NetEase Group’s education technology unit Youdao reported a sharp increase in profitability for the second quarter of 2026, as its artificial intelligence-driven learning portfolio offset declines in other segments. Operating income nearly quadrupled year over year to RMB 111.5 million, a gain of 287.3%, while total revenue rose 3.5% to RMB 1.47 billion.
The company’s learning services segment, which includes AI subscription products such as Youdao Dictionary, Hi Echo, and Mr. P AI Tutor, generated RMB 795.6 million in revenue, up 20.9% from the prior-year period. These AI offerings collectively generated approximately RMB 100 million in sales during the quarter, marking more than 20% growth year over year. Youdao Lingshi, a key AI learning platform, maintained a retention rate exceeding 75% in Q2.
Gross margin improved to 48.9% from 43.0%, with gross profit reaching RMB 716.9 million. Operating margin expanded to 7.6% from 2.0%, while net income attributable to ordinary shareholders totaled RMB 73.8 million, compared with a loss of RMB 17.8 million in the same period a year earlier. Operating cash flow surged 80.7% to RMB 334.2 million, turning positive for the first half of 2026 at RMB 241.1 million, versus a negative RMB 70.5 million in the first half of 2025.
Youdao’s smart devices segment reported revenue of RMB 86.8 million, down 31.5% year over year, as management cited softer demand and higher memory costs. Despite the decline, the Youdao Dictionary Pen X8 Series retained its industry leadership for seven consecutive years based on 618 sales data and won the EdTech Deployment of the Year – K-12 award. Online marketing services revenue fell 7.7% to RMB 584.4 million.
Total assets stood at RMB 1.96 billion as of June 30, 2026, down slightly from RMB 1.98 billion at year-end 2025. Cash and cash equivalents, restricted cash, and short-term investments totaled RMB 846.0 million, up from RMB 740.0 million. Accounts receivable declined to RMB 332.3 million, while inventories fell to RMB 114.0 million. Contract liabilities decreased to RMB 835.1 million.
Youdao also highlighted the launch of its Confucius 4 AI model, which offers enhanced multimodal, translation, and reasoning capabilities, and Confucius 4-TTS, a 14-language cross-lingual voice cloning tool. The company plans to introduce additional AI agents and model products in September 2026, with an overseas KOL marketing agent slated for Q3 2026.
