Youdao, Inc. (DAO) Q4 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call highlights strong financial performance with significant revenue growth across multiple segments, despite a decline in smart devices. The company shows optimism for 2026, focusing on AI-driven innovations and strategic partnerships, which are expected to sustain growth. The Q&A session reinforced this outlook without raising significant concerns. Despite some margin declines, the overall sentiment is positive due to strong revenue growth, strategic focus on AI, and confidence in achieving financial targets, likely leading to a positive stock price reaction.

Key Financial Performance

Net Revenues (Q4 2025) RMB 1.6 billion, a 16.8% year-over-year increase. This growth was primarily driven by the Learning Services segment returning to a growth trajectory and the sustained strong performance of online marketing services.

Net Cash Flow from Operating Activities (Q4 2025) RMB 184.2 million, up 16.4% year-over-year. This reflects improved operating efficiency and competitiveness.

Operating Profit (Q4 2025) RMB 60.2 million, marking a 113% quarter-over-quarter increase but a 28.5% year-over-year decrease. The decline year-over-year was not elaborated upon.

Total Net Revenues (Full Year 2025) RMB 5.9 billion, a 5% year-over-year increase. This growth reflects positive momentum across the board.

Operating Profit (Full Year 2025) RMB 221.3 million, up 48.7% year-over-year. This growth reflects improved competitiveness and operating efficiency.

Net Cash Flow from Operating Activities (Full Year 2025) RMB 55.2 million, compared to a net cash outflow of RMB 67.9 million in 2024. This milestone reflects continued improvements in competitiveness and operating efficiency.

Learning Services Revenue (Q4 2025) RMB 727.2 million, a 17.7% year-over-year increase. This was driven by strong sales performance of AI-driven subscription services.

Digital Content Services Revenue (Q4 2025) RMB 436.1 million, up 12.2% year-over-year. This reflects growth in digital content offerings.

Youdao Lingshi Revenue (Q4 2025) Revenue surged over 40% year-over-year, with retention rates exceeding 75%, an improvement of approximately 5 percentage points. This reflects progress in scale and user satisfaction.

Programming Course Gross Billings (Q4 2025) Increased by 50% year-over-year, supported by retention rates above 75%. This reflects strong product upgrades and student achievements.

AI-driven Subscription Services Sales (Q4 2025) Exceeded RMB 100 million, representing an over 80% year-over-year increase. This growth reflects expansion of the product portfolio and sustained demand for AI-powered apps.

Online Marketing Services Revenue (Q4 2025) RMB 660.9 million, a 37.2% year-over-year increase. Growth was driven by increased demand from the NetEase Group and overseas markets, supported by investments in AI technology.

Smart Devices Revenue (Q4 2025) RMB 176.5 million, down 26.6% year-over-year. This decline was due to reduced demand for smart learning devices.

Gross Margin for Learning Services (Q4 2025) 62.5%, compared to 60% in Q4 2024. This reflects improved efficiency in the segment.

Gross Margin for Smart Devices (Q4 2025) 38.1%, compared to 43.9% in Q4 2024. This decline reflects challenges in the segment.

Gross Margin for Online Marketing Services (Q4 2025) 27.8%, compared to 34.2% in Q4 2024. This decline reflects strategic choices to prioritize client acquisition and technological upgrades.

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Operating Highlights

AI Essay Grading Tool: Youdao plans to launch an English AI Essay grading tool powered by its proprietary large language model, Confucius, to help students improve writing proficiency.

Programming Course: Gross billings increased by 50% year-over-year in Q4, supported by retention rates above 75%. Students achieved top results in national programming competitions.

AI-driven Subscription Services: Sales exceeded RMB 100 million in Q4, an over 80% year-over-year increase. Full-year sales approached RMB 400 million, growing over 50% annually.

Scholar AI: Launched as an AI-powered plagiarism detection and writing refinement application. Q4 sales doubled quarter-over-quarter.

AI Simultaneous Interpretation: Achieved over 100% year-over-year sales growth in Q4, integrated into Youdao Dictionary and Desktop Translation.

Online Marketing Services: Q4 net revenues reached RMB 660.9 million, up 37.2% year-over-year. Growth driven by demand from NetEase Group, overseas markets, and AI technology investments.

International Expansion: Executed campaigns in over 50 countries in 2025. Overseas KOL revenues increased by over 50% year-over-year in Q4.

Net Revenues: Q4 net revenues reached RMB 1.6 billion, a 16.8% year-over-year increase. Full-year revenues grew by 5% to RMB 5.9 billion.

Operating Profit: Q4 operating profit was RMB 60.2 million, marking the sixth consecutive profitable quarter. Full-year operating profit grew by 48.7% year-over-year to RMB 221.3 million.

Cash Flow: 2025 marked the first year of full-year net cash inflow from operating activities, totaling RMB 55.2 million, compared to a net cash outflow in 2024.

AI-native Strategy: Focused on advancing learning services and advertising businesses through high-performance vertical large language models and AI-driven innovations.

Technological Upgrades: Launched second-generation AI Ad Placement Optimizer, improving advertising efficiency and profitability.

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Risk or Challenges

Decline in Smart Devices Revenue: Net revenue from smart devices decreased by 26.6% year-over-year in Q4 2025 and by 18.2% for the full year, indicating reduced demand for smart learning devices.

Gross Margin Decline in Smart Devices: Gross margin for smart devices dropped from 43.9% in Q4 2024 to 38.1% in Q4 2025, reflecting challenges in maintaining profitability in this segment.

Increased Operating Expenses: Total operating expenses rose to RMB 645.2 million in Q4 2025 from RMB 556.6 million in Q4 2024, driven by higher sales, marketing, and R&D costs, which could pressure margins.

Decline in Net Income: Net income attributable to ordinary shareholders decreased from RMB 83 million in Q4 2024 to RMB 48.2 million in Q4 2025, reflecting reduced profitability.

Lower Operating Income Margin: Operating income margin declined from 6.3% in Q4 2024 to 3.8% in Q4 2025, indicating reduced operational efficiency.

Dependence on AI Investments: The company’s growth in online marketing services and learning services is heavily reliant on AI technology investments, which may pose risks if technological advancements or adoption rates slow.

Deferred Revenue Decline: Contract liabilities, mainly deferred revenue from learning services, decreased from RMB 961 million in 2024 to RMB 847.7 million in 2025, potentially signaling slower future revenue growth.

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Guidance & Outlook

Future AI Product Development: The company plans to introduce an English AI Essay grading tool powered by its proprietary large language model, Confucius, aligned with rigorous examination standards. This tool aims to enhance students' writing proficiency and quality.

AI-driven Subscription Services Growth: The company expects continued growth in AI-driven subscription services, with total sales for 2025 reaching a record high of RMB 400 million, reflecting annual growth exceeding 50%. This growth is attributed to the expansion of the product portfolio and sustained demand for high-quality AI-powered apps.

Expansion into New Market Segments: The company is expanding into new market segments through innovative applications such as Scholar AI, an AI-powered plagiarism detection and writing refinement application. Sales of Scholar AI doubled quarter-over-quarter in Q4 2025. A partnership with Turnitin is expected to further accelerate adoption.

Enhancement of Core Applications: The company continues to enhance its core applications, such as the AI simultaneous interpretation feature within Youdao Dictionary and Youdao Desktop Translation, which achieved over 100% year-over-year sales growth in Q4 2025.

Online Marketing Services Growth: The company anticipates sustained growth in online marketing services, driven by increased demand from NetEase Group and overseas markets, supported by investments in AI technology. Revenue growth of over 50% was achieved in Q4 2025 due to positioning as a preferred marketing partner in the AI app trend.

Global Digital Marketing Expansion: The company plans to capitalize on its strong international performance, with overseas KOL revenues increasing by more than 50% year-over-year in Q4 2025. Campaigns were executed in over 50 countries, and recognition was received from TikTok for Business.

AI Ad Placement Optimizer: The launch of the second-generation AI Ad Placement Optimizer is expected to improve advertising efficiency and profitability, contributing to margin expansion in the online marketing segment.

AI-native Strategy Commitment: The company remains committed to its AI-native strategy, focusing on advancing learning services and advertising businesses. Efforts include developing high-performance vertical large language models tailored to user needs and capturing emerging opportunities such as AI Agents.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:Can management share your thoughts on 2026 outlook and across different business lines?

A:The CEO outlined the 2026 outlook, emphasizing sustainable growth through innovative and competitive products. Key areas include online marketing services, learning services, and smart devices. Online marketing revenue grew by 29% in 2025, and the company plans to leverage AI capabilities like the AI Ad Placement Optimizer and iMagic Box to improve targeting and conversion efficiency. Learning services are expected to achieve double-digit growth, driven by AI-driven subscription services and new products like Youdao Anydub. Smart devices will focus on dictionary and tutoring pens to address STEM learning needs.

Q:What’s the plan and outlook for Youdao Lingshi business in 2026?

A:The Vice President of Strategies & Capital Markets highlighted confidence in Youdao Lingshi's growth, driven by AI-powered features and a retention rate over 75%. The strategy includes product refinement and efficient customer acquisition, leveraging AI for personalized learning paths and addressing critical needs like college admissions. The company will also optimize organic traffic and explore AI-driven franchise customer acquisition channels.

Q:How does the management think about the outlook in 2026?

A:The President discussed plans to drive high-quality growth in 2026 through international KOL business and overseas programmatic advertising. The company aims to expand its global traffic ecosystem, which includes over 30 million influencers and 1,000 top-tier exclusive contracts. They also plan to leverage proprietary vertical ad models for precise traffic distribution and higher ROI.

Q:Is the goal for 2026 to achieve a net inflow for the total cash flow?

A:The VP of Finance stated that while achieving positive total cash flow is a goal, the focus remains on enhancing operating cash flow. The company aims for faster growth in operating profit, driven by AI integration, strong momentum in core business units, and refined management. Strategic investments will be balanced with cost discipline, and cash reserves may be used for wealth management or loan repayments.

Q:In what areas of Youdao business will you plan to deploy the AI agent and how significant will the potential impact be?

A:The CEO explained that AI agents will be deployed in advertising and learning applications. In advertising, AI agents will optimize ad placements by leveraging data and experience. In learning, applications like AI simultaneous interpretation and subscription-based services will enhance user engagement. The company also launched Youdao Lobster AI, a 24/7 AI agent for task management, signaling significant growth potential in AI-driven services.

Q:Review of Unclear Management Responses

A:No questions were identified where management avoided giving a direct answer or lacked clarity in their responses.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

DAO Transcript

Youdao, Inc. (DAO) Q4 2025 Earnings Call Transcript

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Youdao, Inc. (DAO) Q3 2025 Earnings Call Transcript

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The earnings call shows mixed signals: strong growth in online marketing and programming courses, but declining gross profit and operating income margins. The Q&A section reveals management's confidence in future profitability and cash flow targets but lacks specific timelines and strategies. The strategic focus on AI and upcoming product launches are potential positives, but current financial health concerns and lack of detailed guidance balance the outlook. Without market cap data, the stock's reaction could be more volatile, but overall, the sentiment remains neutral.

Youdao, Inc. (DAO) Q2 2025 Earnings Call Transcript

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The earnings call indicates a positive outlook with strong revenue growth in digital content and online marketing, a significant reduction in net losses, and a positive turnaround in non-GAAP net income. The Q&A session reinforced confidence in future growth, particularly in AI and gaming, despite some declines in smart devices. The company's commitment to achieving cash flow breakeven and potential new buyback plans also contribute positively. Given these factors, the overall sentiment is positive, with a potential stock price increase of 2% to 8%.

Youdao, Inc. (NYSE:DAO) Q1 2025 Earnings Call Transcript

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The earnings call presents mixed signals: strong net income growth and operating income improvements contrast with declining revenues and gross margins. The Q&A section reveals management's optimism about future growth, but lacks concrete timelines. The ongoing restructuring and strategic focus on AI-driven solutions provide potential upside, yet cash outflows and competitive pressures pose risks. Given the lack of market cap data and mixed financials, a neutral stock price movement is predicted.

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