Youdao (DAO) AI Subscriptions Hit RMB 100M as Learning Margin Reaches 65.5%

Youdao, Inc. (DAO) told investors on its 2026-08-20 earnings call that AI-driven subscription products generated about RMB 100 million in sales during the second quarter, up more than 20% year over year. The company did not break out how much AI contributed to gross margin [1].

Youdao is a Chinese online education and technology company with three revenue lines: learning services, meaning courses and subscription products for primary and secondary students; online marketing, meaning advertising; and smart devices, mostly dictionary pens. Group revenue grew only 3.5% year over year in the second quarter. Learning services is both the largest line and the highest-margin one, at more than half of revenue [2].

Where AI sits in the workflow

AI has been built into specific tasks inside those businesses. Using its in-house Ziyue education model, the company grades English and Chinese essays, recommends practice questions, advises on college applications and provides simultaneous interpretation. These features are packaged into paid learning-services subscriptions, and grading volume more than doubled quarter over quarter in the second quarter. On the advertising side, AI is used for placement optimization and in the iMagicBox agent, which selects and adjusts campaigns for advertisers.

The revenue line has stopped growing

About RMB 100 million equals 6.7% of group revenue and 12.6% of learning services. That is large by peer standards, because comparable education companies mostly described AI features this quarter without giving revenue figures.

The line itself has stopped growing. It has sat at roughly RMB 100 million since the third quarter of 2025, and the year-over-year growth rate has fallen from more than 80% to more than 70% to more than 20%. The deceleration comes from a rising base rather than from higher sales [2]. Management attributed the 20.9% revenue growth in learning services first to the Youdao Lingshi youth business, not to AI subscriptions [2].

The cost line moved more

Second-quarter revenue grew 3.5% while gross profit grew 17.6% year over year. Learning services gross margin rose from 59.8% to 65.5%, and operating profit approached four times the year-earlier figure [3]. The CFO attributed the learning services margin improvement mainly to AI-driven teaching efficiency, saying grading and question recommendation raised teaching assistant output.

Splitting the disclosed segment data changes the size of the claim. Of roughly 4.8 percentage points of group gross margin improvement, about 2.2 points came from mix, as high-margin learning services rose to about 54% of revenue and low-margin smart devices revenue fell 31.5%. About 2.6 points came from improvement inside the segments, worth roughly half of the quarter's operating profit. Over the same period, selling and R&D expenses grew 4.3% combined, faster than revenue, so any efficiency gain has to sit in cost of revenue. There is no independent evidence of it in operating expenses [3].

What the numbers do and do not establish

The disclosure confirms that AI features have been sold as a subscription line with real scale and continuous reporting, and that this coincided with a genuine gross margin increase. It does not establish how much of that increase AI produced. Management attributed the margin improvement to AI efficiency and scale effects in the same sentence. Advertising gross margin rose 2.9 percentage points while that business shrank 7.7%, driven by deliberately cutting low-return placements, which is itself a form of selection.

Second-quarter financial statements are not yet in the database, so the quarterly figures above come from management commentary. Only the year-earlier base can be verified independently [2][3]. What can be checked later is whether the roughly RMB 100 million subscription line resumes growth, and whether within-segment margin improvement continues without cutting volume.

Application: Revenue and cost Stage: Scaled Value realized: Large Confidence: Medium

Sources

[1] Drillr · Youdao, Inc. (DAO) · 2026-08-20 · earnings call

"Within learning services, our AI-driven subscription products generated approximately RMB 100 million in sales during the second quarter, up more than 20% year-over-year."

[2] Drillr · Youdao, Inc. (DAO) · revenue trend verification

[3] Drillr · Youdao, Inc. (DAO) · profit and expense verification