R&D expenses are growing faster than revenue, and the net profit deducted from non-recurring gains and losses for the first three quarters remains at a loss of CNY 763 million.
On October 19, iFLYTEK released a somewhat contradictory third-quarter report.
In the first three quarters, the company achieved an operating revenue of CNY 18.187 billion, a year-on-year increase of 7.05%; the net profit attributable to shareholders of the listed company was CNY 21.8872 million. Compared to a net loss of CNY 66.6754 million in the same period last year, the company turned losses into profits in the current period.
However, another set of data is hard to ignore: the net profit deducted from non-recurring gains and losses for the same period was CNY -763 million.
This means that the turnaround in net profit attributable to shareholders does not indicate that the main business has established stable profitability. Non-recurring gains and losses, such as government subsidies and financial asset-related income, have provided significant support to the current profit.
Meanwhile, iFLYTEK continues to increase its R&D investment. The company disclosed that R&D investment in the third quarter exceeded CNY 1.7 billion, an increase of nearly CNY 400 million year-on-year, accounting for more than 25% of the operating revenue for the quarter.
On October 22, iFLYTEK will also hold the 2026 Global 1024 Developer Festival, releasing the new generation of the iFLYTEK Spark Large Model and a brand-new "Cloud + Edge" collaborative solution.
Technology iteration, product implementation, and profit realization are becoming three facets of the same issue.
For iFLYTEK, what the market needs to observe is no longer just whether the capabilities of large models can continue to improve, but also whether these capabilities can generate a sufficiently large revenue scale, and whether revenue growth can cover the continuously increasing R&D costs.
Profitability Pressure on the Main Business Remains
Let's first look at the performance in the third quarter.
In the third quarter, the company achieved an operating revenue of CNY 6.564 billion, a year-on-year increase of 7.99%; the net profit attributable to shareholders was CNY 226 million, a year-on-year increase of 31.05%.
Looking solely at these two indicators, the company's operational performance has improved.
However, the net profit deducted from non-recurring gains and losses provides another answer. In the third quarter, iFLYTEK's net profit deducted from non-recurring gains and losses was a loss of CNY 126 million, a decrease of approximately CNY 150 million compared to the same period last year.
The difference in the first three quarters is even more pronounced.
The company achieved a cumulative net profit attributable to shareholders of CNY 21.8872 million, while the net profit deducted from non-recurring gains and losses was a loss of CNY 763 million. The gap between the two indicators is approximately CNY 785 million, which exactly corresponds to the total amount of non-recurring gains and losses disclosed by the company for the first three quarters (on an after-tax basis).
Specifically, among the non-recurring gains and losses in the first three quarters, government subsidies were approximately CNY 471 million; the related fair value changes and disposal gains and losses generated from financial assets and financial liabilities held by non-financial enterprises were approximately CNY 370 million; and the disposal gains and losses of non-current assets were approximately CNY 84 million. After deducting the impact of income tax and minority shareholders' equity, the total non-recurring gains and losses amounted to approximately CNY 785 million.
These revenues have their respective accounting and economic backgrounds, nor do they imply that the company has not seen operational improvements. However, they are still a different matter from the main business's ability to continuously generate profits.
If only the net profit attributable to shareholders is considered, it is easy to underestimate iFLYTEK's current profitability pressure; if only the deducted non-recurring loss is considered, it is also easy to ignore the reality of the company's continuous investment in large model R&D and the promotion of business structure adjustment.
When R&D investment remains at a high level, can iFLYTEK's business revenue continue to grow, can product gross profit improve, and ultimately allow the main business to gradually cover R&D and sales costs?
Based on current data, this process has not yet been completed.
Who Will Pay for the High R&D?
iFLYTEK's R&D investment has become a key variable in understanding its financial performance.
In the first three quarters of 2026, the company's cumulative R&D expenses were approximately CNY 3.85 billion, a year-on-year increase of about 20.8%. During the same period, operating revenue grew by 7.05%, and the cumulative growth rate of R&D expenses was significantly faster.
Other expenses are also increasing.
In the first three quarters, the company's sales expenses were approximately CNY 3.608 billion, a year-on-year increase of about 11.8%; administrative expenses were approximately CNY 959 million, a year-on-year increase of about 5.3%. Operating costs were approximately CNY 10.943 billion, a year-on-year increase of about 7.9%.
The company has provided a clear explanation for this. In the third quarter, iFLYTEK adhered to the independent and controllable technology route for AI (Artificial Intelligence), continued to maintain high R&D investment, and regarded it as part of its long-term strategic layout.
This investment has its industrial background.
The competition in large models has extended to complex reasoning, code generation, AI agents, multimodal interaction, and edge deployment. Model vendors need to continuously upgrade their underlying capabilities, adapt to computing power environments, optimize inference efficiency, and embed the technology into the workflows of specific industries.
For iFLYTEK, the independent and controllable route also means the need to continuously improve the technical system from the computing power infrastructure and model training to product applications.
These investments may bring competitive advantages in the future, but R&D expenses themselves cannot automatically translate into commercial returns.
After the model capabilities are improved, are enterprise customers willing to pay? Can the same tasks be completed at a lower cost? Can products move from project delivery to continuous operations? These questions will ultimately be reflected in the financial statements.
If increased R&D investment can bring more customers, higher renewal rates, and better product gross margins, then short-term profit pressure may be a phased phenomenon in the process of business expansion.
If investment continues to grow while revenue consistently maintains single-digit growth, profitability pressure may persist for a longer period.
Therefore, to judge whether iFLYTEK's R&D investment is effective, one cannot just look at the R&D amount and model release frequency; it is also necessary to observe the revenue, gross profit, and cash returns generated after the investment.
Still Short of Profit Realization
If iFLYTEK is broken down into different business segments, it can be found that its growth is not balanced.
In the first half of 2026, revenue from the open platform was approximately CNY 3.705 billion, a year-on-year increase of 36.01%; revenue from smart healthcare was approximately CNY 438 million, a year-on-year increase of 58.56%; and revenue from smart automotive was approximately CNY 481 million, a year-on-year increase of 20.46%.
The open platform is one of the noteworthy business segments. It connects model capabilities, developers, and various applications, which can not only bring in revenue from API calls but also provide a foundation for enterprises to embed AI capabilities into their own products.
However, revenue growth does not equal synchronous profit growth.
In the first half, the gross profit margin of the open platform was 20.21%; revenue from education products and services was approximately CNY 3.49 billion, a year-on-year decrease of 1.16%, while the gross profit margin reached 51.72%.
The difference in gross profit margins between the two businesses indicates that iFLYTEK needs to address both the scale of growth and the quality of profitability. The rapid increase in open platform revenue helps expand the commercial coverage of model applications; however, to further improve the company's overall profitability, attention must also be paid to its revenue structure, service costs, and economies of scale.
The education business, on the other hand, presents another change.
Looking at the data for the first half, revenue from education products and services is still under pressure. By the third quarter, the company disclosed that both smart education and smart healthcare businesses achieved a year-on-year growth of over 20%. Meanwhile, revenue from the G-end (government) business decreased by 2.39% year-on-year in the third quarter, as the company is proactively shrinking its smart city business.
This indicates that the company is adjusting its business structure, which previously relied on project construction and delivery, and concentrating more resources on products and services with room for continuous operations.
This adjustment is worth paying attention to.
Traditional project-based businesses usually need to go through stages such as solution design, bidding, delivery acceptance, and payment collection. The pace of revenue recognition and cash recovery may be affected by the project cycle. Standardized products and continuous operation services, however, have the opportunity to improve operational efficiency through product reuse, customer renewals, and scaled delivery.
However, business structure adjustment takes time. The shrinkage of smart city projects may affect some revenue in the short term; whether businesses such as education, healthcare, and the open platform can fill this gap remains to be seen.
The key for iFLYTEK going forward is to enable the faster-growing businesses to gradually take on more revenue and profit contributions.
Three More Questions to Answer
On October 22, the iFLYTEK Global 1024 Developer Festival is about to be held.
It is reported that the new generation of the iFLYTEK Spark Large Model will be released, along with a brand-new "Cloud + Edge" collaborative solution, to further advance the construction of the "Token + Agent" ecosystem.
This launch event will naturally attract attention.
Model performance, code capabilities, complex task processing, and AI agent applications may all become the focus of the technology showcase. However, for a listed company that has already invested heavily in R&D resources, the commercialization progress after the technology release is even more important.
First, can model capabilities bring paid demand?
The number of developers, model call volume, and product user scale can reflect ecosystem activity, but commercial value also depends on the number of paying customers, customer usage frequency, renewal rates, and revenue contributed per customer.
If customers are only trialing the model, or if call volume grows without bringing corresponding revenue, the quality of commercialization remains limited.
Second, can AI agents enter real business processes?
AI agents can help users execute tasks, invoke tools, and complete multi-step workflows. However, in enterprise scenarios, products need to meet requirements such as accuracy, stability, permission management, data security, and system integration.
Applications with true commercial value usually need to solve specific problems, such as reducing customer service costs, improving office efficiency, assisting in education and teaching, or shortening workflows in specific industries.
From demonstration effects to enterprise deployment, there are still stages such as product development, customer validation, system adaptation, and continuous operation and maintenance in between.
Third, can the growth in model calls bring better unit economics?
Token billing provides a relatively direct commercialization method for model services, and AI agents also have the opportunity to combine charging with task execution, workflows, and enterprise services. However, the larger the call volume, the more attention needs to be paid to computing resources and inference costs.
If technology upgrades can reduce the cost per task, improve resource utilization, and make customers willing to pay for more complex services, revenue growth will have a better chance of translating into profit.
For iFLYTEK, the new model release on October 22 provides an important observation window. The improvement in model capabilities is worth paying attention to, but a more valuable signal is whether new products can bring in new customers, continuous calls, and more sustainable revenue.
Beyond the Income Statement, Cash Recovery is the Real Battle
Beyond profit, cash flow is also an important indicator for judging iFLYTEK's operational status.
In the first three quarters of 2026, the net cash flow generated from operating activities was approximately CNY 264 million, higher than the approximately CNY 123 million in the same period last year, and the cumulative operating cash flow turned positive.
The company disclosed that the total sales collections in the third quarter were approximately CNY 7.794 billion, an increase of over CNY 700 million year-on-year. This means that the improvement in collections has supported the operating cash flow.
However, the turnaround in cash flow does not yet mean that funding pressure has disappeared.
In the first three quarters, the company's net operating cash flow was equivalent to approximately 1.45% of the operating revenue for the same period. Meanwhile, as of the end of September, the company's accounts receivable were approximately CNY 17.802 billion, an increase of approximately CNY 1.506 billion from the beginning of the year; inventory was approximately CNY 4.791 billion, an increase of 58.07% from the beginning of the year.
The company explained that the increase in inventory is mainly related to the increase in raw materials and inventory goods. The company also stated that the increased R&D investment in large models and the increased expenditure on stocking up memory chips have impacted the operating cash flow.
These data need to be understood in the context of business characteristics. Project-based businesses have a certain settlement cycle, and strategic stocking may also serve subsequent product delivery. Operational deterioration cannot be judged solely based on an increase in accounts receivable or inventory.
However, for investors, three changes still need to be observed going forward: whether collections can continue to improve, whether the growth rate of accounts receivable can be controlled, and whether the increase in inventory can be translated into subsequent revenue.
Cash flow is an important link connecting the income statement with actual operations. Only when customer demand, revenue recognition, and cash recovery form a smoother cycle can R&D investment more easily obtain continuous financial support.
The Next Report Card to Be Delivered
iFLYTEK's third-quarter report presents the process of an AI enterprise finding a balance between technology investment and commercial returns.
On the one hand, businesses such as the open platform and smart healthcare have shown growth potential, and the company is also adjusting its business structure to reduce its reliance on some traditional project-based businesses. On the other hand, R&D expenses are growing faster than revenue, and the net profit deducted from non-recurring gains and losses for the first three quarters remains at a loss of CNY 763 million, indicating that the returns brought by commercialization are temporarily insufficient to cover overall operating costs.
This is also the most noteworthy aspect for iFLYTEK going forward.
If the new model can increase customers' willingness to pay, drive revenue growth in the open platform and industry applications, and simultaneously improve inference costs and product gross margins, then R&D investment will have the opportunity to gradually translate into profitability.
If revenue growth remains slow, expenses continue to increase, and the support of non-recurring gains on profits changes again, the company will still need to face the problem of insufficient profitability in its main business.
Therefore, to judge iFLYTEK's operational progress going forward, three indicators can be closely tracked: whether the net profit deducted from non-recurring gains and losses continues to improve, whether the open platform and industry AI applications can contribute higher-quality revenue, and whether operating cash flow can be further enhanced with business growth.
The model launch event on October 22 may bring new technical highlights.
But for iFLYTEK, what truly determines long-term commercial value is whether these technologies can ultimately enter more real-world scenarios, obtain continuous payments, and form sustainable profits within an ever-expanding revenue scale.