Summary of Key Takeaways from the Corporate Day on AI and LLM in Beijing Industry Overview - The LLM (Large Language Model) market competition remains intense, but there is optimism for AI monetization, particularly in the vertical enterprise market [1] Company-Specific Insights iFlytek (002230 CH, Neutral) - The consumer business is identified as the core growth engine, contributing about one-third of total revenue in 1H25, driven by strong momentum from learning machines [5] - Management expects the consumer business and education sector to be the main growth drivers, supported by the "Spark" LLM platform [5] - iFlytek is noted as potentially the only large LLM in China trained on domestic AI chips, allowing it to secure orders from government and state-owned enterprises (SOEs) [5] - The "Spark" LLM platform is projected to generate approximately CNY1 billion in revenue for FY25E [5] Kingsoft Cloud (3896 HK, Buy) - AI computing power demand is accelerating, with Xiaomi's LLM training and inference demand in smartphones and electric vehicles (EVs) being major growth drivers [4] - Management anticipates FY25F revenue growth to exceed 20% year-on-year, although gross profit margin (GPM) will be under pressure due to increased leased computing [5] - The company expects computing power assets to increase by approximately CNY9 billion, including both self-purchased and leased assets [5] Fourth Paradigm (6682 HK, Not rated) - Aiming for CNY20 billion in revenue by 2029E, with a focus on enterprise-level AI service platforms [6] SenseTime (20 HK, Not rated) - Generative AI is the main revenue growth driver, contributing 70%-80% of total revenue [8] - The company is committed to building full-stack AI capabilities and has released multimodal LLMs [9] Yonyou Network (600588 CH, Neutral) - Domestic substitution and large enterprises' AI migration are key growth drivers, with AI agents integrated into ERP systems [12] - Management expects steady revenue growth and significant cash flow recovery in 2025 [15] Qihu 360 (601360 CH, Not rated) - Revenue for 9M25 reached CNY6.1 billion, up 8% year-on-year, with a focus on "AI + Security" [13] - The company is shifting towards SaaS security, which now accounts for 30% of security revenue [17] Youdao (DAO US, Not rated) - Positioned as an AI-powered solutions provider, with online marketing services as the largest revenue contributor at 45% [18] - The company has achieved 5x growth in online marketing services over the past 3-4 years, driven by programmatic advertising [19] Additional Insights - The public cloud and enterprise cloud segments account for approximately 70% and 30% of revenue, respectively, with AI cloud being the fastest-growing segment [5] - Management noted that the demand for AI products is expected to drive revenue growth across both consumer and enterprise segments [11] - The overall macro environment remains challenging, but the penetration rates for AI solutions in enterprises are still low, indicating potential for growth [10] Conclusion The corporate day highlighted the competitive landscape of the AI and LLM market in China, with various companies showcasing their growth strategies and revenue projections. The focus on consumer and enterprise applications of AI, along with the integration of LLMs into existing business models, presents significant opportunities for growth in the coming years.

Core Insights - Youdao, Inc. reported an earnings per share (EPS) of $0.011, surpassing the estimated EPS of -$0.00007 [1][6] - The company achieved a net revenue of approximately $228.8 million in Q3 2025, exceeding estimates and reflecting a 3.6% year-over-year increase [2][6] - Youdao's strategic investments in Youdao Lingshi and online marketing services have driven significant growth, with online marketing services seeing a 51.1% year-over-year increase in net revenues [3][6] Financial Performance - The operating profit for the first three quarters of 2025 grew nearly 150% year-over-year, attributed to the "AI-Native" strategy [2] - Youdao Lingshi experienced over 40% year-over-year growth in gross billings [3] - The company's price-to-earnings (P/E) ratio is approximately 33.83, and the price-to-sales ratio stands at about 1.37 [4] Financial Structure - Youdao has a negative debt-to-equity ratio of -0.89, indicating a unique financial structure, yet has maintained profitability for five consecutive quarters [5] - The current ratio of 0.55 reflects the company's ability to cover its short-term liabilities with its short-term assets [5]

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 - 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]

Financial Performance - NetEase's market capitalization was $854 billion as of August 13, 2025[9] - Net revenues for 2Q25 reached $39 billion[9] - Net income attributable to the company's shareholders for 2Q25 was $12 billion[9] - Basic net income per ADS (GAAP) for 2Q25 was $188[9] - Net cash as of June 30, 2025, amounted to $198 billion[9] Revenue Breakdown (2Q25) - Games and related value-added services generated $3184 million in net revenues[12] - Youdao's net revenues were $198 million[20] - NetEase Cloud Music's net revenues reached $275 million[23] - Innovative businesses and others contributed $237 million in net revenues[26] Games Performance - Online games accounted for 97% of games and related value-added services revenue in 2Q25[12] - Fantasy Westward Journey Online reached over 293 million peak concurrent players in August[18] ESG Ratings - NetEase received an AA rating from MSCI[9, 40] - NetEase's Sustainalytics rating indicates a low-risk company[40]

Financial Performance - Youdao achieved a 7.2% year-over-year (YoY) growth in net revenues for the second quarter of 2025, reaching RMB 1,417.5 million[5] - The company reported its first-ever profitable second quarter in 2025, with an income from operations of RMB 28.8 million[7,8] - Operating cash flow showed a net inflow of RMB 185.0 million in the second quarter of 2025[9] - Online Marketing Services achieved record-high net revenues in the second quarter of 2025, reaching RMB 632.9 million, a 23.8% YoY increase[28] Business Segments & AI Strategy - Youdao is strategically positioned as an AI-powered solutions provider, focusing on AI applications for learning and advertising[17] - The company is implementing an AI strategy across its Learning Services, Smart Devices, and Online Marketing Services[12] - Youdao launched AI Essay Grading in the second quarter of 2025, powered by its Large Language Model (LLM) Confucius[19,22,24] - Youdao's Digital Content Services, including Youdao Lingshi, offer personalized learning paths, AI quiz recommendations, and AI-based college admission advisors[19] Key Balance Sheet Items (June 30, 2025) - Cash assets totaled RMB 613.847 million[42] - Total current assets amounted to RMB 1,573.283 million[42] - Contract liabilities stood at RMB 856.684 million[42]

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].

Core Insights - Youdao, Inc. reported a significant improvement in profitability for Q1 2025, achieving an operating income of RMB104.0 million, a 247.7% increase year-over-year [3][17] - The company experienced a 6.7% decrease in net revenues, totaling RMB1.3 billion (US$178.9 million) compared to the same period in 2024 [5][13] - Youdao's strategic focus on high-ROI customer acquisition is expected to enhance operational efficiency despite short-term revenue declines [6] Financial Performance - Net revenues from learning services decreased by 16.1% to RMB602.4 million (US$83.0 million) [6][13] - Net revenues from smart devices increased by 5.1% to RMB190.5 million (US$26.3 million), driven by sales of the Youdao Dictionary Pen [7][13] - Net revenues from online marketing services rose by 2.6% to RMB505.4 million (US$69.6 million) [7][13] Profitability Metrics - Gross profit for Q1 2025 was RMB614.2 million (US$84.6 million), a 9.9% decrease from the previous year [8][13] - The overall gross margin was 47.3%, down from 49.0% in Q1 2024 [8][13] - The gross margin for learning services decreased to 59.8% from 63.1% year-over-year, while smart devices saw an increase to 52.3% from 32.6% [9][10] Operating Expenses - Total operating expenses decreased to RMB510.2 million (US$70.3 million) from RMB651.6 million in the same period last year [12][13] - Sales and marketing expenses fell by 21.5% to RMB357.6 million (US$49.3 million) [14][13] - Research and development expenses decreased by 21.3% to RMB115.5 million (US$15.9 million) [15][13] Net Income and Earnings Per Share - Net income attributable to ordinary shareholders increased over sixfold to RMB76.7 million (US$10.6 million) [18][19] - Basic and diluted net income per ADS for Q1 2025 was RMB0.65 (US$0.09) and RMB0.64 (US$0.09), respectively, compared to RMB0.11 and RMB0.10 for the same period in 2024 [19][13] Cash and Financial Support - As of March 31, 2025, Youdao's cash and short-term investments totaled RMB424.5 million (US$58.5 million), down from RMB662.6 million at the end of 2024 [20] - The company has received financial support from NetEase Group, including RMB878.0 million in short-term loans and US$128.5 million in long-term loans [20] Share Repurchase Program - Youdao's board authorized a share repurchase program of up to US$40 million, with approximately 7.5 million ADSs repurchased for about US$33.8 million as of March 31, 2025 [22]