Youdao (NYSE: DAO) reported a 3.5% year-over-year revenue increase to RMB 1.5 billion (USD 216.2 million) in Q2 2026, driven by AI-powered learning services and online marketing. Operating cash flow surged 80.7% to RMB 334.2 million (USD 49.3 million).
TL;DR
- Youdao's Q2 2026 revenue grew 3.5% to RMB 1.5 billion, with learning services up 20.9% and smart devices down 31.5%.
- AI-driven products, including Confucius 4 and Youdao Lingshi, contributed to strong growth and improved margins.
- The company expects smart device margins to recover to over 40% in the second half of 2026.
What happened
Youdao reported Q2 2026 earnings with total net revenues of RMB 1.5 billion (USD 216.2 million), a 3.5% year-over-year increase. Learning services revenue grew 20.9% to RMB 795.6 million (USD 117.3 million), while smart devices revenue declined 31.5% to RMB 86.8 million (USD 12.8 million).
Operating cash flow surged 80.7% to RMB 334.2 million (USD 49.3 million), and net income attributable to ordinary shareholders turned positive, reaching RMB 73.8 million (USD 10.9 million) compared to a net loss of RMB 17.8 million in the same period last year.
Youdao launched Confucius 4, its latest large language model, with improved multimodal, voice, and translation capabilities. The company also introduced new AI agents and products, such as the Youdao Dictionary Pen X8.
Why it matters
Youdao's focus on AI-driven learning services and online marketing is paying off, with strong growth and improved margins in these segments. The company's disciplined spending and higher return on investment engagements contributed to expanded margins across several business lines.
The decline in smart device revenue and margins highlights the challenges faced by hardware companies in the current market. Youdao expects smart device margins to recover to over 40% in the second half of 2026 as architecture improvements reduce memory reliance.
Youdao's AI capabilities are gaining recognition and support from authoritative bodies, with the official launch of the Beijing Key Laboratory of Artificial Intelligence for Multilingual Translation in the second quarter.
Key facts
- Total net revenues: RMB 1.5 billion (USD 216.2 million), up 3.5% year-over-year.
- Learning services revenue: RMB 795.6 million (USD 117.3 million), up 20.9% year-over-year.
- Smart devices revenue: RMB 86.8 million (USD 12.8 million), down 31.5% year-over-year.
- Operating cash flow: RMB 334.2 million (USD 49.3 million), up 80.7% year-over-year.
- Net income attributable to ordinary shareholders: RMB 73.8 million (USD 10.9 million), compared to a net loss of RMB 17.8 million in the same period last year.
- Youdao Lingshi retention rate: Exceeded 75% during the second quarter.
- AI subscription sales: Approximately RMB 100 million, up more than 20% year-over-year.
- Cash and short-term investments: RMB 849.3 million (USD 125.2 million) as of June 30, 2026.
Context
Youdao is a Chinese education technology company that provides learning services, online marketing services, and smart devices. The company has been focusing on AI-driven products and services to enhance its learning ecosystem and improve user experience.
The AI industry is rapidly evolving, with large language models and AI agents becoming increasingly important in various sectors, including education, marketing, and advertising. Youdao's investments in AI technology and its proprietary large language model, Confucius, position the company to capitalize on these trends.
The smart device segment has faced cost pressure from rising memory costs and a reduction in hardware economies of scale. Youdao's expectations for smart device margin recovery in the second half of 2026 depend on architecture improvements that reduce memory reliance.
