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Youdao Inc. Reports First Profitable Quarter

Youdao Inc. Reports First Profitable Quarter

Youdao Inc Adr Class A ((DAO)) has held its Q2 earnings call. Read on for the main highlights of the call.

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Youdao Inc. recently held its earnings call, revealing a strong financial performance with a positive sentiment overall. The company celebrated its first profitable second quarter, driven by significant growth in online marketing services, particularly within the gaming sector. Despite facing challenges such as a decline in operating cash inflow and smart devices revenue, Youdao’s strategic focus on AI innovations and profitable growth suggests a promising future.

First Profitable Second Quarter

Youdao achieved a significant milestone by reporting its first profitable second quarter. The company posted an operating income of RMB 28.8 million, a remarkable turnaround from an operating loss of RMB 72.6 million in the same period last year. This achievement underscores Youdao’s successful strategic initiatives and operational efficiency.

Revenue Growth

The company reported net revenues of RMB 1.4 billion, marking a 7.2% increase year-over-year. A key driver of this growth was the online marketing services sector, which saw a 23.8% surge in net revenues. This was largely fueled by strong demand from the gaming industry and Chinese clients expanding their reach overseas.

Successful Launch of New AI Features

Youdao has successfully launched several new AI-driven services, including the AI Essay Grading feature, Mr. P AI Tutor, and Scholar AI. These innovations have achieved high user retention rates and received positive feedback, highlighting the company’s commitment to leveraging AI technology to enhance user experience.

Gaming Ad Revenue Growth

The gaming ad revenue segment experienced substantial growth, increasing by more than 50% year-over-year. This growth was supported by collaborations with NetEase Games and other advertisers, showcasing Youdao’s ability to capitalize on the booming gaming industry.

Decrease in Operating Cash Inflow

Despite the positive financial performance, Youdao reported a decrease in operating cash inflow, which fell by 26.1% year-over-year to RMB 185 million. This decline was primarily due to the strategic scaling back of certain STEAM and adult courses, reflecting the company’s focus on optimizing its course offerings.

Smart Devices Revenue Decline

The smart devices segment saw a revenue decline of 23.9% year-over-year, with net revenues dropping to RMB 126.8 million. This decrease was attributed to high-end Dictionary Pen models nearing the end of their product life cycles and reduced marketing expenditure.

Decrease in Gross Profit

Youdao’s total gross profit decreased by 4.3% compared to the same period last year, amounting to RMB 609.4 million. Despite this decline, the company has managed to reduce operating expenses significantly, contributing to its overall profitability.

Forward-Looking Guidance

Looking ahead, Youdao’s management expressed confidence in achieving operating cash flow breakeven for the year. This optimism is supported by improvements in profitability and strategic investments in AI technology. The company aims to continue leveraging its AI-driven advancements to drive user engagement and retention, positioning itself for sustained growth.

In conclusion, Youdao’s earnings call painted a picture of a company on the rise, with a strong financial performance and a positive outlook. The first profitable second quarter, coupled with strategic investments in AI and robust revenue growth, highlights Youdao’s potential for continued success in the future.

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