Core Viewpoint - NetEase Youdao (NYSE: DAO) reported significant changes in its revenue structure, with online marketing services becoming the largest revenue source in Q3 2025, indicating a strategic shift in business focus [1][3]. Financial Performance - In Q3 2025, Youdao achieved a net revenue of 1.63 billion yuan, representing a year-on-year growth of 3.6% [1]. - The net income attributable to ordinary shareholders was 10,000 yuan, a drastic decline of 99% compared to 86.3 million yuan in the same period last year [1]. - Non-GAAP net income attributable to ordinary shareholders was 9.2 million yuan, down 89.7% from 88.7 million yuan year-on-year [1]. Revenue Breakdown - Online marketing services generated 740 million yuan in Q3 2025, marking a 51.1% increase compared to the same quarter in 2024, and accounted for 45.4% of total revenue [1]. - The company significantly reduced its investment in quality education services, which had previously contributed higher revenue and profit levels in Q3 of the prior year [1]. Strategic Adjustments - Youdao indicated that the reduction in the quality education business was a one-time impact, and the structural adjustments have now been completed [1]. - Increased investment was made in other business areas, such as Lingxi, during the third quarter [1].

Core Insights - Net profit attributable to ordinary shareholders of Youdao was RMB 100,000, a decline of over 99% compared to RMB 86.3 million in the same period last year [1] - Youdao reported a net revenue of RMB 1.63 billion for Q3 2025, a year-on-year increase of 3.6% [1] - Online marketing services became the largest revenue source in Q3 2025, generating RMB 740 million, a growth of 51.1% year-on-year, accounting for 45.4% of total revenue [1] Financial Performance - The net profit attributable to ordinary shareholders for Q3 2025 was RMB 100,000, down from RMB 86.3 million in Q3 2024, representing a 99% decline [1] - Non-GAAP net profit attributable to ordinary shareholders was RMB 9.2 million, a decrease of 89.7% from RMB 88.7 million in the same quarter last year [1] - Total net revenue for Q3 2025 reached RMB 1.63 billion, reflecting a 3.6% increase year-on-year [1] Business Strategy - Youdao significantly reduced the scale and market investment in its quality education business, which had contributed high revenue and profit levels in the previous year [1] - The company views the impact of this reduction as a one-time effect, with structural adjustments now completed [1] - Increased investment was made in other business areas, such as Lingxi, during Q3 [1]

Financial Data and Key Metrics Changes - In Q3 2025, net revenues reached RMB 1.6 billion, up 3.6% year-over-year, while operating profit was RMB 28.3 million, a decline of 73.7% year-over-year due to increased investments and a high comparison base from the previous year [4][16][19] - For the first nine months of 2025, operating profit reached RMB 161.1 million, representing a substantial 149.2% year-over-year increase [5] - Operating cash outflow for the quarter was RMB 58.6 million, an improvement of 31.4% year-over-year [5][20] Business Line Data and Key Metrics Changes - Learning services segment net revenues were RMB 643.1 million, down 16.2% year-over-year, reflecting a strategic approach to customer acquisition [6][16] - Online marketing services net revenues reached RMB 739.7 million, a record increase of 51.1% year-over-year, driven by demand from the NetEase Group and overseas markets [10][17] - Smart devices segment net revenues were RMB 245.8 million, down 22.1% year-over-year, due to disciplined marketing expenditures [14][17] Market Data and Key Metrics Changes - Youdao Ling Shi achieved over 40% year-over-year growth in gross billings, with a retention rate exceeding 75% [7][28] - The online marketing services segment saw advertising revenues from the gaming industry grow by over 50% year-over-year [11] Company Strategy and Development Direction - The company is focused on deepening the application of AI technologies across both learning and advertising businesses to create value for customers [15][28] - A commitment to maintaining disciplined operations while achieving full-year targets, including robust year-over-year operating profit growth and reaching annual operational cash flow break-even for the first time [15][19] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving full-year cash flow break-even despite cumulative net operating cash outflow in the first three quarters, citing significant improvements in cash flow performance [50][52] - The company anticipates strong revenue growth in both learning and advertising segments, with a focus on AI-driven services [26][28] Other Important Information - Youdao was included in the 2026 GSV 150, highlighting its position as a transformational growth company in digital learning [7] - The company launched several new AI-driven products, including an AI tutor for programming classes and an upgraded Youdao Dictionary app, which received positive user feedback [9][10] Q&A Session Summary Question: Will online marketing services become more important than learning services in the future? - Management sees growth opportunities in both areas, with online marketing services currently experiencing higher growth due to advanced ad tech and AI capabilities [24][25] Question: What plans are in place to recover online marketing gross margins? - Management aims to improve gross margins through initiatives like the iMagicBox creative production platform and optimizing the data management platform [32][35] Question: What is the potential for operating profit rebound in Q4? - Management is optimistic about achieving operating profit improvement in Q4, supported by strong performance in Youdao Ling Shi and advertising growth [39][41] Question: Should we expect any change to the full-year break-even target given the cash outflow? - Management remains confident in achieving the full-year cash flow break-even target, citing significant year-over-year improvements and expected strong performance in Q4 [48][52]

Financial Data and Key Metrics Changes - In Q3 2025, net revenues reached RMB 1.6 billion, up 3.6% year-over-year, while operating profit was RMB 28.3 million, a decline of 73.7% year-over-year due to increased investments and a high comparison base from the previous year [4][5][16] - For the first nine months of the year, operating profit reached RMB 161.1 million, representing a substantial 149.2% year-over-year increase [5] - Operating cash outflow for the quarter was RMB 58.6 million, an improvement of 31.4% year-over-year [5] Business Line Data and Key Metrics Changes - Learning services segment net revenues were RMB 643.1 million, down 16.2% year-over-year, reflecting a strategic approach to customer acquisition [6][17] - Online marketing services net revenues reached RMB 739.7 million, a new record and an increase of 51.1% year-over-year, driven by demand from the NetEase Group and overseas markets [10][11][17] - Smart devices segment net revenues were RMB 245.8 million, down 22.1% year-over-year, due to disciplined marketing expenditures [14][17] Market Data and Key Metrics Changes - Youdao Ling Shi achieved over 40% year-over-year growth in gross billings, with a retention rate exceeding 75% [7][27] - Advertising revenues from the gaming industry grew by over 50% year-over-year, primarily from NetEase [11] - The overseas advertising business delivered strong momentum, with revenues growing by more than 100% year-over-year [12] Company Strategy and Development Direction - The company is focused on executing an AI-native strategy, enhancing the application of its large language model across learning and advertising businesses [15][42] - There is a commitment to driving growth in both learning and advertising sectors by leveraging AI technologies [27][42] - The company aims to achieve full-year targets, including robust year-over-year operating profit growth and reaching annual operational cash flow break-even for the first time [15][42] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving full-year cash flow break-even despite cumulative net operating cash outflow recorded in the first three quarters [50] - The company anticipates strong revenue growth in both learning services and online marketing services, with a focus on customer satisfaction and operational efficiency [25][40] - Management highlighted the importance of investments in AI capabilities to enhance advertising performance and customer engagement [25][36] Other Important Information - Youdao was included in the 2026 GSV 150, recognizing it as one of the world's most transformational growth companies in digital learning [7] - The company launched several new AI-driven products, including an AI tutor for programming classes and a new AI audio and video translation product [8][10] Q&A Session Summary Question: Will online marketing services become more important than learning services in the future? - Management sees growth opportunities in both areas, with online marketing services currently experiencing higher growth due to advanced ad tech and AI capabilities [24] Question: What is the plan to return online marketing gross margin above 30%? - Management aims to improve gross margin through initiatives like broadening the application of the iMagicBox platform and optimizing data management systems [32][35] Question: What is the potential for operating profit rebound in Q4? - Management is optimistic about achieving operating profit improvement in Q4, supported by strong performance in Youdao Ling Shi and advertising growth [38][41] Question: Should we expect any change to the full-year break-even target? - Management remains confident in achieving the full-year cash flow break-even target, citing significant improvements in cash flow performance [47][50]

Financial Data and Key Metrics Changes - In Q3 2025, net revenues reached RMB 1.6 billion, up 3.6% year-over-year, while operating profit was RMB 28.3 million, a decline of 73.7% year-over-year due to increased investments and a high comparison base from the previous year [4][5][14] - For the first nine months of the year, operating profit reached RMB 161.1 million, representing a substantial 149.2% year-over-year increase [5] - Operating cash outflow for the quarter was RMB 58.6 million, an improvement of 31.4% year-over-year [5] Business Line Data and Key Metrics Changes - Learning services segment net revenues were RMB 643.1 million, down 16.2% year-over-year, reflecting a strategic approach to customer acquisition [5][15] - Net revenues from online marketing services reached RMB 739.7 million, a new record and an increase of 51.1% year-over-year, driven by demand from the NetEase Group and overseas markets [10][15] - Smart devices segment net revenues were RMB 245.8 million, down 22.1% year-over-year, due to disciplined marketing expenditures [12][15] Market Data and Key Metrics Changes - Youdao Ling Shi achieved over 40% year-over-year growth in gross billings, with a retention rate exceeding 75% [6][25] - Advertising revenues from the gaming industry grew by over 50% year-over-year, supported by programmatic advertising and influencer marketing campaigns [10] Company Strategy and Development Direction - The company is focused on executing an AI-native strategy, enhancing the application of its large language model across learning and advertising businesses [13][41] - There is a commitment to deepen collaboration with partners like NetEase and Google to unlock additional synergies and support Chinese companies in expanding globally [11][41] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving full-year targets, including robust year-over-year operating profit growth and reaching annual operational cash flow break-even for the first time [13][41] - The company anticipates that the restructuring of the learning services segment will enhance profitability in the long run [41] Other Important Information - Youdao was included in the 2026 GSV 150, highlighting its position as a transformational growth company in digital learning [6] - The company launched several innovative products, including an AI tutor for programming classes and a new AI audio and video translation product [7][9] Q&A Session Summary Question: Will online marketing services become more important than learning services in the future? - Management sees growth opportunities in both areas, with online marketing services currently experiencing higher growth due to advanced ad tech and AI capabilities [22][24] Question: What is the plan to return online marketing gross margin above 30%? - Management aims to improve gross margin through initiatives like broadening the application of the iMagicBox creative production platform and optimizing the data management platform [30][33] Question: What is the potential for rebound in operating profit for Q4? - Management is optimistic about Q4, citing strong performance in Youdao Ling Shi and advertising growth, which will create momentum for profitability [36][40] Question: Should we expect any change to the full-year break-even target given the cumulative net operating cash outflow? - Management remains confident in achieving the full-year cash flow break-even target, emphasizing significant year-over-year improvements in cash flow performance [45][49]

Financial Performance - Youdao's net revenues increased by 3.6% year-over-year in 3Q25[9], reaching RMB 1,628.6 million[10,41] - Online Marketing Services achieved record-high net revenues in 3Q25[29], contributing RMB 739.7 million to the total net revenues[10,41] - The company achieved profitability for five consecutive quarters in terms of income from operations[12], with RMB 28.3 million in 3Q25[12] - Operating cash flow outflow narrowed by 31.4% year-over-year in 3Q25[13] - Gross billings for learning services achieved over 40% year-over-year growth in 3Q25[19] - Gross margin was 42.2% in 3Q25[41] Learning Services - Learning Services generated RMB 643.1 million in net revenues in 3Q25[10,41] - Retention rate for learning services exceeded 75% recently, up from over 70% in the fourth quarter of last year[20] Assets and Liabilities - As of September 30, 2025, the company's cash assets totaled RMB 554.521 million[40]

Core Insights - NetEase Youdao (NYSE: DAO) reported its Q3 2025 unaudited financial results, showing a continuous profit for five consecutive quarters driven by its "AI-native" strategy and focused business structure [1] - The company achieved a net revenue of 1.63 billion yuan, a year-on-year increase of 3.6%, with operating profit reaching 28.3 million yuan and operating cash flow out narrowing by 31.4% [1] - Youdao's CEO expressed confidence in meeting the financial goals set at the beginning of the year, aiming for rapid improvement in operating profit and achieving annual cash flow breakeven [1] Financial Performance - In Q3 2025, Youdao's learning services net revenue reached 640 million yuan, while AI subscription service sales hit nearly 100 million yuan, marking a historical high with over 40% year-on-year growth [1][2] - The online marketing services revenue reached 740 million yuan, a significant year-on-year increase of 51.1%, becoming the largest revenue source for the first time [3] Strategic Adjustments - Youdao made strategic adjustments in its learning services segment, focusing on high-demand and high-growth potential areas, with sales from Youdao Ling Shi growing over 40% in Q3 [2] - The company launched the new generation Youdao AI Q&A pen, Space X, which supports real-time Q&A across nine subjects for junior and senior high school students [2] AI and Technology Development - Youdao's AI capabilities were reinforced, with the "Zi Yue" large model receiving the highest level 5 certification from the China Academy of Information and Communications Technology [4] - The company introduced the "Zi Yue 3.0" model for real-time translation supporting 38 languages, showcasing significant advancements in AI technology [4] Future Outlook - Youdao plans to continue deepening its AI-native strategy, focusing on the application and innovation of the "Zi Yue" large model in learning and advertising scenarios [5]

Core Viewpoint - The rising popularity of children's programming education is accompanied by various issues, including misleading marketing tactics, anxiety-inducing claims about academic benefits, and complaints from parents regarding the quality and value of the courses offered [1][5][17]. Group 1: Marketing Tactics and Claims - Several children's programming institutions, such as 核桃编程 and 有道小图灵, promote the idea that learning programming can facilitate admission to prestigious schools, using phrases like "three days to obtain a national certificate" [4][5]. - Institutions claim that participation in "white list" competitions can enhance a child's academic profile, with some suggesting that programming skills can lead to direct admission to top universities [5][7]. - The Ministry of Education has explicitly prohibited linking training results to admissions, indicating that such claims are merely marketing strategies [7][8][10]. Group 2: Issues with Course Quality and Value - Many parents report dissatisfaction with the quality of programming courses, often finding that the promised competitions lack credibility and that the courses do not meet their expectations [9][10][16]. - There is a significant concern regarding the "white list" competitions, as many institutions promote participation in non-validated events, leading to questions about their legitimacy [9][10]. - Complaints about refund difficulties and aggressive marketing tactics, including high-pressure sales and misleading information, are prevalent among parents [12][15][16]. Group 3: Age Appropriateness and Educational Value - Institutions often encourage very young children, even those in kindergarten, to learn programming, which experts argue may not align with their cognitive development [12][17]. - The focus on early programming education may detract from genuine interest and creativity, as children may struggle with complex concepts before they are developmentally ready [12][17]. - Experts recommend that programming education should prioritize interest and cognitive development rather than serve as a means to achieve academic shortcuts [17][19]. Group 4: Regulatory Environment and Recommendations - The regulatory framework surrounding children's programming education is evolving, with calls for clearer standards and guidelines to ensure quality and transparency in course offerings [17][19]. - Experts suggest that parents should approach programming education with a focus on interest development rather than academic pressure, advocating for a return to the fundamental purpose of education [17][19].

Core Insights - Youdao, Inc. reported a 3.6% increase in net revenues for Q3 2025, totaling RMB1,628.5 million (US$228.8 million) compared to RMB1,572.5 million in Q3 2024 [5][8] - The company emphasized its AI-Native Strategy, which has led to significant growth in online marketing services and AI-driven subscription services [3][4] Financial Performance - Net revenues from online marketing services surged by 51.1% year-over-year to RMB739.7 million (US$103.9 million), driven by demand from the NetEase group and international markets [9][8] - Learning services revenues decreased by 16.2% to RMB643.1 million (US$90.3 million), attributed to a strategic focus on higher ROI customer engagements [6][8] - Revenues from smart devices fell by 22.1% to RMB245.8 million (US$34.5 million), primarily due to reduced demand for smart learning devices [7][8] Profitability Metrics - Gross profit for Q3 2025 was RMB687.9 million (US$96.6 million), reflecting a 12.9% decrease from RMB789.5 million in Q3 2024, with a gross margin of 42.2% compared to 50.2% in the previous year [10][8] - Income from operations dropped significantly by 73.7% to RMB28.3 million (US$4.0 million), resulting in an operating margin of 1.7% [16][8] - Net income attributable to ordinary shareholders was nearly zero, down from RMB86.3 million in Q3 2024, with non-GAAP net income at RMB9.2 million (US$1.3 million) [17][18] Operating Expenses - Total operating expenses decreased to RMB659.6 million (US$92.7 million) from RMB682.2 million in the same period last year [13][8] - Sales and marketing expenses fell by 6.1% to RMB487.7 million (US$68.5 million), while research and development expenses increased by 6.9% to RMB127.8 million (US$18.0 million) [14][13] Cash Flow and Financial Position - As of September 30, 2025, Youdao's cash and short-term investments totaled RMB557.7 million (US$78.3 million), down from RMB662.6 million at the end of 2024 [19][8] - The company reported net cash used in operating activities of RMB58.6 million (US$8.2 million) for the quarter [19][8] Future Outlook - Youdao plans to continue executing its AI-Native Strategy, focusing on the application of its large language model, Confucius, to enhance customer value [4][3] - The company remains confident in achieving its full-year targets, including operating cash-flow breakeven for the first time [4][3]

Core Points - Youdao, Inc. will hold its annual general meeting of shareholders on December 16, 2025, from 3:00 p.m. to 5:00 p.m. Beijing Time, at its offices in Beijing [1] - No proposals will be submitted for shareholder approval at the AGM; it will serve as an open forum for discussion between shareholders and management [1] - The record date for determining shareholders entitled to attend the AGM is set for December 1, 2025 [2] - Holders of Class A and Class B ordinary shares, as well as beneficial owners of American Depositary Shares (ADSs), are entitled to attend the AGM [3] - Shareholders can access the annual report on the company's investor relations website and request a hard copy of the audited consolidated financial statements [4] - Youdao, Inc. specializes in AI-powered solutions for learning and advertising, offering services such as learning services, online marketing, and smart devices [5]