Gaotu Techedu's Q3 2025: Contradictions Emerge on Revenue Growth, Offline Business, and Profitability Expectations

Date of Call: November 26, 2025

Financials Results

• Revenue: Nearly RMB 1.6 billion, up 30.7% YOY
• Gross Margin: 66.1% (gross profit up 34% YOY to over RMB 1.0 billion)
• Operating Margin: 11.3% operating loss margin (non-GAAP operating loss margin 10.7%); non-GAAP loss from operations narrowed 64.6% YOY

Guidance:

• Q4 2025 net revenue expected RMB 1,628 million to RMB 1,648 million, up 17.2%–18.7% YOY
• 2026 revenue expected to grow approximately 15% YOY
• Primary focus for 2026 is profitability, improving operating cash flow and moving toward sustainable net profitability

Business Commentary:

* Revenue Growth and Profitability Improvement: - Gaotu Techedu reported revenue of nearly RMB 1.6 billion for Q3, up 30.7% year-over-year. - The company's loss from operations and net loss narrowed by 64.6% and 69.9%, respectively, reflecting sustained improvement in growth quality and profitability. - This was attributed to the company's user-centric approach, AI integration, and strong execution across multiple business segments.

• **AI-Driven Efficiency and Operational Improvements:
• Gaotu achieved a 1.4% year-over-year decrease in marketing expenses, improving customer acquisition efficiency by 12.8%.
• Deferred revenue sustained healthy growth, up 23.2% year-over-year to nearly RMB 1.8 billion.
• Enhanced operational performance led to a substantial year-over-year decrease in operating net cash outflow of approximately RMB 54.2 million.
• These improvements were driven by the company's adoption of digital tools, AI-driven process transformation, and prioritizing healthy unit economics.

• **Diversification of Revenue Streams:
• Revenue from new initiatives focused on nonacademic tutoring services increased by around 60% year-over-year in Q3.
• Educational services for college students and adults contributed more than 15% of total revenue, returning to a positive growth trajectory with double-digit year-over-year growth in both revenues and gross billings alongside quarterly profitability.
• This diversification was achieved through the expansion of service scenarios, integration of online and offline models, and continuous product innovation to meet evolving user needs.

• **Strategic Shareholder Value Creation:
• Gaotu completed the full amount of its initial share repurchase program and commenced a new $100 million program.
• The company is committed to enhancing shareholder value while safeguarding operational and financial health.
• This strategy reflects the company's focus on long-term growth and shareholder returns, supported by a strong financial position and disciplined financial management.

Sentiment Analysis:

Overall Tone: Positive

• Management: "Revenue grew by 30.7% year-over-year to nearly RMB 1.6 billion." Non-GAAP loss from operations and net loss narrowed 64.6% and 69.9% respectively. Completed initial repurchase program and launched new $100M repurchase—signals confidence in cash position and path to profitability.

Q&A:

• Question from Crystal Li (China Merchants Securities (HK) Co., Ltd, Research Division): Congratulations on strong results. And could you give us some color on your 2026 top line growth and your expectations on each business line? And in terms of the bottom line, how is your plan? Maybe could you share more about your plan to balance your growth and loss reduction?
  Response: Management expects ~15% revenue growth in 2026 while prioritizing profitability—aiming to improve operating cash flow and achieve sustainable net profitability by balancing growth investments with operating-leverage gains.

Contradiction Point 1

Revenue Growth Expectations

It involves changes in financial forecasts, specifically regarding revenue growth expectations, which are critical indicators for investors.

Can you provide details on your 2026 top-line growth and expectations for each business line? What are your plans for the bottom line? How do you plan to balance growth with loss reduction? - Crystal Li (China Merchants Securities (HK) Co., Ltd, Research Division)

2025Q3: Expected growth trajectory in 2026 to become more balanced with profitability as the major focus. Anticipate approximately 15% year-over-year revenue growth in 2026. - Nan Shen(CFO)

How should we assess the full-year growth outlook given your strong first-half and third-quarter guidance? - Yishan Li (China Merchants Securities (HK) Co., Ltd, Research Division)

2025Q2: We will raise our expectations for the full year revenues. - Nan Shen(CFO)

Contradiction Point 2

Offline Business Growth and Contribution

It involves the growth and contribution of the offline business, which is a key area of focus for the company's strategic expansion.

Can you provide details on your 2026 revenue growth and expectations for each business segment? - Crystal Li (China Merchants Securities (HK) Co., Ltd, Research Division)

2025Q3: Our offline business is experiencing strong momentum and has quickly become a new growth engine for us. In the second quarter, offline learning center revenue grew by more than 20% on a year-over-year basis and has already contributed over 5% of gross billings this quarter. - Nan Shen(CFO)

What is the latest update on offline centers development, given its current small revenue contribution but growth potential? - Yiran Sheng (CLSA Limited, Research Division)

2025Q2: The model is validated, and we're confident in its scalability and sustainability. - Nan Shen(CFO)

Contradiction Point 3

Growth and Profitability Expectations

It involves changes in financial forecasts, specifically regarding growth and profitability expectations, which are critical indicators for investors.

Could you provide details on your 2026 top-line growth and expectations for each business line? What is your plan for the bottom line, and how do you plan to balance growth with loss reduction? - Crystal Li (China Merchants Securities (HK) Co., Ltd, Research Division)

2025Q3: We expect to deliver approximately 15% year-over-year growth in 2026 with a focus on maintaining operating cash flow and achieving net profitability. - Nan Shen(CFO)

What are the drivers of this margin expansion, and can you provide details on your full-year guidance? - Crystal Li (CMS)

2025Q1: We expect significant profitability improvement in each quarter of 2025 compared to the same period last year, supporting the overall fulfillment of annual bottom line targets. - Shannon Shen(CFO)

Contradiction Point 4

Operating Cash Flow Expectations

It involves changes in financial forecasts, specifically regarding operating cash flow expectations, which are critical indicators for investors and stakeholders.

What are your expectations for 2026 revenue growth by business segment? What are your expectations for profitability in 2026? How do you plan to balance growth with loss reduction? - Crystal Li (China Merchants Securities (HK) Co., Ltd, Research Division)

2025Q3: We expect to deliver approximately 15% year-over-year growth in 2026 with a focus on maintaining operating cash flow and achieving net profitability. - Nan Shen(CFO)

What caused this quarter's negative operating cash flow to exceed last year's first quarter level by more than twice? - Eunice Liu (Goldman Sachs)

2025Q1: We expect the operating cash inflow for 2025 to be at least 3x that of the full-year of 2024, resulting in a net operating cash inflow of over US$100 million this year. - Shannon Shen(CFO)

Contradiction Point 5

AI Integration and Operational Efficiency

It involves the company's strategy and progress in integrating AI into operations, which affects operational efficiency and competitive positioning.

What is the impact of AI on your operating expenses, and how much did it save this quarter? - New Research (Unknown Company)

2025Q3: We firmly believe that AI technology will play a critical role in transforming the education field and our business. We will continue to invest in AI technology and applications to enhance our competitive positioning. - Nan Shen(CFO & Senior VP)

How are you integrating AI into core operations? What measurable improvements have you observed? - Crystal Li (China Merchant Securities)

2024Q4: AI reshapes education by enabling personalized learning paths and automated content optimization. AI-driven adaptive learning platforms enhance learning efficiency. AI can handle repetitive tasks, freeing teachers for creative tasks. Investments in AI focus on applications and solutions that deliver personalized learning journeys. AI is embedded in all operational aspects for improved learning and operational processes. - Larry Chen(Founder, Chairman & Chief Executive Officer)