Aug 20, 2026 earnings call — AI upgrades and profitability improvement
Youdao reported Q2 net revenues of RMB 1.5 billion and record operating profit of RMB 111.5 million.
Revenue $0.2B (est $0.2B) · EPS $0.11 (est $0.02)
Key quotes
"In translation, an optimized acceleration mechanism increased inference speed by approximately 80%."
"As a result, gross margin improved to 28.7%, up approximately 3 percentage points year-over-year."
Analyst Q&A 4
AI model strengths and new products
Q (Brian Gong · Citi): The analyst asked what the model's core strength is and whether new products using it will be launched.
A: Management said they focus the model on areas with strong user demand and Youdao's differentiated strength. They highlighted advanced voice and mathematics learning in addition to translation. They noted Confucius4-TTS supports cross-lingual voice cloning across 14 languages and they plan to launch more voice-related models and multiple new AI agent and model products in September next month.
"For large language models, we focus on areas where we see strong user demand, significant potential for value creation and also differentiated strength for Youdao." — Feng Zhou (CEO)
Lingshi AI Essay Grading features
Q (Caini Wang · CICC): The analyst asked whether Youdao plans to further expand Lingshi's AI-powered features, including AI Essay Grading.
A: Management said AI creates value for Lingshi by improving the learning experience and expanding what they can offer, while boosting scalability and operational efficiency. They listed key features: personalized learning path recommendations, AI-based exercise recommendations, AI Essay Grading for Chinese and English, and AI-based college admission advisers. They also noted Lingshi's retention rate in the second quarter exceeded 75%.
"It became important drivers of both users' value and business efficiency, helping us to improve the quality, scalability and the long-term economics of our business." — Peng Su
Advertising outlook and Q3 plans
Q (Thomas Chong · Jefferies): The analyst asked for the outlook for online marketing services in the first quarter.
A: Management said advertising became more profitable in the second quarter, with gross margin improving by about 3 percentage points, and they expect gross margin to continue improving year-over-year in the third quarter. They noted online marketing revenue grew from RMB 100 million in the first quarter of 2022 to about RMB 600 million per quarter in the first half of this year. For the third quarter they will focus on integrating AI into advertising, launching an overseas KOL marketing agent in the third quarter, expanding advertisers, and improving profitability using Youdao device and the AI Ad Placement Optimizer.
"After upgrading in the first quarter, we plan to launch an overseas KOL marketing agent in the third quarter to help Chinese companies reach global markets more efficiently." — Lei Jin (PRESIDENT)
Gross margin outlook for Q3
Q (Bo Zhan · Huatai): The analyst asked about the outlook for gross margin in the third quarter.
A: Management said gross margin for the first half reached 47%, up around 2 percentage points year-over-year, with online marketing and learning services margins expanding by 1 percentage point and 3 percentage points respectively. They said smart devices gross margin was around 37% in the first half, down roughly 11 percentage points, but they anticipate the gross margin of smart devices to recover to over 40% in the second half of the year with architecture improvements and a new product launch planned for the third quarter. They will deepen the AI native strategy and maintain cost and operational efficiency optimization to support stronger gross margin and operating profit in the second half of 2026.
"We anticipate the gross margin of smart devices to recover to over 40% in the second half of the year, narrowing the year-over-year decline." — Yongwei Li