MoonFox Analysis | Youdao Optimizes Costs and Turns Profitable, Accelerating Innovation with AI-Native Strategy

Rhea-AI Summary

Youdao achieved significant financial milestones in Q4 2024 and full-year 2024, marking its first year of profitability. The company reported a 4.4% YoY increase in net revenue to RMB 5.63 billion for 2024, with Q4 operating profit reaching RMB 84.2 million, up 10.3% YoY.

Key financial highlights include:

• Annual operating profit of RMB 150 million
• 84.5% reduction in net operating cash outflow
• Q4 net cash inflow of RMB 160 million

The company's turnaround was primarily driven by a 19.6% reduction in operating expenses. Revenue streams showed mixed performance: learning services declined 12.7% to RMB 2.7 billion, while online marketing services grew 48.3% to RMB 2 billion. AI subscription sales exceeded RMB 200 million, showing 130% YoY growth. The company's AI-native strategy, supported by DeepSeek-R1 integration and the launch of Ziyue-01 inference model, positions it for continued innovation in AI-driven education services.

Positive

• First-time annual operating profit of RMB 150 million
• 130% YoY growth in AI subscription revenue to RMB 200 million
• 48.3% YoY increase in online marketing services revenue to RMB 2 billion
• Smart devices gross profit margin improved by 5.6 percentage points to 43.9%
• 84.5% reduction in net operating cash outflow

Negative

• 21.2% YoY decline in Q4 learning services revenue
• Learning services gross margin decreased from 63.6% to 60.0%
• Reduced R&D workforce potentially impacting technical competitiveness
• 9.5% YoY decline in Q4 net revenue
• 12.7% decline in annual learning services revenue

Insights

Financial Analyst

Youdao's transition to profitability marks a significant inflection point in the company's financial trajectory. The achievement of RMB 150 million in annual operating profit after years of losses represents a fundamental shift in the business model and validates management's strategic pivot to an AI-driven approach.

The financial improvement stems primarily from aggressive cost optimization, with operating expenses reduced by 19.6% year-over-year. This disciplined approach to expenses, particularly in sales, marketing, and R&D, has enabled Youdao to achieve profitability despite modest 4.4% revenue growth. The 84.5% reduction in cash outflow further strengthens the company's financial position.

Revenue diversification is becoming a strength, with online marketing services growing 48.3% and AI subscriptions surging 130%. These high-margin revenue streams are offsetting the 12.7% decline in traditional learning services. The strategic rebalancing of the revenue mix toward higher-growth, AI-enhanced offerings suggests potential for margin expansion.

The improved gross margins in hardware products (up 5.6% points to 43.9%) indicate successful premium positioning in a competitive market. With 10 million dictionary pen units sold, Youdao has established meaningful scale in educational hardware.

While the reduction in R&D headcount warrants monitoring for long-term innovation capacity, the integration of DeepSeek-R1 technology represents an efficient approach to enhancing AI capabilities without maintaining all expertise in-house. The "AI Native" strategy positions Youdao to potentially generate higher-margin, subscription-based recurring revenue going forward.

Technology Strategist

Youdao's integration of the DeepSeek-R1 reasoning model represents a sophisticated technological pivot that extends beyond simple AI implementation. By combining their domain-specific "Ziyue-o1" model with DeepSeek's advanced reasoning capabilities, they've created a hybrid AI architecture specifically optimized for educational applications—a technical approach that leverages the strengths of both specialized and general-purpose AI.

The company's "AI Native" strategy marks an evolution from merely applying AI to education products toward fundamentally rebuilding their product ecosystem around AI capabilities. This is evident in their transformation of hardware products from simple learning tools into "All-Subject AI Tutors" capable of intelligent subject-specific explanations. The technical approach of leveraging open-source models like DeepSeek-R1 allows Youdao to accelerate AI development while controlling R&D costs.

Their flagship AI products—Youdao Dictionary and Interpreter—have demonstrated market validation with continuous user growth and RMB 200 million in AI subscription revenue. The ability to monetize AI through subscription models creates a recurring revenue stream with strong margin potential.

The company's technology stack now spans multiple complementary dimensions: vertical-specific pre-trained models, integration with cutting-edge general AI models, hardware devices as AI access points, and subscription-based AI services. This comprehensive approach creates multiple defensive moats around their educational AI ecosystem.

However, the 19.6% reduction in R&D expenses raises questions about long-term innovation capacity, especially in the rapidly evolving AI landscape. Youdao's ability to maintain technological differentiation while leveraging open-source models will be important as AI commoditization accelerates across the educational technology sector.

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.

Youdao's Operating Performance in Q4 and Full Year 2023 - 2024
	Q4 Net Revenue (RMB 100 million)	Full-Year Net Revenue (RMB 100 million)
2023	14.8	53.9
2024	13	56.3

	Q4 Operating Profit (RMB 100 million)	Full-Year Operating Profit (RMB 100 million)
2023	0.76	-4.66
2024	0.84	1.50

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.

Youdao's Operating and R&D Expenses (2023Q1 - 2024Q4)
	Operating Expenses (RMB 100 million)
	Q1	Q2	Q3	Q4
2023	7.98	8.56	9.17	6.63
2024	6.52	7.09	6.82	5.57

	R&D Expenses (RMB 100 Million)
	Q1	Q2	Q3	Q4
2023	1.83	2.05	1.87	1.68
2024	1.47	1.53	1.20	1.21

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.

Youdao's 2024 Net Revenue Contribution by Business Segment
Learning Services	48.2	%
Online Marketing	35.7	%
Smart Devices	16.1	%

Youdao's Net Revenue by Business Segment (2023 - 2024) (RMB 100 Million)
	2023	2024
Learning Services	31	27
Online Marketing	14	20
Smart Devices	9	9

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.

Monthly Active Users (Unit: 10,000) for Youdao's Representative AI Education Apps (July - December 2024)
	Youdao Dictionary	Youdao Interpreter
July	3,595.8	829.6
August	3,302.5	791.2
September	4,106.9	902.9
October	4,433.6	981.6
November	4,750.8	1,059.1
December	4,634.0	1,024.0

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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As a sub-brand of Aurora Mobile, MoonFox Data is a leading expert in data insights and analysis services across all scenarios. With a comprehensive, stable, secure and compliant mobile big data foundation, as well as professional and precise data analysis technology and AI algorithms, MoonFox Data has launched iAPP, iBrand, iMarketing, Alternative Data and professional research and consulting services of MoonFox Research, aiming to help companies gain insights into market growth and make accurate business decisions.

About Aurora Mobile

Aurora Mobile (NASDAQ: JG) established in 2011, is a leading customer engagement and marketing technology service provider in China. Its business includes notification services, marketing growth, development tools, and data products.

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FAQ

What was Youdao's revenue growth and profitability in 2024?

Youdao achieved 4.4% YoY revenue growth to RMB 5.63 billion in 2024, with first-time operating profit of RMB 150 million.

How much did Youdao's AI subscription business grow in 2024?

Youdao's AI subscription sales exceeded RMB 200 million, representing 130% YoY growth.

What were the key drivers of Youdao's profitability turnaround?

Profitability was achieved through 19.6% reduction in operating expenses, including cuts in sales, marketing, and R&D costs.

How did Youdao's learning services segment perform in Q4 2024?

Learning services revenue declined 21.2% YoY to RMB 620 million in Q4, with gross margin dropping from 63.6% to 60.0%.

What is Youdao's new AI strategy and technological development?

Youdao launched Ziyue-01 inference model and integrated DeepSeek-R1, advancing its AI-native strategy across educational products.