SHENZEN, China, March 11, 2025 (GLOBE NEWSWIRE) -- In Q4 2024, the YoY operating profit of Youdao (by NetEase) increased by 10.3%, demonstrating resilience in growth. Over the full year, its YoY net revenue grew 4.4%, surpassing RMB 5.6 billion, with operating profit turning positive for the first time and cash flow showing significant improvement.

For Youdao, 2024 was a critical year for validating the feasibility of its "AI-driven education services" strategy. The most remarkable breakthrough in this financial report lies in its operational performance, not only ending years of continuous losses but also marking the company's transition toward a "technology value-added" business model. Looking ahead, Youdao has stated its firm commitment to the "AI Native" strategy, with reasoning models like DeepSeek-R1 expected to drive accelerated product innovation and sustained cost efficiency.

I. Youdao Enters a New Stage of Profitability, with Cost Optimization Driving Turnaround
In 2024, Youdao achieved RMB 5.63 billion in net revenue, a 4.4% YoY increase, with Q4 net revenue reaching RMB 1.3 billion, a 9.5% YoY decline. The annual operating profit achieved a breakthrough, reaching RMB 150 million, with the Q4 operating profit reaching RMB 84.2 million, a YoY growth rate of 10.3%. Its net operating cash outflow narrowed by 84.5% compared to the previous year, and Q4 saw a net inflow of RMB 160 million, with key financial metrics improving across the board.

Data Source: Corporate Financial Reports
Data Cycle: 2023 - 2024

Breaking down this performance report, the most notable highlight of Youdao's Q4 and full-year results is the growth in operating profit. After achieving profitability for the first time in Q3, Youdao maintained positive operating profit in Q4. Although there was a QoQ decline due to seasonal factors, the YoY growth remained significant.

It's worth noting that despite two consecutive years of low revenue growth, Youdao's turnaround to profitability was primarily driven by reductions in sales, marketing, and R&D expenses. In Q4, Youdao's operating expenses decreased by approximately 16% YoY, with full-year operating expenses down by 19.6%. Both quarterly and annual R&D expenses saw significant reductions compared to the previous year, largely due to a decrease in R&D staff, which led to lower salary-related costs. However, the potential long-term impact of a reduced R&D workforce on Youdao's technical competitiveness warrants attention.

Data Source: Corporate Financial Reports
Data Cycle: 2023 - 2024

II. Youdao Secures Its Position across Multiple Business Segments, with AI Subscriptions and Smart Hardware Emerging as Highlights
From a business perspective, Youdao's revenue primarily comes from learning services. In 2024, this segment generated a net revenue of RMB 2.7 billion, accounting for approximately 48% of total revenue, though this represents a 12.7% decline compared to 2023. The decrease in Q4 learning service revenue further reduced economies of scale. The second-largest contributor was online marketing services, with annual net revenue reaching RMB 2 billion, a substantial 48.3% YoY increase. Meanwhile, net revenue from smart devices exceeded RMB 900 million, maintaining the same level as the previous year. Combining Youdao's 2024 strategic efforts and outcomes across these directions, the key business highlights lie in the successful commercialization of AI subscriptions, the solid market presence of hardware products, and the fresh momentum provided by online marketing services.

Data Source: Corporate Financial Reports
Data Cycle: 2023 – 2024

• Explosive Growth in AI Subscriptions: Youdao has deeply integrated AI technology and large language models across its diverse business segments, positioning AI subscription services as a key driver of its AI commercialization strategy. According to MoonFox data, its flagship AI subscription products, the AI dictionary and translation tools "Youdao Dictionary" and "Youdao Interpreter", saw continuous growth in mobile active users in the second half of 2024, securing leading positions in their respective verticals. Financial reports show that Youdao's AI subscription sales exceeded RMB 200 million for the year, marking a remarkable 130% YoY growth. This validates the development potential of the "AI + Education" approach and the subscription business model.

Data Source: MoonFox iApp
Data Cycle: July 2024 - December 2024

• Stable Performance in the Hardware Market: As reported, cumulative sales of the Youdao SpaceOne Dictionary Pen reached 8 million units by August 2024 and surpassed 10 million units by February 2024. According to financial report data, Youdao's smart hardware business generated RMB 240 million in net revenue in Q4, reflecting an 8.1% YoY increase. The Youdao SpaceOne Dictionary Pen series stood out, with net revenue rising approximately 20% YoY. Despite intensifying competition in the AI education hardware sector, Youdao has secured its market position, with the gross profit margin of smart devices climbing from 38.3% to 43.9% in Q4, a 5.6 percentage point improvement YoY.
• Online Marketing Services as a Core Growth Engine: AI-driven precision and automated marketing, supported by advertising large models, fueled continued revenue growth. In 2024, Youdao's online marketing services reported net revenue of approximately RMB 2 billion, up 48.3% YoY, establishing itself as a core growth engine for the company.
• Decline in Learning Services Revenue and Gross Profit: In Q4, Youdao's learning services revenue fell sharply to RMB 620 million, a 21.2% YoY decline. The company stated that this is the result of its strategy of focusing on more selective customer acquisition and pursuing a higher return on investment. In addition, due to reduced economies of scale, the Youdao's gross profit margin for learning services also dropped from 63.6% in Q4 2023 to 60.0% in Q4 2024. Going forward, Youdao plans to optimize the structure of its learning services product portfolio, focusing on high-demand segments like Youdao Lingshi and informatics programming. Although short-term pressure remains, long-term growth potential is expected to strengthen.

III. Youdao Accelerates with DeepSeek, Evolving from "AI + Education" to "AI Native"

Youdao's return to profitability stems from the deep development of its smart hardware ecosystem, the establishment of a second growth curve through subscription services and online marketing, and cost control through expense reduction, and all three dimensions point toward AI technology. Building on its "AI + Education" framework, Youdao is advancing toward an "AI Native" strategy, integrating AI more comprehensively into its business lines. In January 2025, Youdao officially launched the "Ziyue-o1" inference model, built with chain-of-thought technology, improving its capabilities in problem-solving accuracy, Chinese logical reasoning, and step-by-step explanations, strengthening its self-developed vertical large model technology advantage. By February, Youdao had quickly completed the full integration of the emerging general AI large model, DeepSeek-R1, expanding its AI native education ecosystem across multiple dimensions.

• Rapid Iteration of AI Learning Applications, Seizing Technological Upgrade Opportunities: Leveraging the capabilities of "Ziyue-o1" and the deep inference strength of the DeepSeek-R1 model, Youdao optimized multiple AI-powered educational applications, further reinforcing its technological and user experience advantages. For instance, Youdao XiaoP's problem-solving logic and personalized Q&A abilities have been enhanced, with a 2.0 version expected to launch soon; Hi Echo introduced a voice-based DeepSeek conversational speaking feature; Youdao Dictionary and Youdao Translator upgraded their AI functions to improve the learning experience.
• Innovative AI-Native Education Hardware, Expanding Access Scenarios: Youdao introduced a new AI-native hardware product, SpaceOne - an AI-driven dictionary pen designed for intelligent subject-specific problem explanations. By combining its accumulated educational content, scenarios, and applications with the deep thinking capabilities of the DeepSeek-R1 model, Youdao is transforming its hardware from a learning tool into an "All-Subject AI Tutor", expanding user entry points and strengthening user engagement.
• Integrating Foundational Technologies, Riding the Wave of General-purpose Large Model Upgrades: On the technical front, Youdao combines the domain-specific pre-training corpus advantage of its self-developed "Ziyue" model with the deep thinking capabilities of the general-purpose large model DeepSeek-R1. This hybrid architecture enhances large model performance in complex educational scenarios. By embracing high-performance open-source large models like DeepSeek-R1, Youdao achieves rapid and continuous optimization of its proprietary models at a low cost of trial and error.

With the technological empowerment of DeepSeek, Youdao is poised to accelerate the deep implementation of its AI-native strategy and establish core advantages in the AI education sector. In the future, competition in this space will focus on AI-native innovation and the construction of an intelligent education ecosystem. Youdao's ability to maintain its edge in technological iteration and product innovation will determine its long-term growth potential. Additionally, it must be cautious of increasing competition from cross-industry entrants and the risk of technological advantage dilution within an open-source ecosystem.

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