Youdao(US:DAO)2025-08-14 11:00Financial Data and Key Metrics Changes - The company reported its first profitable second quarter with operating income of RMB28.8 million compared to an operating loss of RMB72.6 million in the same period last year [6] - Net revenues reached RMB1.4 billion, an increase of 7.2% year over year [6][20] - Operating cash inflow was RMB185 million, down 26.1% year over year, primarily due to strategic scaling back of certain courses [7] - Total gross profit was RMB609.4 million, representing a 4.3% decrease from the same period of 2024 [21] - Non-GAAP net income attributable to ordinary shareholders was RMB12.5 million compared to a non-GAAP net loss of RMB96 million for the same period last year [23] Business Line Data and Key Metrics Changes - Net revenues from learning services rose 2.2% year over year to RMB657.8 million, driven by strong performance in Youdao Ling Shi [7][21] - Net revenues from online marketing services reached RMB632.9 million, up 23.8% year over year, driven by demand from the gaming industry and overseas markets [12][21] - Net revenues from smart devices declined 23.9% year over year to RMB126.8 million, attributed to the end of product life cycles and reduced marketing expenditure [15][21] Market Data and Key Metrics Changes - The gaming advertising segment saw revenue growth of more than 50% year over year, supported by collaborations with major gaming advertisers [13] - The overseas market contributed significantly to growth, with revenue from partnerships with TikTok and Google increasing significantly [64] Company Strategy and Development Direction - The company aims to advance its AI native strategy, focusing on scenario-based optimizations of large language models to enhance learning and advertising services [18] - There is a strong emphasis on integrating hardware and learning services to improve operational efficiency and reduce sales and marketing expenses [40] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving operating cash flow breakeven despite a year-over-year decline in operating cash inflow [52][56] - The company anticipates stronger cash flow performance in the second half of the year, driven by improved profitability and operational efficiency [54] Other Important Information - The company launched several AI-driven features and products, including the AI essay grading feature and the Confucius III language model, which received positive feedback [8][10] - The company signed 12 gold medalists from the National Olympiads in Informatics to enhance its teaching and R&D capabilities [9] Q&A Session Summary Question: Update on the third quarter outlook for Youdao Ling Shi - Management noted that Youdao Ling Shi's revenue increased by roughly 30% year over year, with a retention rate exceeding 75%, indicating strong user satisfaction and a solid foundation for future growth [28][30] Question: Improvement in Smart Device segment revenue - Management stated that while revenue declined in Q2, the health of the hardware business improved compared to the previous year, with a focus on dictionary pens and new tutoring pens expected to drive future growth [36][39] Question: Specific applications of AI ad placement optimizer - The AI ad placement optimizer covers the entire advertising delivery process, enhancing targeting strategies and optimizing ad delivery, which is expected to support revenue growth and profitability improvement [44][48] Question: Revision on the target for achieving operating cash flow breakeven - Management confirmed that despite a decrease in operating cash flow, the target for achieving breakeven remains unchanged, supported by improved profitability and operational efficiency [52][56] Question: Growth drivers in gaming and overseas markets - Management highlighted a 50% year-over-year increase in gaming revenue and significant growth in overseas markets, particularly through partnerships with TikTok and Google [63][64]