Youdao（DAO）2026年第2四半期決算説明会：過去最高の営業利益とAI主導の学習成長

主要ハイライト

• 有道（Youdao）の2026年第2四半期売上高は前年同期比3.5%増の15億元となり、営業利益は前年同期の約4倍となる1億1,150万元に達し、四半期としての過去最高を記録しました。
• 同社は8四半期連続で営業黒字を達成しました。営業利益率は前年同期の2.0%から7.6%に上昇しました。
• 学習サービス部門の売上高は、「有道領世（Youdao Lingshi）」やAI活用製品に牽引され、20.9%増の7億9,560万元となりました。有道領世の継続率は75%を超えました。
• オンラインマーケティングサービス部門の売上高は、よりリターンの高い案件を優先したため、7.7%減の5億8,440万元となりました。粗利益率は約3ポイント改善し、28.7%となりました。
• 営業活動によるキャッシュフロー（純額）は80.7%増の3億3,420万元となりました。上半期の営業キャッシュフローは、前年同期の7,050万元の流出から2億4,110万元へと改善しました。
• 経営陣は、第3四半期のオンラインマーケティングの粗利益率が前年同期比で改善し、2026年後半にはスマートデバイスの粗利益率が40%以上に回復すると見込んでいます。

主要財務実績

2026年上半期の売上高は3.6%増の28億元となりました。営業利益は27.3%増の1億6,900万元と過去最高を更新し、営業キャッシュフローは2億4,110万元に達しました。

2026年6月30日時点で、現金・現金同等物、制限付き現金および短期投資の合計は8億4,930万元でした。契約負債は8億3,510万元となり、2025年末時点の8億4,770万元からやや減少しました。

事業・営業業績

学習サービスおよびAI製品

学習サービスが主な成長の原動力となりました。第2四半期の同部門の粗利益率は、AIによる業務効率化とスケールメリットを反映し、前年同期の59.8%から65.5%に上昇しました。

「有道領世」のAI英語作文添削の利用量は前四半期比で2倍以上に増加しました。また、AIを活用した小テストのレコメンデーションや大学進学指導サービスも同製品の75%を超える継続率を支えました。プログラミング講座の継続率も75%を超えました。

AI駆動型サブスクリプション製品の第2四半期売上高は約1億元となり、前年同期比で20%以上増加しました。「Hi Echo」の総請求額（Gross billings）は100%以上増加し、AI同時通訳のエンゲージメントも約100%増加しました。

有道は、マルチモーダル、音声、翻訳機能をアップグレードした「子曰（Confucius）4」をローンチしました。経営陣によると、翻訳の推論速度が約80%向上したほか、複雑な図表を含む視覚的な数学・物理問題に対する推論能力が強化されました。

オンラインマーケティングサービス

オンラインマーケティングの売上高は、リターンの低い案件を排除し、より質の高い案件に経営資源を集中させたことで減少しました。この戦略により、粗利益率は前年同期の25.8%から28.7%へと上昇しました。

同社は当四半期中に100社以上の広告主を新規獲得し、広告主のリテンション率は前四半期比で約5ポイント改善しました。AIアプリおよびショートドラマ向け広告からの売上高は、2四半期連続で前年同期比50%以上の伸びを記録しました。

さらに、アカウントの一元管理、自動データ更新、インテリジェントな異常アラート機能とともに、第2世代となる「AI広告配信最適化ツール」を導入しました。

スマートデバイス

スマートデバイスの売上高は31.5%減少し、同部門の粗利益率は41.5%から32.8%に低下しました。経営陣はこの減益要因として、需要の減退、メモリコストの上昇、ハードウェアにおけるスケールメリットの低下を挙げています。

「有道辞書ペン」は、618ショッピングフェスティバルにおいて、JD.comおよび天猫（Tmall）の同部門売上ランキングで7年連続1位を獲得しました。また、8,000万語のデータベースとAIを活用した画像認識学習指導機能を備えた「有道辞書ペン X8」を発売しました。

業績予想（ガイダンス）

• 経営陣は、急速な拡大よりも収益性と持続可能性のある成長を優先しつつ、第3四半期のオンラインマーケティングの粗利益率が引き続き前年同期比で改善すると見込んでいます。
• 有道は、中国企業が海外市場へより効率的にアプローチできるようサポートするため、第3四半期に海外向けKOL（インフルエンサー）マーケティングエージェントを立ち上げる計画です。
• 同社は9月に、音声、数学、その他のSTEM学習アプリケーションに焦点を当てた、複数のAIエージェントおよびモデル製品をリリースする予定です。
• メモリコストの高騰が続いているものの、設計・技術上の変更や第3四半期に予定されている新製品に支えられ、2026年後半にはスマートデバイスの粗利益率が40%以上に回復すると経営陣は予想しています。
• 経営陣は、2026年後半においても好調な粗利益率を維持し、営業利益のさらなる拡大を達成することに自信を示しました。

リスクと注視点

• スマートデバイスは、需要の減少、メモリコストの高騰、スケールメリットの減退による圧力を引き続き受けています。
• 収益性を重視して低ROIの広告案件の排除を継続しているため、マーケティング売上高は短期的には抑制された状態が続く可能性があります。
• 販売・マーケティング費用および研究開発費の増加により、営業費用は5億8,060万元から6億530万元に増加しました。
• AIネイティブ戦略の遂行は、新たなモデルやエージェントを持続的なユーザー獲得、リテンション、業務効率化、および商業的収益へと転換できるかどうかに依存しています。

アナリストQ&Aの要点

経営陣は「子曰（Confucius）4」の2つの重点領域として、高度な音声技術と数学学習を挙げました。同モデルの14言語対応の音声クローニング機能の想定用途には、多言語学習、コンテンツ制作、吹替、国際コミュニケーションなどが含まれます。

「有道領世」について、経営陣はAIがユーザーの学習成果とサービスの拡張性の両方を向上させていると述べました。主な機能には、パーソナライズされた学習パス、適応型問題レコメンデーション、中英作文の添削、大学進学指導サービスが含まれます。

広告事業に関して、経営陣は第3四半期の3つの重点課題として、AI活用型広告機能の拡張、AIアプリやショートドラマ分野における顧客開拓、および制作コスト削減とトラフィック選定の効率化による利益率向上を挙げました。

決算説明会（トランスクリプト）全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good day, and welcome to Youdao's second quarter 2026 earnings conference call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Jeffrey Wang, Investor Relations Director of Youdao. Please go ahead.

Jeffrey Wang

Thank you, operator. Please note that the discussion today will contain forward-looking statements related to the future performance of the company, which are intended to qualify for the Safe Harbor from liability, as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion.

A general discussion of the risk factors that could affect Youdao's business and financial results is included in certain company filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update this forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures, for comparison purposes only. For the definitions of non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial results, please see the 2026 second quarter financial results news release issued earlier today.

As a reminder, this conference is being recorded. A webcast replay of this conference call will also be available on Youdao's corporate website at ir.youdao.com.

Joining us today on the call from Youdao's senior management are Dr. Feng Zhou, our Chief Executive Officer; Mr. Lei Jin, our President; Mr. Peng Su, our senior VP; and Mr. Yongwei Li, our VP of Finance. I will now turn the call over to Dr. Zhou to review some of our recent highlights and strategic direction.

Feng Zhou

Thank you, Jeffrey. And thank you all for participating in today's call. Before we begin, I would like to remind everyone that all numbers are denominated in renminbi, unless otherwise stated. We maintained solid momentum in the second quarter, delivering robust results. Net revenues for the quarter reached RMB 1.5 billion, representing a 3.5% year-over-year increase. In terms of profitability, we achieved a record high in Q2, with operating profit reaching RMB 111.5 million, nearly fourfold year-over-year. This marks our eighth consecutive quarter of operating profitability, representing a critical step towards our goal of healthy and sustainable development. Meanwhile, net cash inflow from operating activities was RMB 334.2 million, up 80.7% compared with the same period last year. These strong quarterly results also drove strong first-half performance.

In the first half of 2026, total net revenues reached RMB 2.8 billion, up 3.6% year-over-year, while operating profit increased 27.3% to a record RMB 169 million. We also generated RMB 241.1 million in net operating cash flow, compared with a net outflow of RMB 70.5 million in the same period last year, reflecting a substantial improvement in cash generation.

Let me begin with an update on our progress in AI technology and Confucius, our proprietary Large Language Model. AI remains a key driver across our business. During the second quarter, we continued to translate advances in our LLM capabilities into practical products and applications across our business lines. First, we rolled out Confucius 4 in the second quarter, with significant upgrades in multimodal, voice and translation capabilities. The new model delivers stronger performance in visual math and physics reasoning, particularly on complex diagrams. We also improved its reasoning architecture and training data to significantly reduce inference costs.

In translation, an optimized acceleration mechanism increased inference speed by approximately 80%. Second, our growing portfolio of AI agents was showcased at the 2026 World AI Conference. Products including LobsterAI, Hi Echo, Youdao Baoku, InfunEase and iMagicbox, together with Confucius 4, demonstrated how AI is moving beyond basic Q&A toward executing more complex tasks across learning, work and advertising scenarios. Beyond technological advances and user adoption, our AI capabilities also continued to gain recognition and support from authoritative bodies. In Q2, the Beijing Key Laboratory of Artificial Intelligence for Multilingual Translation co-founded by Youdao was officially launched. Going forward, we will continue advancing end-to-end multilingual translation models and accelerate their application across learning, international conferences and cross-border trade.

I will now walk through the performance of each of our business lines during the second quarter. Net revenues from learning services were RMB 795.6 million, up 20.9% year-over-year, primarily driven by the strong performance of Youdao Lingshi, one of our strategic focused areas. AI continues to play an increasingly important role across our learning ecosystem. Following the strong reception of our AI English Essay Grading feature launched in the first quarter, grading volume more than doubled sequentially in Q2. Together with AI-powered quiz recommendations and college admission advisory services, these differentiated AI capabilities helped enhance the user experience and contributed to a retention rate of over 75% for Youdao Lingshi in the second quarter.

For our programming courses, continued product upgrades and channel expansion helped broaden the user base, while improvements in the learning experience supported a retention rate of over 75% in the second quarter. Within learning services, our AI-driven subscription products generated approximately RMB100 million in sales during the second quarter, up more than 20% year-over-year. Our AI Simultaneous Interpretation feature also maintained strong momentum, with user engagement increasing by approximately 100% year-over-year. We also launched what we believe is the world's first 14-language, cross-lingual, accent-free voice cloning technology, enabling rapid voice replication across languages while preserving the speaker's emotional characteristics. To support broader adoption, we open-sourced the model weights and tool chains for local deployment and commercial use, significantly lowering the barrier to multilingual content production.

Meanwhile, Hi Echo continued to perform strongly, with second quarter gross billings increasing by more than 100% year-over-year. The product also received positive feedback from both domestic and international users at WAIC.

Turning to online marketing services, net revenues were RMB 584.4 million in the second quarter, down 7.7% year-over-year. The decline reflects our deliberate focus on higher-quality, higher-margin opportunities as we continue to prioritize the long-term health and profitability of the business. As a result, gross margin improved to 28.7%, up approximately 3 percentage points year-over-year. At the same time, we continued to make progress in client acquisition and retention, adding more than 100 new clients during the quarter and increasing advertiser retention by approximately 5 percentage points sequentially. Our AI application and short-form drama advertising businesses also maintained strong momentum, with revenues growing more than 50% year-over-year for the second consecutive quarter.

On the product side, we recently launched the second generation of our AI Ad Placement Optimizer, further improving advertising efficiency and quality. Unified Account Management provides centralized access across accounts, simplifying campaign operations. Automated Push Notifications delivers real-time data updates to help users respond more quickly. Intelligent Alerts provides 24/7 anomaly detection with second-level response times, helping reduce wasted ad spend and operational losses. Together, these upgrades further enhance advertiser value and strengthen the long-term health of our marketing ecosystem.

Moving to smart devices, improving profitability remains our primary objective. Net revenues were RMB 86.8 million in the second quarter, down 31.5% year-over-year, while the overall operational health of the business continued to improve. Our market position remained strong. During the 618 Shopping Festival, Youdao Dictionary Pen ranked #1 in sales in its category on both JD.com and Tmall for the seventh consecutive year. Our Youdao Tutoring Pen also received recognition from several government authorities for its application of AI in education, including the Ministry of Education, the Cyberspace Administration of China, and the Ministry of Industry and Information Technology.

We also recently launched the Youdao Dictionary Pen X8, featuring an expanded database of 80 million authoritative words and AI-powered, photo-based tutoring across multiple subjects. Initial market response has been positive. Looking ahead, we will continue to execute our AI-Native Strategy, leveraging our technical capabilities to deepen the application of vertical LLMs across learning and advertising. We will also continue expanding our portfolio of AI Agents to enhance user experience and satisfaction, supporting further improvements in our key financial metrics in the second half of the year.

With that, I will hand over the call over to Peng Su for a deeper dive into our financial results. Thank you.

Peng Su

Thank you, Dr. Zhou, and hello everyone. Today I will be presenting some financial highlights from the second quarter of 2026. We encourage you to read through our press release issued earlier today for further details. For the second quarter, total net revenues were RMB 1.5 billion or USD 216.2 million, representing a 3.5% increase from the same period of 2025. Net revenues from our learning services were RMB 795.6 million or USD 117.3 million, representing a 20.9% increase from the same period of 2025. The year-over-year increase was primarily driven by the strong momentum of tutoring services compared with the same period of 2025.

Net revenues from our smart devices were RMB 86.8 million or USD 12.8 million, representing a 31.5% decrease from the same period of 2025, primarily due to a decline in demand for smart learning devices. Net revenues from our online marketing services were RMB 584.4 million or USD 86.1 million, representing a 7.7% decrease from the same period of 2025. The year-over-year decrease reflects Youdao's disciplined, strategic approach to engagement acceptance, which places greater emphasis on higher ROI return on investment engagements. Youdao believes this strategy has enhanced the overall operational efficiency of its business.

For the second quarter, our total gross profit was RMB 716.9 million or USD 105.7 million, representing a 17.6% increase from the same period of 2025. Gross margin for learning services was 65.5% for the second quarter of 2026, compared with 59.8% for the same period of 2025. Gross margin for smart devices was 32.8% for the second quarter of 2026, compared with 41.5% for the same period of 2025. Gross margin for online marketing services was 28.7% for the second quarter of 2026, compared with 25.8% for the same period of 2025. For the second quarter, our total operating expenses were RMB 605.3 million or USD 89.2 million, compared with RMB 580.6 million for the same period of last year.

Looking at our expenses in more detail. Sales and marketing expenses for the second quarter of 2026 were RMB 424.1 million, compared with RMB 401.8 million in the second quarter of 2025. Research and development expenses for the second quarter of 2026 were RMB 142 million, compared with RMB 128.3 million in the second quarter of 2025. Our operating income margin was 7.6% in the second quarter of 2026, compared with 2% for the same period of last year. For the second quarter of 2026, our net income attributable to ordinary shareholders was RMB 73.8 million or USD 10.9 million, compared with net loss attributable to Youdao's ordinary shareholders of RMB 17.8 million for the same period of last year.

Non-GAAP net income attributable to ordinary shareholders for the second quarter was RMB 90.6 million or USD 13.4 million compared with RMB 12.5 million in the same period last year. Basic and diluted net income per ADS attributable to ordinary shareholders for the second quarter of 2026 were RMB 0.62 or USD 0.09 and RMB 0.61 or USD 0.09 respectively. Non-GAAP basic and diluted net income per ADS attributable to ordinary shareholders for the second quarter was RMB 0.76 or USD 0.11 and RMB 0.75 or USD 0.11 respectively. Our net cash provided by operating activities was RMB 334.2 million or USD 49.3 million, for the second quarter.

Looking at our balance sheet, as of June 30, 2026, our contract liabilities, which mainly consisted of deferred revenues generated from our learning services, were RMB 835.1 million or USD 123.1 million, compared with RMB 847.7 million as of December 31, 2025. At the end of the period, our cash, cash equivalents, current and non-current restricted cash, and short-term investments totaled RMB 849.3 million or USD 125.2 million.

This concludes our prepared remarks. Thank you for your attention. We would now like to open the call to your questions. Operator, please go ahead.

Operator

[Operator Instructions]

Our first question comes from Brian Gong with Citi.

質疑応答

Brian Gong

I want to ask about the ongoing integration of the large language model across our business and financial performance. So I would like to ask management what is the core strength of this model? And are there new product launches in the pipeline targeting this capability?

Feng Zhou

Brian, I will take the question. For large language models, we focus on areas where we see strong user demand, significant potential for value creation and also differentiated strength for Youdao. In addition to translation, which has long been one of our core strengths, I'd like to highlight 2 areas today: advanced voice and audio and mathematics learning. So in both areas, we believe Youdao has a significant strength. For voice, we have seen strong user adoption for several years already. The success of our products, Hi Echo and Youdao Simultaneous Interpretation demonstrated clear demand for high-quality, low-latency voice interactions in both learning and communications.

In Q2, user engagement with simultaneous interpretation increased by approximately 100% year-over-year. So while Hi Echo's gross billings also grew by more than 100%. So one recent development I want to highlight is Confucius4-TTS. As we discussed in our prepared remarks, this modern text-to-speech model supports cross-lingual accident-free voice cloning across 14 languages while preserving speaker identity and emotional expressions. So we see broad potential applications in areas such as cross-lingual learning, multilingual content creation, dubbing and international communications for this model. So we plan to launch more voice-related models and products in the coming months.

So the second area I want to highlight is mathematics. Mathematics is another very important focus for us. AI-driven math learning is highly demanded by users. And it's also an area where we have a strong technology and learning expertise. Math is, we all know a challenging subject for many learners and is foundational to almost all STEM disciplines. So at the same time, students' needs in math learning are highly personalized and often resolve around very specific problems and knowledge gaps. So this makes math learning a significant opportunity for AI to provide personalized explanation, to provide diagnosis practice and tutoring at scale. So Confucius 4 significantly improved reasoning for vision math and physics prompts, particularly those involving complex diagrams. Going forward, we plan to introduce additional model capabilities and also AI agents for math learning with similar opportunities across other STEM subjects.

I'm also pleased to share that we plan to launch multiple new AI agent and model products in September next month. So we will continue expanding our models and agent capabilities around these key areas. So we look forward to share more very soon. Yes. Thank you.

Operator

Our next question comes from Jing Wang with CICC.

Caini Wang

My question is also about AI, but it's more about AI features of Lingshi's AI Essay Grading. We all know that Lingshi's AI Essay Grading feature has earned well spread user recognition. Do you plan to further expand its AI-powered features in the future?

Peng Su

Thank you. This is Peng Su. I will handle the question first. Yes. And for the Lingshi, we see the AI creating value for Lingshi in 2 important ways by improving the learning experience and also expanding what we can offer to the users. and by improving the scalability and operational efficiency of our services. Over the past 4 years, powered by our continued investments in our large language model computers, Youdao Lingshi has focused on resolving the core pain points across the learning and college application scenarios. Through continuous product refinements and exploration of latest use case, we have built a comprehensive AI interactive courses and service metrics.

This platform empowers students to enhance their learning quality and efficiency, winning broad acclaim from our users. At the core learning features level, Youdao Lingshi has crafted granular and personalized intelligent learning solutions. The first is about the personalized learning path recommendations. Centered around specific knowledge points, this function time points of student's weak areas to generate a tailor-made learning plan by targeting shortfall directly and eliminating redundant practice. It boosted the learning efficiency a lot.

And second is about the AI-based recommendations, leveraging individual learning profile within the Youdao Lingshi Intelligent Learning system. This feature dynamically recommendation adaptively exercise, help students master core concepts through the application and variations. And the third is the AI Essay Grading for Chinese and English. Based on the explicit evaluation rubrics, this feature diagnose writing floors with high precision and provide target optimization suggestions, helping students to polish their writing skill efficiently.

And the last is the AI-based college admission advisers. Expanding beyond academic learning, Youdao Lingshi leverage its massive user space and extensive industry data to offer the professional AI-based college application advisory services. By enhancing user's performance, strength, interest and risk preference, it intelligently generates multiple well-balanced application strategies to guide candidates in their decision-making process. Our retention metrics serve as a strong proof of our service capabilities. In the second quarter of this year, with our Lingshi achieved a retention rate exceeding 75%, maintaining an industry level -- industry-leading level and demonstrated high user satisfaction with our AI direct courses.

So for us, AI is not simple additional features for Lingshi. It became important drivers of both users' value and business efficiency, helping us to improve the quality, scalability and the long-term economics of our business. I hope I answered your questions.

Caini Wang

That's very clear.

Operator

The next question comes from Thomas Chong with Jefferies.

Thomas Chong

Could management share the outlook for online marketing services in the first quarter?

Lei Jin

This is Jin Lei. Thank you for your questions. In the second quarter, our advertising business became more profitable with gross margin improving by about 3 percentage points. We expect gross margin to continue improving year-over-year in the third quarter. Our online marketing revenue grew from about RMB 100 million in the first quarter of 2022 to about RMB 600 million per quarter in the first half of this year. This growth was driven by our continued investment in AI and data capabilities, which has helped us expand into new business opportunities. Whenever we capture key opportunities, revenue experienced a rapid acceleration in the subsequent quarters. In the third quarter, we will focus on the 3 areas.

The first one, strengthening our AI plus advertising capabilities. We are integrating AI into all parts of our advertising business through our priority vertical LLM by KOL marketing. After upgrading in the first quarter, we plan to launch an overseas KOL marketing agent in the third quarter to help Chinese companies reach global markets more efficiently. The other programmatic advertising matching the second quarter, our second-generation AI Ad Placement Optimizer improved traffic matching and helps increase targeting accuracy and operating efficiency.

The second, expanding our advertiser base. With the support of our team and AI capabilities, we added more than 100 new advertisers in the second quarter. And in the third quarter, we will focus on fast-growing sectors such as AI applications and short-form dramas, both in China and overseas. The third, we are improving profitability. We will continue to improve gross margin through 2 initiatives: using Youdao device to reduce the cost of producing advertising creatives and using the AI Ad Placement Optimizer to identify more cost effective traffic. In summary, over the medium to long term, we will continue to apply AI to programmatic advertising and KOL marketing. This will help improve advertiser's ROI while supporting our growth in both revenue and profitability. In the short term, we will continue to prioritize profitable and sustainable growth over rapid expansion. We will also keep upgrading our advertising and KOL marketing tools to support the future growth. Thank you.

Operator

Our last question comes from the line of Bo Zhan with Huatai Securities.

Bo Zhan

This is Zhan Bo, Huatai. Could management share the outlook for the gross margin in the third quarter?

Yongwei Li

Thank you, Zhan Bo. This is Yongwei Li. I will take your question. As reflected in our financial results, we delivered an impressive performance in gross margin level, reaching 47% in the first half of this year, representing a year-over-year improvement of around 2 percentage points. especially gross margin for online marketing services and learning services expanded by 1 percentage point and 3 percentage points year-over-year, respectively. I will give more details on the reason why for the improvement on the profitability and its outlook by segment.

First, in terms of online marketing services, the margin expansion in our advertising business stems from the execution of our AI native strategy and profitability priority discipline. As for AI native strategy, the agents such as the AI Ad Placement Optimizer and iMagicBox have significantly boosted productive across Ad planning, user profiling and creative asset production. As for profitability priority approach, we proactively prevent certain Ad opportunities with relatively low ROI, focusing our resources instead on campaigns that deliver higher value to users. Second, learning services. The improvement in learning services' gross margin was primarily driven by AI-enhanced learning efficiency and scaling benefits. On the AI empowerment side, features such as AI Essay Grading for Chinese and English and AI quiz recommendation have been widely adopted. This tool effectively elevated the efficiency of our teaching assistance, which in turn boosted both student retention rate and gross margin.

On the economies of scale side, as cost/revenue has steadily declined since the second half of 2025, we expect the economies of scale in learning services to become even more pronounced throughout 2026, which drives further gross margin expansion. Third, aspect of smart devices, similar to the broader consumer electronic industry, our smart devices segment has faced cost pressure from the rising memory costs alongside a reduction in hardware economies of scale. Consequently, the gross margin for smart devices stood at around 37% in the first half of this year, down roughly 11 percentage points year-over-year. Although memory costs are likely to maintain, elevate in the near term. Architecture and engineering improvements designed to reduce memory reliance will meaningfully mitigate margin compression with new product launch planned for the third quarter.

We anticipate the gross margin of smart devices to recover to over 40% in the second half of the year, narrowing the year-over-year decline. Looking ahead, we will further deepen the AI native strategy and broaden LLM integration across all product lines while maintaining rigorous cost and operational efficiency optimization. This strategy will maintain central throughout 2026, giving us confidence in delivering strong gross margin performance and achieving meaningful breakthroughs at the operating profit level in second half of 2026.

Hope the information mentioned is helpful. Thank you.

Operator

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to the management for any closing remarks.

Jeffrey Wang

Thank you once again for joining us today. If you have any further questions, please feel free to contact us at Youdao directly or reach out to Piacente Financial Communications in China or the U.S. Have a great day.

Operator

Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Goodbye.