Youdao(US:DAO)2025-11-20 11:00Financial 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]