Youdao Inc. reported unaudited results for the third quarter ended September 30 2025, showing net revenue of RMB 1.6285 billion (US$228.8 million) and operating profit of RMB 28.3 million (US$4.0 million). Revenue rose 3.6% year‑over‑year, while operating profit grew 150% for the first three quarters of the year, underscoring the company’s ability to sustain profitability while expanding its AI‑native initiatives.
Online marketing services, the company’s fastest‑growing segment, generated RMB 739.7 million in net revenue, up 51.1% from the same period last year. AI‑subscription sales reached a record RMB 100 million, up more than 40% YoY, reflecting strong demand for the company’s AI‑powered tools. In contrast, learning services revenue fell 16.2% to RMB 643.1 million as the firm shifted focus toward higher‑return‑on‑investment customer acquisition, and smart‑device revenue declined 22.1% to RMB 245.8 million amid waning demand for legacy hardware.
Gross margin contracted to 42.2% in Q3 2025 from 50.2% in Q3 2024, largely because the margin on online marketing services slipped. The company cited increased competition and pricing pressure in that segment as the primary drivers of the margin compression, while the higher‑margin AI subscription business helped offset some of the decline.
CEO Dr. Feng Zhou said the company remains confident in achieving operating cash‑flow breakeven for the first time and that the AI‑native strategy continues to unlock value. He added that the firm is strategically investing in Youdao Lingshi and online marketing services to accelerate long‑term growth, even as it tightens its focus on high‑ROI customer acquisition in learning services.
Analysts noted that Youdao’s earnings missed consensus expectations, although revenue beat the 3.6% growth target. The miss was attributed to the margin squeeze in online marketing services, which offset the gains from AI‑subscription sales and the strong performance of the online marketing segment.
The results illustrate a company in transition: AI‑driven growth fuels revenue expansion, while legacy segments such as learning services and smart devices contract. The company’s continued investment in AI and its disciplined approach to customer acquisition signal a strategic shift toward higher‑margin, scalable businesses, positioning Youdao to maintain profitability as it scales its AI platform.
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