Gaotu's Q2 2025: Contradictions Emerge on Offline Business Growth, Student Preferences, AI Integration, and Summer Enrollment

The above is the analysis of the conflicting points in this earnings call

Date of Call: August 26, 2025

Financials Results

• Revenue: RMB ~1.4B, up 37.6% YOY; exceeded upper-end guidance by 5.4%
• Gross Margin: 66.0%, decreased YOY (prior rate not disclosed)
• Operating Margin: -17.3% (operating loss margin); improved YOY as loss from operations narrowed 48.0%

Guidance:

- Q3 2025 net revenues expected at RMB 1,558-1,578M (+28.9% to +30.6% YOY).- Sales & marketing ROI expected to improve YOY in Q3.- Management raising full-year revenue expectations above the initial ~30% growth target; first nine months to exceed 40% YOY based on guidance.

Business Commentary:

Revenue Growth and AI Integration:* - Gaotu Techedu Inc. reported revenue of nearly RMB 1.4 billion for Q2 2025, an increase of 37.6% year-over-year, with gross billings up by 36.2% to approximately RMB 2.3 billion. - This growth was driven by strong investment in AI, enhancing teaching models and technology infrastructure, which empowered personalized learning at scale and created long-term value.

• Offline Center Expansion:
• Offline learning center revenue contributed over 5% of gross billings in Q2 2025, growing by more than 20% year-over-year.

• The growth in the offline business was attributed to leveraging in-person interaction, refining online content, and enhancing brand awareness, which improved customer trust and retention rates.

• Teaching Quality and Retention Rates:

• The company saw significant improvement in teaching quality, with retention rates outperforming historical levels and industry averages, contributing to a strong summer enrollment season.

• This improvement was due to the integration of AI technology in teaching and customer support, which led to better student engagement and satisfaction.

• Cost Efficiency and Profitability:

• Gaotu achieved a net operating cash inflow of RMB 588.8 million, up RMB 202.6 million from the same period last year.

• The improved operational efficiency was due to AI and other cutting-edge technologies playing a crucial role in refining operations, leading to a 31.6 percentage point reduction in operating expenses as a percentage of net revenue.

• Financial Guidance and Year-over-year Growth:

• For the third quarter of 2025, Gaotu expects total net revenues between RMB 1,558 million and RMB 1,578 million, representing an increase of 28.9% to 30.6% year-over-year.
• The company raised its full-year revenue growth expectations due to strong performance in the first half of the year, with total revenue growth rate for the first half at 47.3%.

  Sentiment Analysis:

  • Revenue up 37.6% YOY to ~RMB 1.4B and beat guidance by 5.4%. Gross billings up 36.2% YOY. Loss from operations and net loss narrowed by 48.0% and 49.7% YOY. Q3 revenue guided to grow 28.9%-30.6% YOY. Management plans to raise full-year revenue expectations.

  Q&A:

  • Question from Yiran Sheng (CLSA): Update on offline learning centers, ramp-up metrics, and growth targets?
  • Response: Offline revenue grew >20% YOY and exceeded 5% of gross billings; leveraging brand, online content, and HQ support to drive retention and scalability; model validated and expected to continue expanding.
  • Question from Yishan Li (China Merchants Securities): Color on summer enrollment and full-year growth outlook?
  • Response: Summer beat expectations with improved retention and ROI rising from 1.99x to 2.75x (+38.6%); S&M spend down while billings rose; Q3 ROI to improve YOY; management raising FY revenue outlook above initial ~30% target (first 9 months >40% YOY implied).