Youdao(DAO) 广发证券·2024-11-20 01:57Investment Rating - The report maintains a "Buy" rating for DAO (Youdao) with a target price of $6.69 per ADS [6][17] Core Views - DAO achieved its first-ever Q3 profitability in 2024, with revenue reaching a historical high of RMB 1.573 billion, a 2.19% YoY increase [1] - The company's AI-driven education products showed strong performance, with AI subscription services sales growing over 150% YoY to nearly RMB 70 million [2] - DAO's smart hardware business revenue increased by 25.18% YoY, driven by the launch of the AI-powered Youdao Dictionary Pen X7 series [2] - Online marketing services revenue grew 45.59% YoY, benefiting from AI-optimized RTA advertising and overseas game promotion [2] Financial Performance - For 2024 Q1-Q3, DAO reported revenue of RMB 4.286 billion, a 9.66% YoY increase, with a significant reduction in net loss to RMB 0.79 million [1] - Non-GAAP net income turned positive at RMB 13 million for the first nine months of 2024 [1] - The company improved cost efficiency, with sales expense ratio decreasing by 10.77 percentage points YoY to 33.04% in Q3 2024 [2] Business Segment Analysis Learning Services - Revenue decreased by 19.24% YoY to RMB 768 million in Q3 2024 due to reduced low-ROI customized services [2] - Digital content services generated RMB 514 million in net revenue, while AI subscription services contributed nearly RMB 70 million [2] Smart Hardware - Revenue grew 25.18% YoY to RMB 315 million in Q3 2024 [2] - The Youdao Dictionary Pen X7 series became the first learning hardware to achieve offline AI large model translation [2] Online Marketing Services - Revenue increased 45.59% YoY to RMB 489 million in Q3 2024 [2] - RTA advertising grew over 100% YoY, and KOL advertising increased more than 50% due to overseas game promotion [2] Financial Projections - Revenue is expected to grow from RMB 5.75 billion in 2024 to RMB 7.198 billion in 2026 [4][15] - Non-GAAP net income is projected to increase from RMB 41 million in 2024 to RMB 291 million in 2026 [15] - The PS ratio is forecasted to decrease from 0.75x in 2024 to 0.60x in 2026 [4] Valuation and Comparison - DAO's 2024E PS ratio of 0.75x is lower than peers like New Oriental (2.12x) and Gaotu (1.07x) [18] - The company's market capitalization stands at RMB 4.332 billion as of November 18, 2024 [18]