Gaotu(US:GOTU)2024-08-29 02:22Investment Rating - The report assigns a "Buy" rating for the company, Gaotu (GOTU US), with a target price of $6.50, indicating a potential upside of 96.4% from the current closing price of $3.31 [1][10]. Core Insights - The company reported a quarterly revenue increase of 44% year-on-year to 1 billion RMB, exceeding market expectations by 2% and 3% [1]. - Cash collections grew by 87% year-on-year, driven primarily by K12 education services, which accounted for over 85% of total revenue [2]. - The company anticipates a revenue growth rate of 50.5-53% for Q3 2024, with revenue expected to be between 1.188 billion and 1.208 billion RMB [2]. Financial Performance Summary - For Q2 2024, the company reported a revenue of 1 billion RMB, with a gross margin of 69%, down 5 percentage points year-on-year due to changes in revenue structure [1][3]. - Adjusted operating loss for Q2 2024 was 450 million RMB, with a loss margin of 45%, aligning with previous expectations [1]. - The company expects to continue incurring operating losses due to increased customer acquisition costs and expansion efforts, projecting an adjusted operating loss of 400 million RMB for Q3 2024 [2]. Revenue Breakdown - K12 revenue grew by over 55% year-on-year, with non-academic subjects experiencing triple-digit growth, contributing over 20% to total revenue [2]. - Adult education revenue increased by over 10% year-on-year, with significant growth in study abroad-related services [2]. Future Outlook and Valuation - The revenue forecasts for 2024 and 2025 have been raised by 4% and 14%, respectively, while overall profit expectations have been adjusted downward [2]. - The K12 business is projected to achieve an operating profit margin of approximately 7% in 2024 and 13% in 2025, indicating potential for margin improvement [2]. - The target price has been adjusted to $6.50 from a previous $7.50, reflecting the anticipated continued growth in revenue driven by industry demand [2].