DAO

Interested in Youdao, Inc. Unsponsored ADR? Here are five stocks we like better. Youdao’s Q2 2026 results improved sharply: Revenue rose 3.5% year over year to RMB1.5 billion, while operating profit nearly quadrupled to a record RMB111.5 million. Net income turned positive, and operating cash flow increased 80.7% to RMB334.2 million. Learning services and AI products drove growth: Learning-services revenue climbed 20.9% to RMB795.6 million, supported by tutoring retention and expanding AI subscription sales. Youdao also launched its Confucius 4 language model and new multilingual voice-cloning technology. Advertising margins improved despite weaker hardware and marketing revenue: Online marketing revenue declined 7.7%, but gross margin rose to 28.7% as Youdao prioritized higher-return engagements. Smart-device revenue fell 31.5% amid weaker demand and higher memory costs, though management expects device margins to recover above 40% in the second half of 2026. Youdao (NYSE:DAO) reported second-quarter 2026 revenue growth and a sharp increase in operating profit, as gains in learning services and improved margins offset declines in online marketing and smart-device revenue. Net revenue for the quarter rose 3.5% year over year to RMB1.5 billion, or $216.2 million, Chief Executive Officer Dr. Feng Zhou said on the company’s earnings call. Operating profit nearly quadrupled from a year earlier to a record RMB111.5 million, marking Youdao’s eighth consecutive quarter of operating profitability. → Datavault AI Locks Down CyberCatch in $94M Security Rollup Net income attributable to ordinary shareholders was RMB73.8 million, compared with a RMB17.8 million loss in the prior-year quarter. Non-GAAP net income attributable to ordinary shareholders rose to RMB90.6 million from RMB12.5 million a year earlier. Operating cash flow reached RMB334.2 million, up 80.7% from the year-ago period. For the first half of 2026, Youdao reported RMB2.8 billion in revenue, up 3.6%, and operating profit of RMB169 million, up 27.3%. → Michael Burry Is Betting Against Palantir Again—Should Investors Care? Learning services revenue increased 20.9% year over year to RMB795.6 million, primarily due to the performance of Youdao Lingshi tutoring services. The segment’s gross margin increased to 65.5% from 59.8% a year earlier. Zhou said artificial intelligence features supported user engagement and retention. The volume of AI English essay grading more than doubled sequentially during the quarter, while Youdao Lingshi’s retention rate exceeded 75%. Programming courses also maintained a retention rate above 75%, according to the company. → Home Depot Analysts See a Path to $375 and Beyond AI-driven subscription products generated approximately RMB100 million in second-quarter sales, rising more than 20% year over year. User engagement with Youdao’s AI simultaneous interpretation feature increased about 100% from the prior year, while HiEcho gross billings grew by more than 100%. During the quarter, Youdao introduced Confucius 4, the latest version of its proprietary large language model. The company said the model improved multimodal voice and translation functions, visual mathematics and physics reasoning, and inference costs. An optimized translation acceleration mechanism increased inference speed by roughly 80%, Zhou said. The company also introduced what it described as a 14-language, cross-lingual, accent-free voice-cloning technology. The technology is designed to replicate a speaker’s voice across languages while retaining emotional characteristics, and Youdao said it open-sourced the model weights and toolchains for local deployment and commercial use. Online marketing services revenue declined 7.7% year over year to RMB584.4 million. Management attributed the decrease to a strategy emphasizing higher-quality and higher-return-on-investment advertising engagements rather than lower-margin opportunities. That approach helped lift the segment’s gross margin to 28.7%, from 25.8% in the prior-year period. Youdao added more than 100 new clients during the quarter and increased advertiser retention by approximately five percentage points sequentially, Zhou said. Revenue from AI application advertising and short-form drama advertising grew more than 50% year over year for the second consecutive quarter. President Lei Jin said the company expects advertising gross margin to continue improving year over year in the third quarter. Youdao plans to focus on AI-enabled advertising tools, advertiser acquisition and profitability. The company launched the second generation of its AI Ad Placement Optimizer in the second quarter and expects to introduce an overseas key-opinion-leader marketing agent in the third quarter to help Chinese companies reach international markets. The AI Ad Placement Optimizer is intended to improve traffic matching, targeting accuracy and operating efficiency. Youdao said iMagicBox is being used to reduce the cost of producing advertising creative materials. The company plans to target growing AI application and short-form drama sectors in China and overseas. Smart-device revenue fell 31.5% year over year to RMB86.8 million, which management said reflected lower demand for smart learning devices. Segment gross margin was 32.8%, down from 41.5% in the prior-year quarter. Management cited higher memory costs and reduced hardware scale as pressures on device profitability. However, the company said it expects smart-device gross margin to recover to more than 40% in the second half of 2026, aided by new product launches in the third quarter and engineering improvements designed to reduce memory reliance. During China’s 618 Shopping Festival, Youdao Dictionary Pen ranked first in its category by sales on JD.com and Tmall for the seventh consecutive year, according to Zhou. The company also launched the Youdao Dictionary Pen X8, featuring a database of 80 million words and AI-powered photo-based tutoring across multiple subjects. Total gross profit rose 17.6% year over year to RMB716.9 million. Operating expenses increased to RMB605.3 million from RMB580.6 million, including higher sales and marketing expenses and research and development spending. Operating income margin improved to 7.6% from 2% a year earlier. As of June 30, Youdao held RMB849.3 million in cash equivalents, restricted cash and short-term investments. Contract liabilities, primarily related to learning services, totaled RMB835.1 million, compared with RMB847.7 million at the end of 2025. Management said it plans to continue its AI-native strategy, expanding vertical large-language-model applications across learning and advertising. The company expects to launch multiple new AI agent and model products in September, with particular focus on voice technologies, mathematics learning and other STEM-related applications. Youdao, Inc (NYSE: DAO), established in 2006 as a subsidiary of NetEase, is headquartered in Beijing, China. The company went public on the New York Stock Exchange in October 2019, marking a significant milestone in its development as an intelligent learning and knowledge service provider. Since its inception, Youdao has combined cloud computing, artificial intelligence and big data analytics to create an adaptive learning ecosystem designed to meet the needs of individual learners and organizations. At the core of Youdao's offerings is its suite of digital dictionaries and translation tools, including the flagship Youdao Dictionary app and translation engine. This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to [email protected]. The article "Youdao Q2 Earnings Call Highlights" was originally published by MarketBeat. View MarketBeat's top stocks for August 2026.

HANGZHOU, China, Aug. 20, 2026 /PRNewswire/ -- Youdao, Inc. ("Youdao" or the "Company") (NYSE: DAO), an AI solutions provider specializing in learning and advertising, today announced its unaudited financial results for the second quarter ended June 30, 2026. Second Quarter 2026 Financial Highlights Total net revenues were RMB1.5 billion (US$216.2 million), representing a 3.5% increase from the same period in 2025.- Net revenues from learning services were RMB795.6 million (US$117.3 million), representing a 20.9% increase from the same period in 2025.- Net revenues from smart devices were RMB86.8 million (US$12.8 million), representing a 31.5% decrease from the same period in 2025.- Net revenues from online marketing services were RMB584.4 million (US$86.1 million), representing a 7.7% decrease from the same period in 2025. Gross margin was 48.9%, compared with 43.0% for the same period in 2025. Income from operations was RMB111.5 million (US$16.4 million), increasing by nearly 2.9 times from the same period in 2025. Basic and diluted net income per American depositary share ("ADS") attributable to ordinary shareholders were RMB0.62 (US$0.09) and RMB0.61 (US$0.09), respectively, compared with basic and diluted net loss per ADS attributable to ordinary shareholders of RMB0.15 for the same period of 2025. Non-GAAP basic and diluted net income per ADS attributable to ordinary shareholders were RMB0.76 (US$0.11) and RMB0.75 (US$0.11), respectively, compared with RMB0.11 and RMB0.10 for the same period of 2025. "We delivered another strong quarter, with continued revenue growth, record operating profit and robust operating cash flow, marking our eighth consecutive quarter of operating profitability," said Dr. Feng Zhou, Chief Executive Officer and Director of Youdao. "These results reflect the progress we are making toward healthier and more sustainable growth." "AI is increasingly translating into tangible business results across Youdao. Learning services maintained strong growth, supported by Youdao Lingshi and our expanding portfolio of AI-driven subscription products, while our disciplined focus on higher-quality opportunities further improved the profitability of online marketing services. With the continued advancement of Confucius 4 and our AI Agent portfolio, we will deepen the application of AI across learning and advertising to enhance user experience, improve operating efficiency and drive sustainable growth," Dr. Zhou concluded. Second Quarter 2026 Financial Results Net Revenues Net revenues for the second quarter of 2026 were RMB1.5 billion (US$216.2 million), representing a 3.5% increase from RMB1.4 billion for the same period of 2025. Net revenues from learning services were RMB795.6 million (US$117.3 million) for the second quarter of 2026, representing a 20.9% increase from RMB657.8 million for the same period of 2025. The year-over-year increase was primarily driven by the strong momentum of tutoring services compared with the same period of 2025. Net revenues from smart devices were RMB86.8 million (US$12.8 million) for the second quarter of 2026, representing a 31.5% decrease from RMB126.8 million for the same period of 2025, primarily due to a decline in demand for smart learning devices. Net revenues from online marketing services were RMB584.4 million (US$86.1 million) for the second quarter of 2026, representing a 7.7% decrease from RMB632.9 million for the same period of 2025. The year-over-year decrease reflects Youdao's disciplined, strategic approach to engagement acceptance, which places greater emphasis on higher ROI (return on investment) engagements. Youdao believes this strategy has enhanced the overall operational efficiency of its business. Gross Profit and Gross Margin Gross profit for the second quarter of 2026 was RMB716.9 million (US$105.7 million), representing a 17.6% increase from RMB609.4 million for the same period of 2025. Gross margin was 48.9% for the second quarter of 2026, compared with 43.0% for the same period of 2025. Gross margin for learning services was 65.5% for the second quarter of 2026, compared with 59.8% for the same period of 2025. The improvement was primarily attributable to improved economies of scale resulting from increased revenues from learning services. Gross margin for smart devices was 32.8% for the second quarter of 2026, compared with 41.5% for the same period of 2025. The decrease was mainly attributable to increased bill-of-materials cost for smart devices. Gross margin for online marketing services was 28.7% for the second quarter of 2026, compared with 25.8% for the same period of 2025. Operating Expenses Total operating expenses for the second quarter of 2026 were RMB605.3 million (US$89.2 million), compared with RMB580.6 million for the same period of last year. Sales and marketing expenses for the second quarter of 2026 were RMB424.1 million (US$62.5 million), representing an increase of 5.5% from RMB401.8 million for the same period of 2025. This increase was primarily driven by increased sales and marketing efforts associated with learning services. Research and development expenses for the second quarter of 2026 were RMB142.0 million (US$20.9 million), representing an increase of 10.7% from RMB128.3 million for the same period of 2025. The increase was primarily driven by Youdao's increased investments in cutting-edge AI technology to enhance product and service quality. General and administrative expenses for the second quarter of 2026 were RMB39.2 million (US$5.8 million), representing a decrease of 22.3% from RMB50.4 million for the same period of 2025. The decrease was mainly attributable to a decrease in expected credit losses on the Company's accounts receivables. Income from Operations As a result of the foregoing, income from operations for the second quarter of 2026 was RMB111.5 million (US$16.4 million), increasing by nearly 2.9 times from RMB28.8 million for the same period in 2025. The margin of income from operations was 7.6%, compared with 2.0% for the same period of last year. Net Income/(Loss) Attributable to Youdao's Ordinary Shareholders Net income attributable to Youdao's ordinary shareholders for the second quarter of 2026 was RMB73.8 million (US$10.9 million), compared with net loss attributable to Youdao's ordinary shareholders of RMB17.8 million for the same period of last year. Non-GAAP net income attributable to Youdao's ordinary shareholders for the second quarter of 2026 was RMB90.6 million (US$13.4 million), surging over sevenfold from RMB12.5 million for the same period of last year. Basic and diluted net income per ADS attributable to ordinary shareholders for the second quarter of 2026 were RMB0.62 (US$0.09) and RMB0.61 (US$0.09), respectively, compared with basic and diluted net loss per ADS attributable to ordinary shareholders of RMB0.15 for the same period of 2025. Non-GAAP basic and diluted net income per ADS attributable to ordinary shareholders were RMB0.76 (US$0.11) and RMB0.75 (US$0.11), respectively, compared with RMB0.11 and RMB0.10 for the same period of 2025. Other Information As of June 30, 2026, Youdao's cash, cash equivalents, current and non-current restricted cash, and short-term investments totaled RMB849.3 million (US$125.2 million), compared with RMB743.2 million as of December 31, 2025. For the second quarter of 2026, net cash provided by operating activities was RMB334.2 million (US$49.3 million). Youdao's ability to continue as a going concern is dependent on management's ability to implement an effective business plan amid a changing regulatory environment, generate operating cash flows, and secure external financing for future development. As of June 30, 2026, Youdao has received various forms of financial support from NetEase Group, including, among others, RMB878.0 million in a short-term loan, and US$118.9 million in long-term loans maturing on March 31, 2030, drawn from a US$300.0 million revolving loan facility. As of June 30, 2026, the Company's contract liabilities, which mainly consisted of deferred revenues generated from Youdao's learning services, were RMB835.1 million (US$123.1 million), compared with RMB847.7 million as of December 31, 2025. Share Repurchase Program On November 17, 2022, the Company announced that its Board of Directors had authorized the Company to adopt a share repurchase program in accordance with applicable laws and regulations for up to US$20.0 million of its Class A ordinary shares (including in the form of ADSs) during a period of up to 36 months beginning on November 18, 2022. This amount was subsequently increased to US$40.0 million in August 2023. In November 2025 and August 2026, the Board approved amendments to this Program, each extending its expiration date by one year, ultimately to November 17, 2027. As of June 30, 2026, the Company had repurchased a total of approximately 7.5 million ADSs in the open market under the share repurchase program for a total consideration of approximately US$33.8 million. Announcement on Change in Management The Company also announced today that Mr. William Lei Ding has resigned from his position as a director of the Company's Board of Directors, effective August 18, 2026, for personal reasons. Mr. Jinhai Chen was appointed as a director of the Company's Board of Directors, effective August 18, 2026. Jinhai Chen currently serves as vice president of NetEase Cloud Music Inc. (HKEX: 9899). Prior to joining NetEase Cloud Music in 2020, Mr. Chen served as technical director at Tencent Holdings Limited from 2014 to 2020. Mr. Chen received his master's degree in information and communication engineering from Harbin Institute of Technology. Conference Call Youdao's management team will host a teleconference call with a simultaneous webcast at 6:00 a.m. Eastern Time on Thursday, August 20, 2026 (Beijing/Hong Kong Time: 6:00 p.m., Thursday, August 20, 2026). Youdao's management will be on the call to discuss the financial results and answer questions. Dial-in details for the earnings conference call are as follows: A live and archived webcast of the conference call will be available on the Company's investor relations website at http://ir.youdao.com. A replay of the conference call will be accessible by phone one hour after the conclusion of the live call at the following numbers, until August 27, 2026: About Youdao, Inc. Youdao, Inc. (NYSE: DAO) is strategically positioned as an AI solutions provider specializing in learning and advertising. Youdao mainly offers learning services, online marketing services and smart devices – all powered by advanced technologies. Youdao was founded in 2006 as part of NetEase, Inc. (NASDAQ: NTES; HKEX: 9999), a leading internet technology company in China. For more information, please visit: http://ir.youdao.com. Non-GAAP Measures Youdao considers and uses non-GAAP financial measures, such as non-GAAP net income attributable to the Company's ordinary shareholders and non-GAAP basic and diluted net income per ADS, as supplemental metrics in reviewing and assessing its operating performance and formulating its business plan. The presentation of non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Youdao defines non-GAAP net income attributable to the Company's ordinary shareholders as net income attributable to the Company's ordinary shareholders excluding share-based compensation expenses, impairment of long-term investments, gain from fair value change of long-term investment and adjustment for GAAP to non-GAAP reconciling item for the loss/(income) attributable to noncontrolling interests. Non-GAAP net income attributable to the Company's ordinary shareholders enables Youdao's management to assess its operating results without considering the impact of these items, which are non-cash charges in nature. Youdao believes that these non-GAAP financial measures provide useful information to investors in understanding and evaluating the Company's current operating performance and prospects in the same manner as management does, if they so choose. Non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. Non-GAAP financial measures have limitations as analytical tools, which possibly do not reflect all items of expense that affect our operations. In addition, the non-GAAP financial measures Youdao uses may differ from the non-GAAP measures uses by other companies, including peer companies, and therefore their comparability may be limited. For more information on these non-GAAP financial measures, please see the table captioned "Unaudited Reconciliation of GAAP and Non-GAAP Results" set forth at the end of this release. The accompanying table has more details on the reconciliation between our GAAP financial measures that are mostly directly comparable to non-GAAP financial measures. Youdao encourages you to review its financial information in its entirety and not rely on a single financial measure. Exchange Rate Information This announcement contains translations of certain RMB amounts into U.S. dollars ("US$") at specified rates solely for the convenience of the reader. Unless otherwise stated, all translations from RMB to US$ were made at the rate of RMB6.7851 to US$1.00, the exchange rate on June 30, 2026 set forth in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or US$ amounts referred to could be converted into US$ or RMB, as the case may be, at any particular rate or at all. Safe Harbor Statement This press release contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties, and a number of factors could cause actual results to differ materially from those contained in any forward-looking statement. In some cases, forward-looking statements can be identified by words or phrases such as "may," "will," "expect," "anticipate," "target," "aim," "estimate," "intend," "plan," "believe," "potential," "continue," "is/are likely to" or other similar expressions. The Company may also make written or oral forward-looking statements in its reports filed with, or furnished to, the U.S. Securities and Exchange Commission, in its annual reports to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Further information regarding such risks, uncertainties or factors is included in the Company's filings with the SEC. All information provided in this press release is as of the date of this press release, and the Company does not undertake any duty to update such information, except as required under applicable law. For investor and media inquiries, please contact: In China:Jeffrey WangYoudao, Inc.Tel: +86-10-8255-8163 ext. 89980E-mail: [email protected] Piacente Financial CommunicationsHelen WuTel: +86-10-6508-0677E-mail: [email protected] In the United States:Piacente Financial CommunicationsBrandi PiacenteTel: +1-212-481-2050E-mail: [email protected] View original content:https://www.prnewswire.com/news-releases/youdao-reports-second-quarter-2026-unaudited-financial-results-302856265.html

This article first appeared on GuruFocus. Net Revenues: RMB1.5 billion (USD216.2 million), a 3.5% increase year-over-year. Operating Profit: RMB111.5 million, a nearly fourfold increase year-over-year, marking the 8th consecutive quarter of operating profitability. Net Cash Inflow from Operating Activities: RMB334.2 million (USD49.3 million), up 80.7% year-over-year. Learning Services Revenue: RMB795.6 million (USD117.3 million), up 20.9% year-over-year, driven by strong performance of Youdao Lingshi. Online Marketing Services Revenue: RMB584.4 million (USD86.1 million), down 7.7% year-over-year, reflecting a focus on higher-quality, higher-margin opportunities. Smart Devices Revenue: RMB86.8 million (USD12.8 million), down 31.5% year-over-year due to a decline in demand for smart learning devices. Gross Profit: RMB716.9 million (USD105.7 million), a 17.6% increase year-over-year. Gross Margin (Learning Services): 65.5%, compared with 59.8% in the same period of 2025. Gross Margin (Smart Devices): 32.8%, compared with 41.5% in the same period of 2025. Gross Margin (Online Marketing Services): 28.7%, compared with 25.8% in the same period of 2025. Operating Income Margin: 7.6%, compared with 2% in the same period of last year. Net Income Attributable to Ordinary Shareholders: RMB73.8 million (USD10.9 million), compared with a net loss of RMB17.8 million in the same period of last year. Non-GAAP Net Income Attributable to Ordinary Shareholders: RMB90.6 million (USD13.4 million), compared with RMB12.5 million in the same period of last year. Basic and Diluted Net Income per ADS: RMB0.62 (USD0.09) and RMB0.61 (USD0.09), respectively. Non-GAAP Basic and Diluted Net Income per ADS: RMB0.76 (USD0.11) and RMB0.75 (USD0.11), respectively. Sales and Marketing Expenses: RMB424.1 million, compared with RMB401.8 million in the second quarter of 2025. Research and Development Expenses: RMB142 million, compared with RMB128.3 million in the second quarter of 2025. Contract Liabilities: RMB835.1 million (USD123.1 million) as of June 30, 2026, compared with RMB847.7 million as of December 31, 2025. Cash and Investments: RMB849.3 million (USD125.2 million) at the end of the period. Warning! GuruFocus has detected 3 Warning Signs with MU. Is DAO fairly valued? Test your thesis with our free DCF calculator. Release Date: August 20, 2026 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Youdao Inc (NYSE:DAO) achieved a record-high operating profit of RMB111.5 million in Q2 2026, marking its 8th consecutive quarter of profitability and a nearly fourfold year-over-year increase. Net cash inflow from operating activities surged 80.7% year-over-year to RMB334.2 million, reflecting strong cash generation and improved financial health. Learning services revenue grew 20.9% year-over-year to RMB795.6 million, driven by strong performance of Youdao Lingshi, which maintained a high retention rate of over 75%. AI-driven subscription products generated approximately RMB100 million in sales during Q2, up over 20% year-over-year, with Hi Echo gross billings growing more than 100%. The launch of Confucius 4, featuring significant upgrades in multimodal voice, translation, and math reasoning, reduced inference costs and increased translation speed by 80%, positioning Youdao Inc (NYSE:DAO) for future AI-driven growth. Smart devices revenue declined 31.5% year-over-year to RMB86.8 million, reflecting weak demand and a drop in gross margin from 41.5% to 32.8% due to rising memory costs. Online marketing services revenue decreased 7.7% year-over-year to RMB584.4 million, as the company deliberately prioritized higher-margin opportunities, potentially limiting top-line growth. Gross margin for smart devices fell significantly, down approximately 11 percentage points year-over-year in the first half of 2026, with memory costs expected to remain elevated in the near term. Total operating expenses increased to RMB605.3 million from RMB580.6 million, driven by higher sales and marketing and R&D costs, which could pressure future profitability if not offset by revenue growth. Contract liabilities decreased to RMB835.1 million from RMB847.7 million at the end of 2025, indicating a potential slowdown in deferred revenue from learning services. Q: What are the core strengths of the Confucius large language model, and are there new product launches in the pipeline targeting these capabilities? A: Dr. Feng Zhou (CEO) highlighted two key areas of focus beyond translation: advanced voice/audio and mathematics learning. For voice, the new Confucius 4 TTS model supports cross-lingual accent-free voice cloning across 14 languages while preserving speaker identity and emotional expression, with broad applications in content creation and dubbing. For mathematics, Confucius 4 significantly improved reasoning for visual math and physics prompts, particularly complex diagrams. The company plans to launch multiple new AI agent and model products in September, expanding capabilities in these key areas. Q: How is AI being integrated into Youdao Lingshi, and what are the plans for expanding its AI-powered features? A: Peng Su (Senior VP) explained that AI creates value for Lingshi in two ways: improving the learning experience and expanding offerings, and improving scalability and operational efficiency. Key AI features include personalized learning path recommendations, AI quiz recommendations, AI essay grading for Chinese and English, and AI-based college admission advisors. These features contributed to a retention rate exceeding 75% in Q2, demonstrating high user satisfaction with the AI interactive courses. Q: What is the outlook for online marketing services in the third quarter? A: Lei Jin (VP) stated that the advertising business became more profitable in Q2, with gross margin improving by about 3 percentage points, and expects continued year-over-year improvement in Q3. The company will focus on three areas: strengthening AI plus advertising capabilities (including launching an overseas KOL marketing agent), expanding the advertiser base in fast-growing sectors like AI applications and short-form dramas, and improving profitability through tools like iMagicBox and the AI Ad Placement Optimizer. The company will prioritize profitable and sustainable growth over rapid expansion. Q: What is the outlook for gross margin in the third quarter and second half of 2026? A: Wayne Li (VP of Finance) provided a detailed breakdown. Overall gross margin reached 47% in the first half, up 2 percentage points year-over-year. Online marketing services margin expanded due to the AI-native strategy and profitability priority discipline. Learning services margin improved from AI-enhanced efficiency and economies of scale. Smart devices gross margin declined to around 37% in H1 due to rising memory costs, but is expected to recover to over 40% in the second half with new product launches and engineering improvements. The company expects strong gross margin performance and meaningful breakthroughs at the operating profit level in H2 2026. Q: What drove the strong financial performance in the second quarter of 2026? A: Dr. Feng Zhou (CEO) reported net revenues of RMB1.5 billion, up 3.5% year-over-year, with operating profit reaching a record RMB111.5 million, nearly fourfold year-over-year. This marks the 8th consecutive quarter of operating profitability. Net cash inflow from operating activities was RMB334.2 million, up 80.7% year-over-year. Learning Services grew 20.9% to RMB795.6 million, driven by Youdao Lingshi's strong performance, while online marketing services declined 7.7% to RMB584.4 million due to a deliberate focus on higher-quality, higher-margin opportunities. Q: How is the company's AI-driven subscription business performing? A: Dr. Feng Zhou (CEO) noted that AI-driven subscription products generated approximately RMB100 million in sales during Q2, up more than 20% year-over-year. Hi Echo continued to perform strongly with second-quarter gross billings increasing by more than 100% year-over-year. AI Simultaneous interpretation features maintained strong momentum with user engagement up approximately 100% year-over-year. Q: What is the current status and strategy for the smart devices business? A: Dr. Feng Zhou (CEO) stated that improving profitability remains the primary objective for smart devices. Net revenues were RMB86.8 million in Q2, down 31.5% year-over-year, but the overall operational health improved. The Youdao Dictionary Pen ranked number one in sales on both JD.com and Tmall during the 618 Shopping Festival for the seventh consecutive year. The company recently launched the Youdao Dictionary Pen X8 with an expanded database of 80 million authoritative words and AI-powered photo-based tutoring, with positive initial market response. Q: How is the company addressing the decline in online marketing services revenue? A: Lei Jin (VP) explained that the decline reflects a deliberate focus on higher quality, higher margin opportunities. Despite the revenue decline, gross margin improved to 28.7%, up approximately 3 percentage points year-over-year. The company added more than 100 new clients during the quarter and increased advertiser retention by approximately 5 percentage points sequentially. AI application and short-form drama advertising businesses maintained strong momentum with revenues growing more than 50% year-over-year for the second consecutive quarter. For the complete transcript of the earnings call, please refer to the full earnings call transcript.

HANGZHOU, China, May 21, 2026 /PRNewswire/ -- Youdao, Inc. ("Youdao" or the "Company") (NYSE: DAO), an AI solutions provider specializing in learning and advertising, today announced its unaudited financial results for the first quarter ended March 31, 2026. First Quarter 2026 Financial Highlights Total net revenues were RMB1.3 billion (US$195.4 million), representing a 3.8% increase from the same period in 2025.- Net revenues from learning services were RMB627.5 million (US$91.0 million), representing a 4.2% increase from the same period in 2025.- Net revenues from smart devices were RMB109.4 million (US$15.9 million), representing a 42.6% decrease from the same period in 2025.- Net revenues from online marketing services were RMB611.1 million (US$88.6 million), representing a 20.9% increase from the same period in 2025. Gross margin was 44.7%, compared with 47.3% for the same period in 2025. Income from operations was RMB57.5 million (US$8.3 million), representing a 44.7% decrease from the same period in 2025. Basic and diluted net income per American depositary share ("ADS") attributable to ordinary shareholders were RMB0.33 (US$0.05) and RMB0.32 (US$0.05), respectively, compared with RMB0.65 and RMB0.64 for the same period of 2025. Non-GAAP basic and diluted net income per ADS attributable to ordinary shareholders were RMB0.38 (US$0.06) and RMB0.37 (US$0.05), respectively, compared with RMB0.69 and RMB0.68 for the same period of 2025. "We entered 2026 with solid momentum, delivering our fourth consecutive quarter of year-over-year revenue growth and seventh consecutive quarter of operating profitability. Our operating margin improved sequentially, and operating cash flow strengthened significantly. At the same time, our strategic initiatives continued to gain traction, with both Youdao Lingshi gross billings and online marketing services revenue growing over 20% year-over-year. We also expanded our AI Agent matrix with the launches of LobsterAI and Youdao Baoku, extending the capabilities of our proprietary Confucius LLM across learning and productivity scenarios," said Dr. Feng Zhou, Chief Executive Officer and Director of Youdao. "Looking ahead, we remain firmly committed to our AI-Native Strategy. By continuously refining our vertical large language models for learning and advertising, and by expanding our portfolio of AI-native agents, we are enhancing how users learn, work and market. We will continue to improve user experience while driving sustainable progress in profitability and cash flow throughout the year," Dr. Zhou concluded. First Quarter 2026 Financial Results Net Revenues Net revenues for the first quarter of 2026 were RMB1.3 billion (US$195.4 million), representing a 3.8% increase from RMB1.3 billion for the same period of 2025. Net revenues from learning services were RMB627.5 million (US$91.0 million) for the first quarter of 2026, representing a 4.2% increase from RMB602.4 million for the same period of 2025. Net revenues from smart devices were RMB109.4 million (US$15.9 million) for the first quarter of 2026, representing a 42.6% decrease from RMB190.5 million for the same period of 2025, primarily due to a decline in demand for smart learning devices in the first quarter of 2026. Net revenues from online marketing services were RMB611.1 million (US$88.6 million) for the first quarter of 2026, representing a 20.9% increase from RMB505.4 million for the same period of 2025. The year-over-year increase was mainly attributable to increased demand for performance-based advertisements through third parties' internet properties, which was driven by Youdao's continued investments in AI technology. Gross Profit and Gross Margin Gross profit for the first quarter of 2026 was RMB602.3 million (US$87.3 million), largely flat compared with RMB614.2 million for the same period of 2025. Gross margin was 44.7% for the first quarter of 2026, compared with 47.3% for the same period of 2025. The decrease was mainly due to the decline in gross profit margin of smart devices. Gross margin for learning services was 60.2% for the first quarter of 2026, compared with 59.8% for the same period of 2025. Gross margin for smart devices was 39.9% for the first quarter of 2026, compared with 52.3% for the same period of 2025. The decrease was mainly attributable to increased bill of materials cost for smart devices. Gross margin for online marketing services was 29.6% for the first quarter of 2026, compared with 30.5% for the same period of 2025. Operating Expenses Total operating expenses for the first quarter of 2026 were RMB544.8 million (US$79.0 million), compared with RMB510.2 million for the same period of last year. Sales and marketing expenses for the first quarter of 2026 were RMB382.2 million (US$55.4 million), representing an increase of 6.9% from RMB357.6 million for the same period of 2025. This increase was primarily driven by increasing sales and marketing efforts, as well as increased payroll-related expenses and outsourcing labor service fees associated with learning services in the first quarter of 2026. Research and development expenses for the first quarter of 2026 were RMB115.4 million (US$16.7 million), remaining stable with the same period of 2025. General and administrative expenses for the first quarter of 2026 were RMB47.2 million (US$6.8 million), representing an increase of 27.4% from RMB37.1 million for the same period of 2025. The increase was mainly attributable to an increase in expected credit losses on the Company's accounts receivables in the first quarter of 2026. Income from Operations As a result of the foregoing, income from operations for the first quarter of 2026 was RMB57.5 million (US$8.3 million), compared with RMB104.0 million for the same period in 2025. The margin of income from operations was 4.3%, compared with 8.0% for the same period of last year. Net Income Attributable to Youdao's Ordinary Shareholders Net income attributable to Youdao's ordinary shareholders for the first quarter of 2026 was RMB38.6 million (US$5.6 million), compared with RMB76.7 million for the same period of last year. Non-GAAP net income attributable to Youdao's ordinary shareholders for the first quarter of 2026 was RMB44.9 million (US$6.5 million), compared with RMB81.7 million for the same period of last year. Basic and diluted net income per ADS attributable to ordinary shareholders for the first quarter of 2026 were RMB0.33 (US$0.05) and RMB0.32 (US$0.05), respectively, compared with RMB0.65 and RMB0.64 for the same period of 2025. Non-GAAP basic and diluted net income per ADS attributable to ordinary shareholders were RMB0.38 (US$0.06) and RMB0.37 (US$0.05), respectively, compared with RMB0.69 and RMB0.68 for the same period of 2025. Other Information As of March 31, 2026, Youdao's cash, cash equivalents, current and non-current restricted cash, and short-term investments totaled RMB515.2 million (US$74.7 million), compared with RMB743.2 million as of December 31, 2025. For the first quarter of 2026, net cash used in operating activities was RMB93.1 million (US$13.5 million). Youdao's ability to continue as a going concern is dependent on management's ability to implement an effective business plan amid a changing regulatory environment, generate operating cash flows, and secure external financing for future development. As of March 31, 2026, Youdao has received various forms of financial support from NetEase Group, including, among others, RMB878.0 million in short-term loan, and US$118.0 million in long-term loans maturing on March 31, 2027, drawn from a US$300.0 million revolving loan facility. In April 2026, the Company and NetEase Group both approved an extension of the maturity date of the aforementioned US$300.0 million revolving loan facility to March 31, 2030, including the loans already drawn from it. As of March 31, 2026, the Company's contract liabilities, which mainly consisted of deferred revenues generated from Youdao's learning services, were RMB667.0 million (US$96.7 million), compared with RMB847.7 million as of December 31, 2025. Share Repurchase Program On November 17, 2022, the Company announced that its Board of Directors had authorized the Company to adopt a share repurchase program in accordance with applicable laws and regulations for up to US$20.0 million of its Class A ordinary shares (including in the form of ADSs) during a period of up to 36 months beginning on November 18, 2022. This amount was subsequently increased to US$40.0 million in August 2023. In November 2025, the Board approved an amendment to this Program to extend its original expiration date by one year to November 17, 2026. As of March 31, 2026, the Company had repurchased a total of approximately 7.5 million ADSs in the open market under the share repurchase program for a total consideration of approximately US$33.8 million. Conference Call Youdao's management team will host a teleconference call with a simultaneous webcast at 6:00 a.m. Eastern Time on Thursday, May 21, 2026 (Beijing/Hong Kong Time: 6:00 p.m., Thursday, May 21, 2026). Youdao's management will be on the call to discuss the financial results and answer questions. Dial-in details for the earnings conference call are as follows: A live and archived webcast of the conference call will be available on the Company's investor relations website at http://ir.youdao.com. A replay of the conference call will be accessible by phone one hour after the conclusion of the live call at the following numbers, until May 28, 2026: About Youdao, Inc. Youdao, Inc. (NYSE: DAO) is strategically positioned as an AI solutions provider specializing in learning and advertising. Youdao mainly offers learning services, online marketing services and smart devices – all powered by advanced technologies. Youdao was founded in 2006 as part of NetEase, Inc. (NASDAQ: NTES; HKEX: 9999), a leading internet technology company in China. For more information, please visit: http://ir.youdao.com. Non-GAAP Measures Youdao considers and uses non-GAAP financial measures, such as non-GAAP net income attributable to the Company's ordinary shareholders and non-GAAP basic and diluted net income per ADS, as supplemental metrics in reviewing and assessing its operating performance and formulating its business plan. The presentation of non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Youdao defines non-GAAP net income attributable to the Company's ordinary shareholders as net income attributable to the Company's ordinary shareholders excluding share-based compensation expenses, gain from fair value change of long-term investment and adjustment for GAAP to non-GAAP reconciling item for the (income)/loss attributable to noncontrolling interests. Non-GAAP net income attributable to the Company's ordinary shareholders enables Youdao's management to assess its operating results without considering the impact of these items, which are non-cash charges in nature. Youdao believes that these non-GAAP financial measures provide useful information to investors in understanding and evaluating the Company's current operating performance and prospects in the same manner as management does, if they so choose. Non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. Non-GAAP financial measures have limitations as analytical tools, which possibly do not reflect all items of expense that affect our operations. In addition, the non-GAAP financial measures Youdao uses may differ from the non-GAAP measures uses by other companies, including peer companies, and therefore their comparability may be limited. For more information on these non-GAAP financial measures, please see the table captioned "Unaudited Reconciliation of GAAP and Non-GAAP Results" set forth at the end of this release. The accompanying table has more details on the reconciliation between our GAAP financial measures that are mostly directly comparable to non-GAAP financial measures. Youdao encourages you to review its financial information in its entirety and not rely on a single financial measure. Exchange Rate Information This announcement contains translations of certain RMB amounts into U.S. dollars ("US$") at specified rates solely for the convenience of the reader. Unless otherwise stated, all translations from RMB to US$ were made at the rate of RMB6.8980 to US$1.00, the exchange rate on March 31, 2026 set forth in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or US$ amounts referred to could be converted into US$ or RMB, as the case may be, at any particular rate or at all. Safe Harbor Statement This press release contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties, and a number of factors could cause actual results to differ materially from those contained in any forward-looking statement. In some cases, forward-looking statements can be identified by words or phrases such as "may," "will," "expect," "anticipate," "target," "aim," "estimate," "intend," "plan," "believe," "potential," "continue," "is/are likely to" or other similar expressions. The Company may also make written or oral forward-looking statements in its reports filed with, or furnished to, the U.S. Securities and Exchange Commission, in its annual reports to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Further information regarding such risks, uncertainties or factors is included in the Company's filings with the SEC. All information provided in this press release is as of the date of this press release, and the Company does not undertake any duty to update such information, except as required under applicable law. For investor and media inquiries, please contact: In China:Jeffrey WangYoudao, Inc.Tel: +86-10-8255-8163 ext. 89980E-mail: [email protected] Piacente Financial CommunicationsHelen WuTel: +86-10-6508-0677E-mail: [email protected] In the United States:Piacente Financial CommunicationsBrandi PiacenteTel: +1-212-481-2050E-mail: [email protected] View original content:https://www.prnewswire.com/news-releases/youdao-reports-first-quarter-2026-unaudited-financial-results-302778636.html

HONG KONG, May 21, 2026 /PRNewswire/ -- NetEase, Inc. (NASDAQ: NTES and HKEX: 9999, "NetEase" or the "Company"), a leading internet and game services provider, today announced its unaudited financial results for the first quarter ended March 31, 2026. First Quarter 2026 Financial Highlights Net revenues were RMB30.6 billion (US$4.4 billion), an increase of 6.1% compared with the same quarter of 2025. Gross profit was RMB21.2 billion (US$3.1 billion), an increase of 14.8% compared with the same quarter of 2025. Total operating expenses were RMB8.6 billion (US$1.2 billion), an increase of 6.5% compared with the same quarter of 2025. Net income attributable to the Company's shareholders was RMB10.7 billion (US$1.5 billion). Non-GAAP net income attributable to the Company's shareholders was RMB11.3 billion (US$1.6 billion).[1] Basic net income per share was US$0.48 (US$2.42 per ADS). Non-GAAP basic net income per share was US$0.51 (US$2.56 per ADS).[1] First Quarter 2026 and Recent Operational Highlights Sustained strong engagement and revenue performance across established titles, including the Fantasy Westward Journey franchise, Identity V, Eggy Party, Sword of Justice and Where Winds Meet, supported by high-cadence content updates and gameplay innovation. Advanced global expansion through key titles, such as Where Winds Meet and Marvel Rivals, amplifying their international reach and deepening player engagement. Blizzard titles maintained stable operations in China with a steady rollout of localized content. "For the first quarter of 2026, we delivered another solid quarter across our established gaming portfolio, while continuing to make steady progress advancing our pipeline of new titles," said Mr. William Ding, Chief Executive Officer and Director of NetEase. "Our recent global launches have demonstrated strong cross-market appeal, supporting the continued execution of our international expansion strategy. "Looking ahead, we will continue to strengthen our technological capabilities and focus on innovation across both content and development. By combining evolving technologies with our deep operating expertise, we aim to create exceptional content and experiences that exceed players' expectations and reach an even broader global audience," Mr. Ding concluded. First Quarter 2026 Financial Results Net Revenues Net revenues for the first quarter of 2026 were RMB30.6 billion (US$4.4 billion), compared with RMB27.5 billion and RMB28.8 billion for the preceding quarter and the same quarter of 2025, respectively. Net revenues from games and related value-added services were RMB25.7 billion (US$3.7 billion) for the first quarter of 2026, compared with RMB22.0 billion and RMB24.0 billion for the preceding quarter and the same quarter of 2025, respectively. Net revenues from the operation of online games accounted for approximately 97.5% of the segment's net revenues for the first quarter of 2026, compared with 96.8% and 97.5% for the preceding quarter and the same quarter of 2025, respectively. The quarter-over-quarter and year-over-year increases were attributable to higher net revenues from self-developed games, such as the Fantasy Westward Journey franchise and Where Winds Meet. Net revenues from Youdao were RMB1.3 billion (US$195.4 million) for the first quarter of 2026, compared with RMB1.6 billion and RMB1.3 billion for the preceding quarter and the same quarter of 2025, respectively. The quarter-over-quarter decrease was mainly due to decreased net revenues from its learning services and smart devices. Net revenues from NetEase Cloud Music were RMB2.0 billion (US$287.2 million) for the first quarter of 2026, compared with RMB2.0 billion and RMB1.9 billion for the preceding quarter and the same quarter of 2025, respectively. Net revenues from innovative businesses and others were RMB1.5 billion (US$224.6 million) for the first quarter of 2026, compared with RMB2.0 billion and RMB1.6 billion for the preceding quarter and the same quarter of 2025, respectively. The quarter-over-quarter decrease was led by decreased net revenues from e-commerce and advertising businesses. Cost of Revenues Cost of revenues for the first quarter of 2026 was RMB9.4 billion (US$1.4 billion), compared with RMB9.9 billion and RMB10.3 billion for the preceding quarter and the same quarter of 2025, respectively. The quarter-over-quarter decrease was mainly due to lower product costs. The year-over-year decrease was mainly due to lower revenue-sharing costs related to platforms. Gross Profit Gross profit for the first quarter of 2026 was RMB21.2 billion (US$3.1 billion), compared with RMB17.7 billion and RMB18.5 billion for the preceding quarter and the same quarter of 2025, respectively. Operating Expenses Total operating expenses for the first quarter of 2026 were RMB8.6 billion (US$1.2 billion), compared with RMB9.4 billion and RMB8.0 billion for the preceding quarter and the same quarter of 2025, respectively. The variances in both the quarter-over-quarter and year-over-year results were primarily attributable to fluctuations in marketing expenses and general and administrative expenses. Other Income/(Expenses) Other income/(expenses) consisted of investment income/(loss), interest income, net exchange gains/(losses) and others. The quarter-over-quarter increase was mainly attributable to the gain from the disposal of certain long-term investments and lower investment impairment provisions in the first quarter of 2026. The year-over-year decrease was primarily due to fair value changes of equity security investments and higher foreign exchange losses recognized in the first quarter of 2026. Income Tax The Company recorded a net income tax charge of RMB2.5 billion (US$365.9 million) for the first quarter of 2026, compared with RMB1.3 billion and RMB1.9 billion for the preceding quarter and the same quarter of 2025, respectively. The effective tax rate for the first quarter of 2026 was 18.9%, compared with 16.4% and 15.3% for the preceding quarter and the same quarter of 2025, respectively. The effective tax rate represents certain estimates by the Company as to the tax obligations and benefits applicable to it in each quarter. Net Income and Non-GAAP Net Income Net income attributable to the Company's shareholders totaled RMB10.7 billion (US$1.5 billion) for the first quarter of 2026, compared with RMB6.2 billion and RMB10.3 billion for the preceding quarter and the same quarter of 2025, respectively. Basic net income was US$0.48 per share (US$2.42 per ADS) for the first quarter of 2026, compared with US$0.28 per share (US$1.42 per ADS) and US$0.47 per share (US$2.35 per ADS) for the preceding quarter and the same quarter of 2025, respectively. Non-GAAP net income attributable to the Company's shareholders totaled RMB11.3 billion (US$1.6 billion) for the first quarter of 2026, compared with RMB7.1 billion and RMB11.2 billion for the preceding quarter and the same quarter of 2025, respectively. Non-GAAP basic net income was US$0.51 per share (US$2.56 per ADS) for the first quarter of 2026, compared with US$0.32 per share (US$1.61 per ADS) and US$0.51 per share (US$2.57 per ADS) for the preceding quarter and the same quarter of 2025, respectively. Other Financial Information As of March 31, 2026, the Company's net cash (total cash and cash equivalents, current and non-current time deposits and restricted cash, as well as short-term investments balance, minus short-term and long-term loans) totaled RMB167.5 billion (US$24.3 billion), compared with RMB163.5 billion as of December 31, 2025. Net cash provided by operating activities was RMB13.7 billion (US$2.0 billion) for the first quarter of 2026, compared with RMB14.8 billion and RMB12.1 billion for the preceding quarter and the first quarter of 2025, respectively. Quarterly Dividend The board of directors approved a dividend of US$0.144 per share (US$0.720 per ADS) for the first quarter of 2026 to holders of ordinary shares and holders of ADSs as of the close of business on June 5, 2026, Beijing/Hong Kong Time and New York Time, respectively, payable in U.S. dollars. For holders of ordinary shares, in order to qualify for the dividend, all valid documents for the transfer of shares accompanied by the relevant share certificates must be lodged for registration with the Company's Hong Kong branch share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong, no later than 4:30 p.m. on June 5, 2026 (Beijing/Hong Kong Time). The payment date is expected to be June 15, 2026 for holders of ordinary shares and on or around June 18, 2026, for holders of ADSs. NetEase paid a dividend of US$0.232 per share (US$1.16 per ADS) for the fourth quarter of 2025 in March 2026. Under the Company's current dividend policy, the determination to make dividend distributions and the amount of such distribution in any particular quarter will be made at the discretion of its board of directors and will be based upon the Company's operations and earnings, cash flow, financial condition and other relevant factors. Share Repurchase Program On November 20, 2025, the Company announced the extension of its previously approved share repurchase program of up to US$5.0 billion of the Company's ADSs and ordinary shares in open market or other transactions for an additional 36 months until January 9, 2029. As of March 31, 2026, approximately 23.2 million ADSs had been repurchased under this program for a total cost of US$2.1 billion. The extent to which NetEase repurchases its ADSs and its ordinary shares depends upon a variety of factors, including market conditions. These programs may be suspended or discontinued at any time. ** The United States dollar (US$) amounts disclosed in this announcement are presented solely for the convenience of the reader. The percentages stated are calculated based on RMB. Conference Call NetEase's management team will host a teleconference call with a simultaneous webcast at 8:00 a.m. Eastern Time on Thursday, May 21, 2026 (Beijing/Hong Kong Time: 8:00 p.m., Thursday, May 21, 2026). NetEase's management will be on the call to discuss the quarterly results and answer questions. Interested parties may participate in the conference call by dialing 1-914-202-3258 and providing conference ID: 10054538, 15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 1-855-883-1031 and entering PIN: 10054538. The replay will be available through May 28, 2026. This call will be webcast live, and the replay will be available for 12 months. Both will be available on NetEase's Investor Relations website at http://ir.netease.com/. About NetEase, Inc. NetEase, Inc. (NASDAQ: NTES and HKEX: 9999, "NetEase") is a leading internet and game services provider centered around premium content. With extensive offerings across its expanding gaming ecosystem, the Company develops and operates some of the most popular and longest-running mobile and PC games available in China and globally. Powered by one of the largest in-house game R&D teams focused on mobile, PC and console, NetEase creates superior gaming experiences, inspires players, and passionately delivers value for its thriving community worldwide. By infusing play with culture, and education with technology, NetEase transforms gaming into a meaningful vehicle to build a more entertaining and enlightened world. Beyond games, NetEase service offerings include its majority-controlled subsidiaries Youdao (NYSE: DAO), an intelligent learning and advertising solutions provider, and NetEase Cloud Music (HKEX: 9899), a well-known online music platform featuring a vibrant content community, as well as Yanxuan, NetEase's private-label consumer lifestyle brand. For more information, please visit: http://ir.netease.com/. Forward Looking Statements This announcement contains statements of a forward-looking nature. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar expressions. In addition, statements that are not historical facts, including statements about NetEase's strategies and business plans, its expectations regarding the growth of its business and its revenue and the quotations from management in this announcement are or contain forward-looking statements. NetEase may also make forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (the "SEC"), in announcements made on the website of The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange"), in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including risks related to: the risk that the online games market will not continue to grow or that NetEase will not be able to maintain its position in that market in China or globally; risks associated with NetEase's business and operating strategies and its ability to implement such strategies; NetEase's ability to develop and manage its operations and business; competition for, among other things, capital, technology and skilled personnel; potential changes in regulatory environment in the markets where NetEase operates; the risk that NetEase may not be able to continuously develop new and creative online services or that NetEase will not be able to set, or follow in a timely manner, trends in the market; risks related to evolving economic cycles and geopolitical tensions, including the direct or indirect impacts of national trade, investment, protectionist, tax or other laws or policies as well as export controls and economic or trade sanctions; risks related to the expansion of NetEase's businesses and operations internationally; risks associated with cybersecurity threats or incidents; and fluctuations in foreign currency exchange rates that could adversely affect NetEase's business and financial results. Further information regarding these and other risks is included in NetEase's filings with the SEC and announcements on the website of the Hong Kong Stock Exchange. NetEase does not undertake any obligation to update this forward-looking information, except as required under applicable law. Non-GAAP Financial Measures NetEase considers and uses non-GAAP financial measures, such as non-GAAP net income attributable to the Company's shareholders and non-GAAP basic and diluted net income per ADS and per share, as supplemental metrics in reviewing and assessing its operating performance and formulating its business plan. The presentation of non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). NetEase defines non-GAAP net income attributable to the Company's shareholders as net income attributable to the Company's shareholders excluding share-based compensation expenses. Non-GAAP net income attributable to the Company's shareholders enables NetEase's management to assess its operating results without considering the impact of share-based compensation expenses. NetEase believes that this non-GAAP financial measure provides useful information to investors in understanding and evaluating the Company's current operating performance and prospects in the same manner as management does, if they so choose. NetEase also believes that the use of this non-GAAP financial measure facilitates investors' assessment of its operating performance. Non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. Non-GAAP financial measures have limitations as analytical tools. One of the key limitations of using non-GAAP net income attributable to the Company's shareholders is that it does not reflect all items of expense/ income that affect our operations. Share-based compensation expenses have been and may continue to be incurred in NetEase's business and are not reflected in the presentation of non-GAAP net income attributable to the Company's shareholders. In addition, the non-GAAP financial measures NetEase uses may differ from the non-GAAP measures used by other companies, including peer companies, and therefore their comparability may be limited. NetEase compensates for these limitations by reconciling non-GAAP net income attributable to the Company's shareholders to the nearest U.S. GAAP performance measure, all of which should be considered when evaluating the Company's performance. See the unaudited reconciliation of GAAP and non-GAAP results at the end of this announcement. NetEase encourages you to review its financial information in its entirety and not rely on a single financial measure. Contact for Media and Investors:Email: [email protected]: (+86) 571-8985-3378 NETEASE, INC. NOTES TO UNAUDITED FINANCIAL INFORMATION Note 1: The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate of USD1.00 = RMB 6.8980 on the last trading day of March 2026 (March 31, 2026) as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on March 31, 2026, or at any other certain date. Note 2: Share-based compensation cost reported in the Company's unaudited condensed consolidated statements of comprehensive income is set out as follows in RMB and USD (in thousands): Note 3: The financial information prepared and presented in this announcement might be different from those published and to be published by NetEase's listed subsidiary to meet the disclosure requirements under different accounting standards requirements. Note 4: The unaudited reconciliation of GAAP and non-GAAP results is set out as follows in RMB and USD (in thousands, except per share data or per ADS data): View original content:https://www.prnewswire.com/news-releases/netease-announces-first-quarter-2026-unaudited-financial-results-302778728.html

This article first appeared on GuruFocus. Net Revenue: RMB1.3 billion, up 3.8% year-over-year. Operating Profit: RMB57.5 million, with a 4.3% operating margin. Net Operating Cash Outflow: RMB93.1 million, narrowed by 63.6% year-over-year. Learning Services Revenue: RMB627.5 million, up 4.2% year-over-year. Online Marketing Services Revenue: RMB611.1 million, up 20.9% year-over-year. Smart Devices Revenue: RMB109.4 million, down 42.6% year-over-year. Gross Profit: RMB602.3 million. Gross Margin for Learning Services: 60.2%. Gross Margin for Smart Devices: 39.9%. Gross Margin for Online Marketing Services: 29.6%. Total Operating Expenses: RMB544.8 million. Net Income Attributable to Shareholders: RMB38.6 million. Non-GAAP Net Income Attributable to Shareholders: RMB44.9 million. Basic and Diluted Net Income per ADS: RMB0.33 and RMB0.32, respectively. Non-GAAP Basic and Diluted Net Income per ADS: RMB0.38 and RMB0.37, respectively. Contract Liability: RMB667 million as of March 31, 2026. Cash Equivalents and Short-term Investments: RMB515.2 million. Warning! GuruFocus has detected 7 Warning Signs with SSNLF. Is DAO fairly valued? Test your thesis with our free DCF calculator. Release Date: May 21, 2026 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Youdao Inc (NYSE:DAO) reported a 3.8% year-over-year increase in net revenues, reaching RMB1.3 billion. The company achieved its seventh consecutive quarter of operating profitability with an operating profit of RMB57.5 million. Successful AI product launches, including Confucius 4 and EmotiVoice 2, are driving business growth and enhancing learning experiences. Online marketing services saw a significant 20.9% year-over-year revenue increase, driven by performance-based advertising and AI technology investments. AI-driven subscription services experienced robust growth, with total sales exceeding RMB100 million, representing over 70% year-over-year growth. Year-over-year operating profit declined by 44.7%, primarily due to proactive investments in strategic initiatives and a high comparison base from the previous year. Net revenue from smart devices decreased by 42.6% year-over-year, reflecting a decline in demand. Gross margin for smart devices dropped to 39.9% from 52.3% in the same period of the previous year. Operating income margin decreased to 4.3% from 8% in the same period last year. Net income attributable to ordinary shareholders fell to RMB38.6 million from RMB76.7 million in the same period last year. Q: Could the management share the strategy regarding your AI applications, specifically LobsterAI and Youdao Baoku? A: Feng Zhou, CEO, explained that Youdao is focusing on AI applications in education, productivity, and advertising. The strategy involves developing specialized models and algorithms, such as the Confucius 4 for education and Confucius Translation for real-time voice translation. LobsterAI and Youdao Baoku are designed to handle complex tasks and have significant long-term potential. The company is also making Youdao AI-native internally to improve productivity and efficiency. Q: Can you provide insights on the retention performance and recent updates? A: Peng Su, Senior VP, highlighted that Youdao's retention rate exceeded 75%, showing strong user recognition of their AI interactive learning formats. The company is leveraging its Confucius large language model to expand AI applications across the learning lifecycle, aiming to bridge technology and accessibility for users nationwide. Q: What is the outlook for the advertising business in Q2? A: An unidentified participant mentioned that the advertising business is driven by AI evolution, with AI agents like MagicBox enhancing ad creative efficiency. The company expects continued growth in advertising, focusing on gaming, AI applications, globalizing Chinese brands, and social apps and finance. Advertising remains a primary contributor to operating profit. Q: Could management elaborate on the seasonality of operating profit? A: Peng Su explained that Youdao's financial metrics exhibit seasonality, with stronger revenue in the second half of the year. Operating profit is typically higher in H2 due to increased revenue levels. The company expects profit cadence to return to historical norms in 2026, with H2 outperforming H1. Q: How is Youdao addressing the demand for AI-driven learning services? A: Feng Zhou stated that Youdao is expanding its AI applications across the learning lifecycle, including diagnostics, assessments, and personalized learning paths. The company aims to enhance AI-driven learning efficiency and accessibility, leveraging its Confucius large language model to deepen its footprint in AI interactive learning formats. For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Interested in Youdao, Inc. Unsponsored ADR? Here are five stocks we like better. Revenue and profitability improved modestly in Q1 2026, with net revenue up 3.8% year over year to RMB 1.3 billion and operating profit of RMB 57.5 million. Youdao also posted its seventh straight quarter of operating profitability, while net operating cash outflow narrowed sharply. AI remained the company’s main growth driver, with new launches including Confucius4, EmotiVoice 2, Confucius Translation 4, LobsterAI and Youdao Baoku. Management said Youdao is focusing on education, productivity and advertising opportunities built around AI models, tools and agents. Learning services and advertising were strong, while smart devices lagged: learning services revenue rose 4.2% and online marketing services jumped 20.9%, but smart devices revenue fell 42.6%. The company said it is prioritizing profitability and inventory discipline in devices, while advertising is becoming a key operating profit contributor. Youdao (NYSE:DAO) reported a modest increase in first-quarter 2026 revenue while maintaining operating profitability for a seventh consecutive quarter, as management said the company continued to invest in artificial intelligence products and infrastructure. CEO Feng Zhou said net revenue for the quarter was RMB 1.3 billion, up 3.8% from a year earlier. Operating profit was RMB 57.5 million, with operating margin improving sequentially by 0.5 percentage points to 4.3%. Zhou said operating profit declined 44.7% year over year, primarily due to investments in strategic initiatives including AI, as well as a high comparison base from the restructuring of learning services in the prior-year period. → NVIDIA Price Pullback? Don’t Count on It, Business Is Accelerating Net operating cash outflow narrowed 63.6% year over year to RMB 93.1 million, Zhou said. “Supported by successful AI product launches in Q1 and a strong pipeline ahead, we remain focused on delivering full-year improvements in profitability and cash flow in 2026,” he said. Zhou highlighted several AI model and product launches during the quarter and shortly afterward. The company released Confucius4, an open-source learning large language model with multimodal input capabilities, which Zhou said is designed to help solve and teach K-12 subjects requiring visual understanding, such as geometry. Youdao also released EmotiVoice 2, an open-source high-fidelity AI text-to-speech model, and Confucius Translation 4, an AI translation model supporting 40 languages. → CAVA Group’s Stock Looks Delicious After Strong Earnings In response to an analyst question from Citigroup’s Brian Gong, Zhou said Youdao is focused on AI opportunities in education, productivity and advertising. He said the company sees significant opportunities beyond foundational models, including post-training, fine-tuning, reinforcement learning and vertical models. Zhou also discussed two new AI agent products launched in the quarter: LobsterAI, a personal AI desktop assistant, and Youdao Baoku, an AI-native knowledge base for complex knowledge synthesis. LobsterAI has surpassed 5,000 stars on GitHub since its open-source release, according to Zhou. He said Youdao Baoku can decompose complex queries, perform multi-round verification and generate structured outputs such as presentations and mind maps. → SpaceX IPO: Opportunity? Or the Ultimate Hype Trade? Zhou added that AI simultaneous interpretation features in Youdao Dictionary and Youdao Desktop Translation saw user engagement rise more than 100% year over year, helped by lower latency from Confucius3 translation models and a shift toward more autonomous AI-agent functionality. Learning services revenue rose 4.2% year over year to RMB 627.5 million. Zhou said Youdao Lingshi maintained strong momentum, with gross billings growing more than 20% year over year in the quarter. Programming courses also recorded gross billings growth of more than 20%. The company launched an English AI Essay Grading feature powered by its Confucius LLM. Zhou said the feature provides personalized feedback reports in about one minute and has graded approximately 10,000 essays to date. Peng Su, Youdao’s senior vice president, said in the question-and-answer session that Youdao Lingshi’s retention rate exceeded 75% and continued to improve year over year. He said the company plans to expand AI applications across the learning lifecycle, including diagnostics, personalized learning paths, Q&A and college entrance consulting services. AI-driven subscription services within learning services also grew strongly, with first-quarter sales exceeding RMB 100 million, representing growth of more than 70% year over year, Zhou said. Online marketing services revenue increased 20.9% year over year to RMB 611.1 million. Zhou said growth was primarily driven by demand for performance-based advertising and continued investment in AI technology. Gaming remained a core advertising vertical, while AI applications and short-form dramas each recorded advertising revenue growth of more than 50% year over year, he said. Youdao also upgraded InfunEase, its one-stop AI platform for KOL marketing. Zhou said the platform now supports a broader collaboration workflow and automates influencer recommendations and content creation. Nearly 60,000 influencers globally have registered on the platform, he said. Lei Jin, Youdao’s president, said advertising has become a key growth engine, with advertising net revenue rising from RMB 1.3 billion in 2023 to RMB 2.5 billion in 2025. He said the company is focusing on gaming, AI applications, globalizing Chinese brands, social ads and finance. Jin added that the advertising business is expected to remain the primary contributor to operating profit. Smart devices revenue declined 42.6% year over year to RMB 109.4 million. Zhou said the company is prioritizing SKU health, inventory management and profitability over near-term volume growth in the segment. He noted that the Youdao Tutoring Pen was honored as the best educational hardware solution at the 2026 EdTech Awards. Su said total revenue for the quarter was RMB 1.3 billion, or $195.4 million. Net income attributable to ordinary shareholders was RMB 38.6 million, or $5.6 million, compared with RMB 76.7 million a year earlier. Non-GAAP net income attributable to ordinary shareholders was RMB 44.9 million, or $6.5 million, compared with RMB 81.7 million in the prior-year period. Basic and diluted net income per ADS attributable to ordinary shareholders were RMB 0.33 and RMB 0.32, respectively. Non-GAAP basic and diluted net income per ADS were RMB 0.38 and RMB 0.37, respectively. As of March 31, 2026, contract liabilities, mainly deferred revenue from learning services, were RMB 667 million, compared with RMB 847.7 million as of Dec. 31, 2025. Cash, restricted cash and short-term investments totaled RMB 515.2 million. Wayne Li, vice president of finance, said Youdao’s business historically shows seasonality, with revenue typically stronger in the second half of the year and the third quarter often the annual peak. He said the company expects the profit trend in 2026 to return to historical norms, with the second half outperforming the first half, assuming a stable macroeconomic environment. “We are making good progress on delivering a rapid improvement in both operating profit and operating cash flow for the full year 2026,” Li said. Youdao, Inc (NYSE: DAO), established in 2006 as a subsidiary of NetEase, is headquartered in Beijing, China. The company went public on the New York Stock Exchange in October 2019, marking a significant milestone in its development as an intelligent learning and knowledge service provider. Since its inception, Youdao has combined cloud computing, artificial intelligence and big data analytics to create an adaptive learning ecosystem designed to meet the needs of individual learners and organizations. At the core of Youdao's offerings is its suite of digital dictionaries and translation tools, including the flagship Youdao Dictionary app and translation engine. This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to [email protected]. The article "Youdao Q1 Earnings Call Highlights" was originally published by MarketBeat. View MarketBeat's top stocks for May 2026.