Youdao revenue inches up 3.8% as digital marketing offsets hardware slump

Youdao (NYSE:DAO) reported a modest revenue increase for the first quarter of 2026, navigating a mixed operational landscape where surging digital advertising and steady learning services balanced out a severe contraction in its hardware division.

The Beijing-based intelligent learning company, a majority-owned subsidiary of NetEase, generated net revenues of RMB1.3 billion ($179 million) for the quarter, representing a 3.8% increase compared to the same period last year.

The top-line expansion was driven primarily by the company's online marketing services, which surged 20.9% year-over-year, reflecting robust demand for its digital advertising and promotional tools.

Learning services also experienced steady growth, rising 4.2% over the prior year's quarter.

However, these gains were heavily counterbalanced by the smart devices division, which saw revenues plunge 42.6%.

The drop in hardware sales, combined with shifting product structures, dragged the company's overall gross margin down to 44.7%.

Consequently, income from operations plummeted 44.7% to RMB57.5 million, while net income attributable to shareholders settled at RMB38.6 million for the three-month period.

The quarterly contraction impacted Youdao’s standalone financial position, with operations utilizing RMB93.1 million in net cash.

The company’s cash, cash equivalents, and short-term investments subsequently dropped to RMB515.2 million at the close of the quarter.

Faced with tightening internal liquidity, Youdao highlighted its ongoing financial dependence on its parent company, NetEase Group.

To secure its medium-term financial footing, the company finalized an extension of its US$300 million revolving loan facility, pushing the maturity date out to 2030.

Despite the cash drain, Youdao maintained its capital return initiatives, confirming it has repurchased approximately 7.5 million American Depositary Shares (ADS) for a total consideration of US$33.8 million under its current share buyback authorization.