Shares of Youdao Inc (NYSE: DAO), a leading technology-focused intelligent learning company in China, plummeted by 19.16% on October 9th, 2024, following the release of the company's second-quarter earnings report.

Despite reporting a 9.5% year-over-year increase in net revenues to RMB 1.3 billion and a record operating cash inflow of RMB 250.2 million, up 88.2% year-over-year, investors expressed concerns over several key factors:

1. Learning Services Decline: Youdao's core learning services segment saw a 5.5% decrease in revenue year-over-year, indicating challenges in this crucial business area. This decline raised concerns about the company's ability to maintain growth in its flagship education offerings.

2. Smart Devices Underperformance: The smart devices segment experienced a 25% year-over-year decrease in revenue, primarily due to an unfavorable product mix. This segment's lower gross margin of 30.3%, down from 35.8% in the previous year, further highlighted profitability pressures.

3. Continued Losses: While Youdao's loss from operations narrowed by 74.9% year-over-year to RMB 72.6 million, the company still reported a net loss attributable to ordinary shareholders of RMB 99.5 million. This ongoing loss raised questions about Youdao's path to profitability.

Despite these challenges, Youdao demonstrated strength in its online marketing services segment, with revenue increasing by 68.4% year-over-year, driven by robust data and AI capabilities. Additionally, the company's AI-driven subscription services and retention rates showed promising growth.