Youdao, Inc. (NYSE: DAO) reported second-quarter results that topped earnings expectations but fell short on revenue, sending shares up 1.86% in pre-market trading. The Hangzhou-based company posted adjusted earnings per American Depositary Share (ADS) of RMB0.76 ($0.11), well above the RMB0.26 consensus estimate from analysts.
Revenue totaled RMB1.47 billion ($216.2 million), a 3.5% year-over-year increase from RMB1.4 billion in the same period of 2025 but below the RMB1.56 billion estimate. The company swung to a net income of RMB73.8 million ($10.9 million), compared with a net loss of RMB17.8 million in the prior-year period. Operating income surged nearly 2.9 times to RMB111.5 million ($16.4 million), while operating cash flow reached RMB334.2 million ($49.3 million).
Gross margin expanded to 48.9%, up from 43.0% in the year-ago quarter, reflecting improved operational efficiency. Segment performance showed divergent trends. Learning services revenue grew 20.9% YoY to RMB795.6 million ($117.3 million), driven by strong demand in tutoring services. Smart devices revenue declined 31.5% to RMB86.8 million ($12.8 million) amid softer demand, while online marketing services revenue fell 7.7% to RMB584.4 million ($86.1 million) as the company prioritized higher-return engagements.
CEO Dr. Feng Zhou noted the company had delivered "another strong quarter," highlighting "continued revenue growth, record operating profit and robust operating cash flow," and adding that it marked the eighth consecutive quarter of operating profitability.
