Youdao Inc. posted a second-quarter profit that exceeded analyst forecasts, driven by gains in its learning services segment and AI-powered products, sending shares up 1.86% in premarket trading.
The Chinese education technology company reported non-GAAP basic net income per American Depositary Share (ADS) of RMB 0.76 ($0.11) for Q2 2026, beating the $0.26 forecast by $0.50, or 192.31%. Basic net income per ADS reached RMB 0.62 ($0.09), while diluted net income per ADS was RMB 0.61 ($0.09). Revenue totaled $216.2 million, up 3.5% year-over-year but missing the $225.2 million estimate by $90 million, or 5.77%.
Operating profit nearly quadrupled to RMB 111.5 million, marking the eighth consecutive quarter of profitability. The operating margin expanded to 7.6% from 2.0% in the same period last year. Net income attributable to ordinary shareholders turned positive at RMB 73.8 million ($10.9 million), compared with a net loss of RMB 17.8 million in Q2 2025. Non-GAAP net income rose to RMB 90.6 million ($13.4 million) from RMB 12.5 million a year earlier.
Cash flow from operations surged 80.7% year-over-year to RMB 334.2 million ($49.3 million), while total gross profit increased 17.6% to RMB 716.9 million ($105.7 million). Total operating expenses rose to RMB 605.3 million ($89.2 million) from RMB 580.6 million, with sales and marketing spending up to RMB 424.1 million and research and development costs rising to RMB 142 million.
Youdao’s learning services segment generated RMB 795.6 million ($117.3 million) in revenue, up 20.9% year-over-year, with gross margin improving to 65.5% from 59.8%. AI-driven subscription product sales reached approximately RMB 100 million, while retention rates for key offerings such as Youdao Lingshi and programming courses exceeded 75%. The online marketing services segment reported revenue of RMB 584.4 million ($86.1 million), down 7.7% year-over-year, though gross margin rose to 28.7%. Smart devices revenue fell 31.5% to RMB 86.8 million ($12.8 million), with gross margin declining to 32.8%.
For the first half of 2026, total net revenues increased 3.6% year-over-year to RMB 2.8 billion, while operating profit rose 27.3% to RMB 169 million. Gross profit grew 17.6% to RMB 716.9 million, and gross margin improved to 47% from about 45%.
CEO Dr. Feng Zhou highlighted the quarter as a "critical step" toward sustainable growth, noting the company’s eighth consecutive profitable quarter and the translation of large language model advancements into practical products. Senior Vice President Peng Su emphasized AI’s role in improving user experience and scalability, citing retention rates above 75% for Youdao Lingshi as industry-leading. President Lei Jin noted improved profitability in the advertising business, with gross margin expanding by about 3 percentage points.
Youdao’s stock rose to $16.96 in premarket trading, up 1.86% from the prior close of $16.65. The shares have gained 82% over the past year and 64% in the last six months, trading about 10.4% below their 52-week high of $18.94. The company’s market capitalization stands at $2.01 billion, with a P/E ratio of 194 and a financial health score of 2.75, rated as "GOOD" by InvestingPro.
The company outlined plans to launch new AI agents and model products in September 2026, with an overseas key opinion leader (KOL) marketing agent slated for Q3 2026. Guidance was provided for Q3 2026 through Q2 2027.
