On August 14, Youdao (DAO.US) released its unaudited financial results for the second quarter of 2025. During the reporting period, under its "AI-native" strategy, Youdao continued to advance AI technology upgrades and implementation, achieving significant commercialization results in education and advertising sectors, driving its fourth consecutive quarter of sustainable profitability.

The financial report shows that Youdao's Q2 net revenue reached 1.42 billion yuan, representing a 7.2% year-over-year increase. Operating profit totaled 28.8 million yuan, marking the first time the company achieved profitability in the second quarter. For the first half of the year, Youdao's operating profit reached 130 million yuan, setting a historical record, with total net revenue of 2.7 billion yuan and operating cash outflow narrowing significantly by 49.9% year-over-year.

**Focusing on High-Value Scenarios, AI Empowerment Continues to Drive Performance Flexibility**

In the second quarter, Youdao continued leveraging AI to build long-term competitive advantages for its core businesses. Learning services, serving as an important testing ground for Youdao's AI technology implementation, generated net revenue of 660 million yuan in Q2, up 2.2% year-over-year. Digital content services contributed 450 million yuan in net revenue. Youdao Lingshi's net revenue grew approximately 30% year-over-year.

AI-powered features such as essay correction and AI college application guidance further improved user retention rates to over 75%, breaking historical peaks. Meanwhile, AI subscription services achieved strong growth driven by robust technology. In Q2, sales reached nearly 80 million yuan, growing approximately 30% year-over-year.

The online marketing services segment achieved a new revenue high of 630 million yuan in Q2, up 23.8% year-over-year. Full-chain AI integration was key to this growth. During the reporting period, Youdao launched "Youdao Xiaozhi," an AI advertising optimization specialist that can achieve full-chain AI decision-making from demand analysis to performance tracking based on AI placement decision models and proprietary databases. Additionally, Youdao strengthened cooperation with NetEase Games and other gaming advertisers in domestic and international campaigns, driving gaming advertising revenue up over 50% year-over-year.

The smart hardware business continued to improve its operational health during the reporting period. Youdao Dictionary Pen maintained its market-leading position, winning e-commerce platform sales championships for six consecutive years. The Youdao Dictionary Pen S7 Pro and A7 launched in Q2 are gradually expanding coverage in the mid-range market. Youdao CEO Zhou Feng revealed that new smart hardware products will be launched soon.

**Large Models Accelerate Industry Penetration, Open Source Empowers Ecosystem Prosperity**

Youdao built its technological moat through deep optimization of the "Ziyue" large model. During the reporting period, Youdao open-sourced the "Ziyue 3" mathematics model—China's first open-source reasoning model focused on mathematics education with significant cost advantages. This model achieved optimal performance in a series of mathematical reasoning tasks, surpassing many larger general-purpose models. With its support, the K12 mathematics problem-solving accuracy of AI comprehensive learning assistant Youdao Xiao P improved to over 95%.

Since launching "Ziyue" in July 2023, Youdao has persistently explored the application value of large models in the education industry. The "Ziyue 3" mathematics model's service cost is as low as $0.15 per million tokens, significantly lower than most current general-purpose large models. This means broader educational institutions and developers can deploy professional-grade mathematics AI applications at low cost.

The performance of achieving profitability for four consecutive quarters fully validates that Youdao's commercialization path in vertical sectors has begun to show results. While the industry still struggles with the imbalance between large model investment and output, Youdao has taken a crucial step from technological leadership to commercial sustainability. As AI technology and applications continue to deepen, its strategic first-mover advantage may create an even greater competitive gap.

Zhou Feng stated: "Thanks to the efficient execution of our 'AI-native' strategy, the company delivered strong financial performance in the second quarter. Looking ahead, we will continue to deepen this strategy by driving scenario-based iterations and optimizations of the Ziyue large model, and accelerating technological innovation and implementation in learning and advertising sectors to further improve users' learning efficiency and advertising return on investment."