Core Viewpoint - Youdao, Inc. reported its first-ever profitable second quarter, driven by strong execution of its AI Native Strategy and the launch of new AI products, including the Large Language Model Confucius 3 and AI Essay Grading function [3][5][18]. Financial Highlights - Net revenues for Q2 2025 were RMB 1.4 billion (US$ 197.9 million), a 7.2% increase from RMB 1.3 billion in Q2 2024 [5][18]. - Revenues from learning services were RMB 657.8 million (US$ 91.8 million), up 2.2% from RMB 643.8 million in Q2 2024 [5][18]. - Revenues from smart devices decreased by 23.9% to RMB 126.8 million (US$ 17.7 million) due to declining consumer electronics demand [6][18]. - Revenues from online marketing services increased by 23.8% to RMB 632.9 million (US$ 88.3 million), driven by demand from the gaming industry and overseas markets [7][18]. Profitability Metrics - Gross profit for Q2 2025 was RMB 609.4 million (US$ 85.1 million), a 4.3% decrease from RMB 636.8 million in Q2 2024, with a gross margin of 43.0% compared to 48.2% in the same period last year [8][18]. - The gross margin for learning services remained stable at 59.8%, while the gross margin for smart devices improved to 41.5% from 30.3% in Q2 2024 [9][10][18]. - The gross margin for online marketing services decreased to 25.8% from 39.1% in Q2 2024 due to strategic expansion efforts [10][18]. Operating Expenses - Total operating expenses for Q2 2025 were RMB 580.6 million (US$ 81.0 million), down from RMB 709.3 million in Q2 2024 [11][18]. - Sales and marketing expenses decreased by 22.1% to RMB 401.8 million (US$ 56.1 million) due to reduced marketing expenditures [11][18]. - Research and development expenses decreased by 16.1% to RMB 128.3 million (US$ 17.9 million) due to a reduction in headcount [12][18]. Income and Loss Metrics - Income from operations for Q2 2025 was RMB 28.8 million (US$ 4.0 million), compared to a loss of RMB 72.6 million in Q2 2024, resulting in a margin of 2.0% [14][18]. - Net loss attributable to ordinary shareholders was RMB 17.8 million (US$ 2.5 million), significantly improved from a loss of RMB 99.5 million in the same period last year [16][18]. - Non-GAAP net income attributable to ordinary shareholders was RMB 12.5 million (US$ 1.7 million), compared to a non-GAAP net loss of RMB 96.0 million in Q2 2024 [16][18]. Cash and Financial Support - As of June 30, 2025, Youdao's cash and short-term investments totaled RMB 617.0 million (US$ 86.1 million), down from RMB 662.6 million at the end of 2024 [19][18]. - Net cash provided by operating activities for Q2 2025 was RMB 185.0 million (US$ 25.8 million) [19][18]. - NetEase Group has agreed to provide financial support, including RMB 878.0 million in short-term loans and US$ 130.7 million in long-term loans [19][18]. Share Repurchase Program - The company has repurchased approximately 7.5 million ADSs for a total consideration of approximately US$ 33.8 million under its share repurchase program [21][18].