Youdao posted GAAP EPS of US$0.05 (RMB0.32 diluted) and total net revenue of US$195.4 million (RMB1.35 billion) for Q1 2026, modestly missing FactSet’s consensus estimate of RMB1.39 billion. Revenue rose 3.8% year-over-year, driven by a 20.9% surge in online marketing services, though profitability declined sharply. After-hours movement was not widely published at time of writing.
About Youdao, Inc.
Youdao, Inc. (NYSE: DAO) is an AI solutions provider headquartered in Hangzhou, China, specializing in learning and advertising. Founded in 2006 as a subsidiary of NetEase, Inc. (NASDAQ: NTES; HKEX: 9999), Youdao went public on the New York Stock Exchange in October 2019. The company operates three core segments: Learning Services (digital content, STEAM courses, adult/vocational learning), Smart Devices (AI-powered dictionary pens, learning pads, listening pods), and Online Marketing Services (performance-based and brand advertising).
As of May 20, 2026, DAO shares traded at approximately $12.40–$12.48, with a market capitalization of roughly $1.50 billion. The company carries no dividend yield and has a forward P/E of approximately 41x. Total shares outstanding stood at approximately 120.44 million (diluted basis) as of March 31, 2026. Youdao employs AI-native capabilities through its proprietary Confucius LLM, which underpins its learning and productivity product portfolio including newly launched LobsterAI and Youdao Baoku.
Top Financial Highlights
- Total net revenue reached RMB1.35 billion (US$195.4 million), increasing 3.8% year over year from RMB1.30 billion in Q1 2025.
- Learning services revenue totaled RMB627.5 million (US$91.0 million), reflecting 4.2% year-over-year growth.
- Smart devices revenue declined 42.6% to RMB109.4 million (US$15.9 million) due to weaker demand for smart learning products.
- Online marketing services revenue increased 20.9% to RMB611.1 million (US$88.6 million), supported by stronger advertising demand and AI-related investments.
- Gross profit was RMB602.3 million (US$87.3 million), remaining broadly stable compared to Q1 2025.
- Gross margin declined to 44.7% from 47.3%, mainly due to lower profitability in the smart devices segment.
- Income from operations fell 44.7% to RMB57.5 million (US$8.3 million), with operating margin decreasing to 4.3% from 8.0%.
- GAAP net income attributable to ordinary shareholders was RMB38.6 million (US$5.6 million), compared to RMB76.7 million in the prior-year quarter.
- Basic and diluted EPS per ADS were RMB0.33 and RMB0.32 (US$0.05), lower than the prior-year period.
- Non-GAAP EPS per ADS stood at RMB0.38 basic and RMB0.37 diluted, compared to RMB0.69 and RMB0.68 in Q1 2025.
- Total operating expenses increased to RMB544.8 million (US$79.0 million) from RMB510.2 million, with sales and marketing expenses rising 6.9%.
- Cash, cash equivalents, and short-term investments totaled RMB515.2 million (US$74.7 million) as of March 31, 2026, down from RMB743.2 million at year-end 2025.
- Net cash used in operating activities was RMB93.1 million (US$13.5 million) during Q1 2026.
Beat or Miss?
Youdao’s Q1 2026 results came in below FactSet consensus revenue estimates, while Non-GAAP EPS delivered a modest positive outcome.
| Metric | Reported | Estimated / Expected | Difference / Analysis |
| Total Net Revenue | RMB1.35B (US$195.4M) | RMB1.39B (FactSet consensus) | Miss by ~RMB40M (~2.9%) |
| Revenue (USD) | US$195.4M | US$201.4M (consensus) | Miss by ~US$6M |
| Non-GAAP EPS (ADS) | RMB0.37 diluted (US$0.05) | US$0.05 consensus | Roughly in line |
| GAAP Diluted EPS (ADS) | RMB0.32 (US$0.05) | N/A | N/A |
| Gross Margin | 44.70% | N/A | Down 260 bps YoY |
| Operating Income | RMB57.5M (US$8.3M) | N/A | Down 44.7% YoY |
What Leadership Is Saying?
CEO — Dr. Feng Zhou, Chief Executive Officer and Director:
“We entered 2026 with solid momentum, delivering our fourth consecutive quarter of year-over-year revenue growth and seventh consecutive quarter of operating profitability. Our operating margin improved sequentially, and operating cash flow strengthened significantly. At the same time, our strategic initiatives continued to gain traction, with both Youdao Lingshi gross billings and online marketing services revenue growing over 20% year-over-year. We also expanded our AI Agent matrix with the launches of LobsterAI and Youdao Baoku, extending the capabilities of our proprietary Confucius LLM across learning and productivity scenarios.”
CEO — Continued Outlook Statement
“Looking ahead, we remain firmly committed to our AI-Native Strategy. By continuously refining our vertical large language models for learning and advertising, and by expanding our portfolio of AI-native agents, we are enhancing how users learn, work and market. We will continue to improve user experience while driving sustainable progress in profitability and cash flow throughout the year.”
Historical Performance – Youdao YoY
The table below compares Q1 2026 with Q1 2025 and shows a mixed picture: top-line growth continued, but profitability retreated due to higher operating costs and a steep decline in smart device revenues.
| Category | Q1 2026 | Q1 2025 | Change (%) |
| Total Net Revenue | RMB1,348M (US$195.4M) | RMB1,298M (US$178.9M) | +3.8% |
| Learning Services Revenue | RMB627.5M (US$91.0M) | RMB602.4M (US$83.0M) | +4.2% |
| Smart Devices Revenue | RMB109.4M (US$15.9M) | RMB190.5M (US$26.3M) | -42.6% |
| Online Marketing Revenue | RMB611.1M (US$88.6M) | RMB505.4M (US$69.6M) | +20.9% |
| Gross Profit | RMB602.3M (US$87.3M) | RMB614.2M (US$84.6M) | -1.9% |
| Gross Margin | 44.7% | 47.3% | -260 bps |
| Income from Operations | RMB57.5M (US$8.3M) | RMB104.0M (US$14.3M) | -44.7% |
| Total Operating Expenses | RMB544.8M (US$79.0M) | RMB510.2M | +6.8% |
| Net Income (attributable) | RMB38.6M (US$5.6M) | RMB76.7M | -49.7% |
| Diluted EPS (ADS) | RMB0.32 (US$0.05) | RMB0.64 | -50.0% |
| Non-GAAP Diluted EPS (ADS) | RMB0.37 (US$0.05) | RMB0.68 | -45.6% |
Competitor YoY Comparison
Youdao (DAO) operates in the China EdTech and AI-advertising space, competing with larger peers such as TAL Education Group (NYSE: TAL) and New Oriental Education & Technology Group (NYSE: EDU). Note that TAL and New Oriental follow different fiscal year calendars. TAL’s Q1 FY2026 ended May 31, 2025; New Oriental’s Q3 FY2026 ended February 28, 2026. The comparison below reflects the most recently available comparable quarter for each competitor.
| Category | Youdao Q1 CY2026 | TAL Q4 FY2026 (ended Feb 2026) | New Oriental Q3 FY2026 (ended Feb 2026) |
| Net Revenue | US$195.4M (+3.8% YoY) | US$802.4M (+31.5% YoY) | US$1,417.3M (+19.8% YoY) |
| Net Income | US$5.6M (-49.7% YoY) | Swung to profit; FY net income US$530.8M | US$126.8M (+45.3% YoY) |
| Operating Income | US$8.3M (-44.7% YoY) | Positive (FY operating income US$276.0M) | US$180.3M (+44.8% YoY) |
| Gross Margin | 44.7% | ~54.9% (Q1 FY2026) | N/A (not disclosed for this period) |
| YoY Revenue Growth | +3.8% | +31.5% | +19.8% |
| Market Context | Revenue miss vs. estimates | Beat estimates significantly | Surpassed expectations |
Youdao’s revenue growth of 3.8% trails its larger peers significantly. TAL’s revenue surge of 31.5% and New Oriental’s 19.8% growth underscore the competitive pressure Youdao faces as a smaller, more narrowly focused player, though Youdao’s advertising segment growth of 20.9% aligns with the broader sector recovery.
How the Market Reacted?
Prior to the earnings announcement, DAO shares traded at $12.40–$12.48, representing a gain of approximately +23% year-to-date as of May 20, 2026. The stock had been trading near its 52-week high range of $13.04, reflecting investor optimism ahead of results.
The revenue miss versus FactSet and FactSet consensus estimates of RMB1.39 billion introduces a modestly bearish near-term sentiment, particularly given the sharp 44.7% decline in operating income and the 42.6% drop in smart device revenues.
