,745,253 117,732,413 Shares used in computing diluted net (loss)/income per ADS 117,173,272 119,504,097 117,868,295 117,868,295 117,745,253 119,583,256 Note 1: The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate of USD1.00=RMB7.1636 on the last trading day of June (June 30, 2025) as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. Note 2: Share-based compensation in each category: Cost of revenues 727 612 152 21 1,505 764 Sales and marketing expenses 337 728 840 117 1,473 1,568 Research and development expenses 939 2,352 2,898 405 4,442 5,250 General and administrative expenses 1,506 1,538 2,695 376 3,985 4,233 YOUDAO, INC. UNAUDITED ADDITIONAL INFORMATION (RMB and USD in thousands) Three Months Ended Six Months Ended June 30, March 31, June 30, June 30, June 30, June 30, 2024 2025 2025 2025 2024 2025 RMB RMB RMB USD RMB RMB Net revenues Learning services 643,762 602,414 657,838 91,831 1,361,758 1,260,252 Smart devices 166,722 190,498 126,821 17,704 347,920 317,319 Online marketing services 511,237 505,350 632,882 88,346 1,003,902 1,138,232 Total net revenues 1,321,721 1,298,262 1,417,541 197,881 2,713,580 2,715,803 Cost of revenues Learning services 257,482 242,111 264,734 36,955 522,241 506,845 Smart devices 116,274 90,851 74,135 10,349 238,334 164,986 Online marketing services 311,186 351,073 469,312 65,513 634,723 820,385 Total cost of revenues 684,942 684,035 808,181 112,817 1,395,298 1,492,216 Gross margin Learning services 60.0 % 59.8 % 59.8 % 59.8 % 61.6 % 59.8 % Smart devices 30.3 % 52.3 % 41.5 % 41.5 % 31.5 % 48.0 % Online marketing services 39.1 % 30.5 % 25.8 % 25.8 % 36.8 % 27.9 % Total gross margin 48.2 % 47.3 % 43.0 % 43.0 % 48.6 % 45.1 % YOUDAO, INC. UNAUDITED RECONCILIATION OF GAAP AND NON-GAAP RESULTS (RMB and USD in thousands, except share and per ADS data) Three Months Ended Six Months Ended June 30, March 31, June 30, June 30, June 30, June 30, 2024 2025 2025 2025 2024 2025 RMB RMB RMB USD RMB RMB Net (loss)/income attributable to ordinary shareholders of the Company (99,475) 76,743 (17,763) (2,480) (87,043) 58,980 Add: share-based compensation 3,509 5,230 6,585 919 11,405 11,815 impairment of long-term investments - - 25,730 3,592 - 25,730 Less: gain from fair value change of long-term investment - - (1,765) (246) - (1,765) Less: GAAP to non-GAAP reconciling item for the loss/(income) attributable to noncontrolling interests - (297) (272) (38) - (569) Non-GAAP net (loss)/income attributable to ordinary shareholders of the Company (95,966) 81,676 12,515 1,747 (75,638) 94,191 Non-GAAP basic net (loss)/income per ADS (0.82) 0.69 0.11 0.02 (0.64) 0.80 Non-GAAP diluted net (loss)/income per ADS (0.82) 0.68 0.10 0.01 (0.64) 0.79 Shares used in computing non-GAAP basic net (loss)/income per ADS 117,173,272 117,594,976 117,868,295 117,868,295 117,745,253 117,732,413 Shares used in computing non-GAAP diluted net (loss)/income per ADS 117,173,272 119,504,097 119,660,859 119,660,859 117,745,253 119,583,256 SOURCE Youdao, Inc. 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Youdao Reports Second Quarter 2025 Unaudited Financial Results

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