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]