Gaotu Techedu reported a significant improvement in second-quarter operating efficiency as revenue and gross billings increased at double-digit rates, operating losses narrowed sharply and operating cash inflow jumped more than 46%.
Second-quarter revenue increased 20.2% year-over-year to RMB1.67 billion, or approximately $246.1 million, from RMB1.39 billion.
Gross billings increased 19.4% to RMB2.69 billion, or approximately $396.3 million.
The company’s operating losses improved substantially despite continued investment in its educational products and user base.
Loss from operations narrowed to RMB149.8 million, or approximately $22.1 million, from RMB241.9 million.
That represents a 38.1% reduction.
Non-GAAP operating loss similarly improved to RMB143 million from RMB232.7 million, a reduction of approximately 38.5%.
Net loss narrowed 37.1% to RMB135.8 million, or approximately $20 million, from RMB216 million.
Non-GAAP net loss declined 37.6% to RMB129.1 million, or approximately $19 million.
The strongest financial indicator, however, was cash generation.
Net operating cash inflow increased 46.3% to RMB861.2 million, compared with RMB588.8 million in the prior-year quarter.
The quarterly operating cash inflow was equivalent to more than half of reported revenue, reflecting the timing and economics of Gaotu’s customer collections and deferred revenue model.
Management attributed the improvement to stronger organizational capabilities, greater efficiency and broader use of artificial intelligence and digital tools.
Gaotu said AI is being embedded across teaching, learning services, user acquisition and middle- and back-office functions.
Those efforts contributed to a 7.9-percentage-point reduction in operating expenses as a percentage of revenue during the quarter.
That operating leverage is visible in the income statement.
Revenue increased 20.2%, while total operating expenses increased only 8.8% to RMB1.26 billion.
Selling expenses increased to RMB913.2 million from RMB820.9 million, R&D expense rose modestly to RMB154.8 million from RMB148.2 million, and G&A increased to RMB192.6 million from RMB189.3 million.
Gross profit grew faster than revenue.
Quarterly gross profit increased 21.2% to RMB1.11 billion, while gross margin increased to 66.5% from 66%.
Non-GAAP gross margin reached 66.6%.
The combination of slightly higher gross margin and much slower operating-expense growth relative to revenue explains the significant narrowing of the operating loss.
Gaotu also maintains a large liquidity base.
Cash and cash equivalents totaled RMB872.5 million at June 30.
Short-term investments were RMB2.42 billion, restricted cash was RMB57.1 million and long-term investments totaled RMB642.9 million.
Combined cash, restricted cash and short- and long-term investments amounted to RMB3.99 billion.
Management said that excluding share repurchases, those balances increased by RMB354.6 million year-over-year.
Gaotu has also continued returning capital to investors.
As of August 26, the company had cumulatively repurchased approximately 36.5 million ADSs for $103.5 million under its existing repurchase programs.
Management cited RMB741.8 million of aggregate repurchases when describing the program in local currency.
Growth is expected to continue in the third quarter.
Gaotu projects Q3 revenue of RMB1.838 billion to RMB1.858 billion, representing year-over-year growth of approximately 16.4% to 17.7%.
The company is pursuing a hybrid strategy that combines its established online presence with offline expansion.
Management believes online brand awareness and user trust can support physical expansion, while high-touch offline services can increase engagement and deepen customer relationships.
AI sits at the center of that model as Gaotu attempts to improve personalization, teaching effectiveness, customer acquisition and internal productivity simultaneously.
The strongest positive earnings angle is therefore the combination of growth and operating leverage.
Revenue increased 20%, gross profit increased 21%, the operating loss narrowed 38% and quarterly operating cash inflow increased 46%.
Those trends suggest that Gaotu is beginning to convert continued top-line expansion into meaningfully better unit economics.
KEY QUOTES:
“Our sustained, user-focused investments in educational products, learning services, and organizational capabilities are steadily translating into healthier unit economics and a more efficient operating system.”
“We are embedding AI more deeply across our teaching, services, and operational processes to gain actionable insights from users’ learning patterns, interactions and feedback.”
Larry Xiangdong Chen, Founder, Chairman and Chief Executive Officer of Gaotu Techedu
“Our net operating cash inflow increased by 46.3% year over year to RMB861.2 million during the quarter, reflecting the broad-based improvements in our organizational capabilities and operating efficiency.”
Robin Bin Luo, Chief Operating Officer of Gaotu Techedu
