Youdao, Inc. Q4 FY2025 earnings call

• Fourth quarter net revenues and cash flow showed strong improvement. Net revenues reached RMB 1.6 billion, up 16.8% y-o-y. Net cash flow from operating activities was RMB 184.2 million, up 16.4% y-o-y. Operating profit for fourth quarter was RMB 60.2 million, sixth consecutive quarter of operating profitability. - Full year 2025 total net revenues RMB 5.9 billion, up 5% y-o-y. Operating profit RMB 221.3 million, up 48.7% y-o-y. First full year net cash inflow from operating activities at RMB 55.2 million. - Learning Services segment: Fourth quarter net revenues RMB 727.2 million, up 17.7% y-o-y. Youdao Lingshi performed well, revenue up over 40% y-o-y, retention rates >75%. Launched English AI Essay grading tool. Programming course gross billings up 50% y-o-y. AI-driven subscription services in fourth quarter sales over RMB 100 million, up over 80% y-o-y, full year ~RMB 400 million. - Online Marketing Services segment: Fourth quarter net revenues RMB 660.9 million, up 37.2% y-o-y. Driven by NetEase Group and overseas markets. Gaming advertising revenue up 50% y-o-y. Overseas KOL revenues up over 50% y-o-y. - Smart Devices segment: Fourth quarter net revenues RMB 176.5 million, down 26.6% y-o-y. Youdao Dictionary Pen was top-selling on JD.com and Tmall for 6th consecutive year. Youdao Tutoring Pen enhanced with features, generated over 600,000 videos, active users accessed tutoring features over 10 times per day in fourth quarter.

In the fourth quarter, net revenues reached RMB 1.6 billion, a 16.8% year-over-year increase. Learning Services segment: Fourth quarter net revenues were RMB 727.2 million, a 17.7% year-over-year increase. Digital content services within the segment contributed RMB 436.1 million, up 12.2% year-over-year. Youdao Lingshi revenue surged over 40% year-over-year. Online Marketing Services segment: Fourth quarter net revenues were RMB 660.9 million, a 37.2% year-over-year increase. Smart Devices segment: Fourth quarter net revenues were RMB 176.5 million, down 26.6% year-over-year. For the full year 2025, total net revenues were RMB 5.9 billion, up 5% year-over-year. Learning Services: Net revenues were RMB 2.6 billion, down 4.2% year-over-year. Online Marketing Services: Net revenues were RMB 2.5 billion, up 28.5% year-over-year. Smart Devices: Net revenues were RMB 739.6 million, down 18.2% year-over-year.

• 2026 overall goal: Continue serving users with innovative products, grow business sustainably. For Online Marketing Services: Plan to focus on key growth areas, leverage advanced AI capabilities, release AI Ad Placement Optimizer version 2 and iMagic Box, aim to deliver higher ROI for advertisers. For Learning Services: Expect segment to return to around double-digit y-o-y growth in 2026, with Youdao Lingshi as centerpiece leveraging language model Confucius for innovation. For Smart Devices: Prioritize improving overall health of the business, focus on core products like dictionary Pen and tutoring Pen, deepen presence in STEM learning scenarios. - Overseas Marketing: Double down on international KOL business, capitalize on Chinese enterprises going global, have over 30 million influencers and bidders globally, help over 1,000 companies go global. Actively explore overseas programmatic advertising, leverage proprietary vertical model to achieve more precise traffic distribution and higher ROI.

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

A: Our overall goal is to continue serving users with innovative products while growing sustainably. For Online Marketing Services, plan to focus on key growth areas using advanced AI capabilities. For Learning Services, expect segment to return to double-digit growth in 2026. For Smart Devices, prioritize improving business health.

Q: What's the plan and outlook for 2026 regarding Youdao Lingshi?

A: In 2026, strategy is product refinement and efficient customer acquisition. Leverage AI to expand and polish features, address core pain points, and explore more efficient customer acquisition paths by activating organic traffic and exploring new channels.

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

A: In 2026, aim to drive high-quality growth by deepening core resources and pushing technological boundaries. Double down on international KOL business and explore overseas programmatic advertising to take overseas advertising to next level.

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

A: In advertising, apply agents in ad placement optimizer to achieve better results. In learning and productivity, like AI simultaneous interpretation app. Also launched Youdao Lobster AI, an AI agent product that can help users achieve tasks.