Youdao (NYSE:DAO) has reported its FY 2025 third quarter results with revenue of C¥1.63b and basic EPS of roughly C¥0.00, capping a 12 month stretch in which trailing revenue came in at C¥5.68b and trailing EPS reached C¥1.21. Over the past few quarters, revenue has moved from C¥1.30b in Q1 2025 to C¥1.42b in Q2 and C¥1.63b in Q3, while quarterly basic EPS has ranged from a loss of C¥0.15 in Q2 to a profit of C¥0.65 in Q1 and roughly breakeven in Q3, setting up a results season in which investors are likely to focus closely on how consistently the company can convert sales into sustainable margins.

See our full analysis for Youdao.

With the headline numbers on the table, the next step is to see how this latest earnings run lines up with the prevailing stories around Youdao, and where the data pushes back on those narratives.

155% earnings growth with thin 2.5% margin

• On the trailing 12 month view, net income excluding extra items is C¥142.1 million on C¥5.68b of revenue, which works out to a 2.5% net margin versus 1% a year earlier and earnings growth of 155.2% over that same period.
• Consensus narrative talks up Youdao's AI tools and cost efficiencies as drivers of better profitability, and the margin numbers partly back that up but also show how early the story still is.
  • Trailing EPS of C¥1.21 and a 2.5% margin line up with the idea that the business is now consistently profitable, yet the margin level is still low enough that any pressure on costs or pricing could move earnings around quite a bit.
  • Revenue across the last three quarters rising from C¥1,298.3 million to C¥1,628.5 million fits with the focus on growth in digital content, smart devices, and marketing, but the small net income in Q3 2025 of C¥0.12 million shows that higher sales have not always translated into stronger quarterly profitability.

EPS swings from C¥0.65 profit to loss to breakeven

• Within FY 2025, basic EPS moved from C¥0.65 in Q1 to a loss of C¥0.15 in Q2, then roughly breakeven at about C¥0.00 in Q3, even though revenue grew from C¥1,298.3 million to C¥1,628.5 million over the same three quarters.
• Bulls argue that AI driven products and high retention can support sustained earnings growth, and the trailing 155.2% earnings rise helps that case, but the quarter to quarter EPS pattern shows why some investors may hesitate to treat that growth as smooth.
  • The bullish view leans on five year annualized earnings growth of 48.6%, yet the swing from a C¥76.7 million profit in Q1 2025 to a C¥17.8 million loss in Q2 and then almost flat profit in Q3 highlights how earnings can still be quite volatile around that trend.
  • Analysts expecting earnings to climb over time need this volatility to settle, so the mix of strong trailing growth and choppy recent quarters gives you a clearer sense of why opinions on the stock can be so split.

On the back of these sharp EPS moves, bulls say AI tools and recurring learning products could eventually smooth out profitability and push growth further, and you can see how that argument stacks up against the numbers in the full bull case here: 🐂 Youdao Bull Case

High 55x P/E with balance sheet pressure

• Youdao trades on a trailing P/E of 55.1x versus 17.4x for the US Consumer Services industry and 19.9x for peers, while its balance sheet shows debt that is not well covered by operating cash flow and negative shareholders' equity.
• Bears point to these valuation and balance sheet flags as reasons to be cautious, and the current data gives them several concrete talking points.
  • With the share price at US$9.48 and an allowed analyst target of US$11.59, the upside implied by that target is limited compared with the gap implied in some narratives, which can make the 55.1x P/E look demanding given the modest 2.5% net margin.
  • Critics also highlight that, despite high quality past earnings and strong trailing growth, weak debt coverage and negative equity leave less room for error if margins compress from the current 2.5% level or if another loss making quarter like Q2 2025 appears.

If you want to see exactly how skeptics connect these balance sheet and valuation numbers to their thesis, the full bear case lays it out in detail: 🐻 Youdao Bear Case

Next Steps

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for Youdao on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

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A great starting point for your Youdao research is our analysis highlighting 1 key reward and 2 important warning signs that could impact your investment decision.

See What Else Is Out There

Youdao carries a thin 2.5% net margin, sharp EPS swings and a pressured balance sheet with weak debt coverage and negative shareholders' equity.

If those balance sheet stress points make you cautious, take a few minutes to size up companies screened for stronger finances through our solid balance sheet and fundamentals stocks screener (45 results).

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.