DAO · Youdao, Inc.

Youdao's Q1 2026 results reflect a mixed performance. Total net revenues grew 3.8% year-over-year to RMB1.3 billion, driven by a 20.9% surge in online marketing services (RMB611.1 million) and a 4.2% increase in learning services (RMB627.5 million). However, smart devices revenue fell sharply by 42.6% to RMB109.4 million due to declining demand, dragging down overall growth. Gross margin contracted to 44.7% from 47.3%, primarily because of higher bill of materials costs for smart devices. Operating expenses rose 6.8% to RMB544.8 million, led by an increase in sales and marketing spending (up 6.9%) and a 27.4% jump in G&A expenses driven by credit loss provisions. As a result, income from operations fell 44.7% to RMB57.5 million, and net income attributable to shareholders dropped 49.7% to RMB38.6 million. Management highlighted the company's fourth consecutive quarter of year-over-year revenue growth and seventh consecutive quarter of operating profitability, emphasizing its AI-Native Strategy and the launch of new AI agents like LobsterAI and Youdao Baoku. The company's going concern remains dependent on continued financial support from NetEase Group, including short-term loans of RMB878 million and long-term loans of US$118 million drawn from a US$300 million revolving facility, recently extended to March 31, 2030. Share repurchases continued with 7.5 million ADSs bought back for US$33.8 million as of March 31, 2026. The earnings call scheduled for May 21, 2026 may provide further clarity on the outlook and strategic initiatives.