Youdao Inc Adr Class A ((DAO)) has held its Q3 earnings call. Read on for the main highlights of the call.
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The recent earnings call for Youdao Inc Adr Class A painted a mixed picture, reflecting both achievements and challenges. The company showcased strong growth in AI-driven subscriptions and online marketing services, yet faced hurdles in maintaining operating profit and revenues from its Learning Services and Smart Devices segments. This balance of growth and decline indicates a neutral sentiment overall.
Net Revenue Growth
Net revenues for Youdao reached RMB 1.6 billion, marking a 3.6% increase year-over-year. This growth highlights the company’s ability to expand its revenue base despite facing challenges in certain segments.
Operating Profit Growth Over Nine Months
The company reported an impressive 149.2% year-over-year increase in operating profit for the first nine months, totaling RMB 161.1 million. This significant growth underscores the company’s strategic efforts in enhancing profitability over the longer term.
Online Marketing Services Surge
Net revenues from online marketing services surged by 51.1% year-over-year, reaching RMB 739.7 million. This growth was driven by increased demand from the NetEase Group and overseas markets, showcasing the segment’s robust performance.
AI-Driven Subscription Growth
Sales of AI-driven subscription services grew by over 40% year-over-year, totaling approximately RMB 100 million. This growth reflects the increasing market acceptance and demand for AI-powered solutions.
Strong Performance in AI and Translation Services
The Confucius 3 translation model achieved certification from the China Academy of Information and Communications Technology, supporting real-time bidirectional translation across 38 languages. This achievement highlights Youdao’s advancements in AI and translation services.
Operating Profit Decline
Despite the overall growth, operating profit for the quarter decreased by 73.7% year-over-year to RMB 28.3 million. This decline was attributed to increased investments in strategic areas such as Youdao Lingshi and online marketing services.
Learning Services Revenue Decline
Revenues from the Learning Services segment fell by 16.2% year-over-year to RMB 643.1 million. This decline indicates challenges in maintaining revenue streams within this segment.
Smart Devices Segment Decline
The Smart Devices segment saw a 22.1% year-over-year decline in net revenues, totaling RMB 245.8 million. This drop highlights the difficulties faced in sustaining growth within this segment.
Gross Margin Decrease
Total gross profit decreased by 12.9% from the same period in 2024, amounting to RMB 687.9 million. This reduction in gross margin reflects the financial pressures faced by the company.
Forward-Looking Guidance
During the earnings conference call, Youdao provided forward-looking guidance, emphasizing its strategic direction. The company aims for robust year-over-year operating profit growth and plans to achieve annual operational cash flow breakeven by year-end. Despite a decline in operating profit due to increased investments, the company reported improved operating cash outflow and maintained a gross margin target for online marketing services.
In summary, Youdao’s earnings call highlighted a balanced mix of growth and challenges. While the company experienced significant achievements in AI-driven subscriptions and online marketing services, it faced difficulties in maintaining operating profit and revenues in other segments. The forward-looking guidance suggests a strategic focus on achieving profitability and operational efficiency in the coming quarters.