Abstract
Youdao, Inc. is scheduled to report second-quarter 2026 results Pre-Mkt on August 20, 2026, with consensus pointing to a double-digit revenue acceleration and a sharp rebound in adjusted EPS as AI-native offerings scale into the core learning and marketing businesses.
Market Forecast
Consensus for the three months ended June 30, 2026 points to revenue of 1.56 billion RMB, up 19.27% year over year, adjusted EPS of 0.503 RMB per ADS, up 678.16% year over year, and EBIT of 55.21 million RMB, up 312.53% year over year; the market has not established forecasts for gross profit margin or net profit margin for this quarter.
The main business remains anchored by learning services and products, with expectations that AI-native software subscriptions and device-driven user acquisition continue to support top-line growth while management prioritizes monetization quality.
The most promising segment is learning services and products, which generated 736.88 million RMB last quarter, and is expected to lead growth this quarter as the overall company revenue accelerates by 19.27% year over year; segment-level year-over-year detail was not disclosed in the prior filing.
Last Quarter Review
For the first quarter of 2026 (three months ended March 31, 2026), Youdao, Inc. reported revenue of 1.35 billion RMB, up 3.83% year over year, a gross profit margin of 44.68%, GAAP net profit attributable to shareholders of 38.58 million RMB with a net profit margin of 2.86%, and adjusted EPS of 0.37 RMB per ADS, down 45.59% year over year.
A key financial takeaway was that EBIT came in at 57.50 million RMB, down 44.73% year over year, reflecting stepped-up investment behind AI-native product development and commercialization ahead of new hardware and software rollouts.
By business line, learning services and products contributed 736.88 million RMB (54.66% of total revenue) and online marketing services contributed 611.14 million RMB (45.34%), while company-level revenue grew 3.83% year over year and net profit declined 20.04% quarter on quarter.
Current Quarter Outlook
Learning services and products
Learning services and products are positioned to remain the primary growth engine in the second quarter, building on Q1’s 736.88 million RMB base and the announced pivot toward AI-native subscriptions and devices. The company’s recent emphasis on integrating large-model capabilities into learning workflows has the potential to deepen engagement and improve conversion from devices to recurring subscriptions, which is supportive for revenue visibility. Seasonality can be constructive for learning demand in late Q2 around exam cycles and summer preparatory activities, and a richer AI feature set can help sustain user retention through this period.
Gross margin in this segment typically depends on the mix between hardware and software subscriptions; while hardware can be dilutive to gross margin, it expands the installed base, which management then monetizes through higher-margin software and digital content. The expected revenue acceleration to 1.56 billion RMB at the company level implies higher throughput for this segment as well, assuming stable execution on device sell-through and subscriptions. Investors will focus on signals that customer acquisition costs are improving as AI-led features (such as automated note-taking, structured study plans, and real-time language assistance) enhance product utility and reduce reliance on paid traffic.
Execution will be judged on breadth of paying users and average revenue per paying user rather than unit shipments alone. Commentary around cohort behavior—particularly conversion from new users brought in by hardware into multi-month subscription plans—will inform the durability of growth. While new AI hardware announced in July is slated to ship after the second quarter, any early ecosystem effects in Q2, such as pre-launch bundled offers or cross-selling into existing subscribers, can influence segment revenue quality and margin trajectory.
Online marketing services
Online marketing services, which delivered 611.14 million RMB in Q1, remains a complementary growth driver as AI-driven ad creation and influencer matching tools improve campaign performance for enterprise clients. The company’s marketing technology stack aims to reduce creative and placement costs while increasing conversion, which can support volume growth even in a measured advertising spending environment. The core swing factor here is the balance between performance-driven demand from advertisers and pricing discipline; if AI tooling delivers superior ROI, budget allocation to these campaigns can expand within client portfolios.
Margins in marketing services can benefit from automation of creative production and targeting, which lowers unit costs and reduces delivery friction. However, this benefit must be weighed against competitive pricing and any promotional incentives used to onboard new clients to AI-enhanced tools. As the company accelerates revenue this quarter, investors will watch for commentary on take rates, client retention, and the pipeline of larger accounts, because these indicate how much of the revenue uplift is structural versus campaign-specific.
Given the company-level revenue growth outlook of 19.27% year over year, this segment should at least track overall growth if AI-enabled products continue to gain traction. If the company demonstrates that its tools consistently cut client creative costs and boost conversion, it would justify higher utilization and potentially improved monetization per client. Indications of cross-sell between learning products and marketing services—for example, creators in the education ecosystem using AI content tools—would be a positive incremental lever for customer lifetime value.
What will move the stock this quarter
Headline delivery versus the 1.56 billion RMB revenue expectation and the 0.503 RMB per ADS adjusted EPS forecast will be the primary catalysts for the shares. The magnitude and composition of EBIT relative to the 55.21 million RMB forecast will also matter, because it signals whether operating leverage is emerging as revenue scales or whether reinvestment is still absorbing incremental gross profit. With Q1 gross margin at 44.68%, investors will parse commentary for indications of mix shifts within learning services and products and online marketing services that could sustain or expand margin in Q2.
Beyond the print itself, guidance and qualitative commentary for the third quarter could have an outsized impact on valuation given the timing of new AI hardware availability and the ramp of agent-based software in enterprise and consumer use cases. Clarity on the pace of user adoption, device attach rates to subscriptions, and conversion efficiency can shape expectations for revenue durability into the second half. In addition, management’s framing of spending discipline—particularly sales and marketing intensity and R&D cadence—will inform whether the sharp year-over-year EPS improvement is a step toward a steadier profitability path or primarily a function of base effects and timing.
Finally, investors are likely to monitor the elasticity of demand for AI-native features under different pricing and bundling structures. If the company can demonstrate that product enhancements support higher ARPPU without impairing retention, the market may be more comfortable underwriting continued revenue acceleration with improving margin structure. Conversely, if growth is concentrated in lower-margin components or requires aggressive promotional spend, the stock’s reaction could hinge on management’s articulation of the path to balanced growth and profit.
Analyst Opinions
Based on the previews surveyed in the past six months, the majority view is cautious, with cautious commentaries comprising all identified forward-looking notes versus bullish previews identified in the same period. The cautious stance centers on three points: the size of the forecasted percentage gains is amplified by a low base, visibility on margin sustainability is still developing given the evolving mix between hardware, subscriptions, and marketing services, and near-term profitability remains sensitive to reinvestment intensity.
Analyst commentary highlights that the expected 19.27% year-over-year revenue growth to 1.56 billion RMB is encouraging but must be reconciled with Q1’s 44.68% gross margin and a 2.86% net margin that left limited room for operating leverage while AI investments scaled. The projected surge in adjusted EPS to 0.503 RMB per ADS, up 678.16% year over year, is widely interpreted as a function of both growth and favorable comparisons, making qualitative guidance on the durability of this improvement essential for sentiment. Cautious voices also note that EBIT is forecast to reach 55.21 million RMB, up 312.53% year over year, but emphasize the need to see this carry into subsequent quarters as new products reach market, rather than remain a one-off uplift.
Within this framework, the majority view expects management to lean on product narratives—such as AI-native learning features, agent-based productivity tools, and forthcoming AI hardware—to support medium-term growth, while acknowledging that the revenue mix could pressure margin in the near term if hardware outpaces subscriptions. The focus for these analysts is less on delivery of a single quarter and more on the evidence that user acquisition through devices converts into stable, higher-margin subscription revenue. Guidance on conversion rates, retention, and ARPPU, together with qualitative color on how AI tools improve unit economics in online marketing services, will be important in shifting cautious views toward a more constructive stance.
Overall, the prevailing opinion heading into the report is that Youdao, Inc. can achieve the headline revenue and adjusted EPS improvements implied by current forecasts, but sustained multiple expansion may require management to demonstrate consistent operating leverage, clearer visibility into subscription monetization from the AI-installed base, and disciplined spending that translates top-line gains into durable bottom-line progress.Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
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