Youdao(US:DAO) BOCOM International·2025-05-19 10:45Investment Rating - The report maintains a "Buy" rating for the company with a target price of $12.00, indicating a potential upside of 24.7% from the current price of $9.62 [1][3][10]. Core Insights - The company focused on its core business in Q1, significantly exceeding profit expectations. The learning services segment, emphasizing AI and high school education, has established a differentiated competitive advantage, leading to steady improvements in revenue and retention rates. The restructuring of the business is expected to conclude by the end of the year, restoring growth. The advertising business is anticipated to accelerate growth in the second half of the year due to technological advancements and partnerships. The hardware segment aims to achieve profitability throughout the year. Based on the better-than-expected Q1 performance, the profit forecast for 2025 has been raised by 5.7% [2][6][15]. Financial Performance Summary - Revenue Forecasts: - Total revenue for 2025 is projected at RMB 5,883 million, reflecting a growth rate of 4.6% compared to the previous year [6][15]. - Learning services revenue is expected to reach RMB 2,592 million, with a growth of 2.3% [6]. - Advertising revenue is forecasted at RMB 2,330 million, showing a decline of 2.2% [6]. - Profitability Metrics: - Adjusted net profit for 2025 is estimated at RMB 163 million, a 5.7% increase from previous forecasts [6]. - The adjusted operating profit margin is expected to remain stable at 4.3% [6]. - Market Performance: - The stock has shown a year-to-date increase of 30% and has a 52-week high of $11.10 and a low of $3.01 [5][15]. Business Segment Analysis - Learning Services: - The segment has achieved a 25% increase in revenue and improved retention rates, driven by AI technology and a one-stop service for programming education, which saw a 40% revenue growth [7][15]. - Advertising: - The advertising business has strengthened partnerships with overseas platforms and is expected to see accelerated monetization in the second half of the year [7]. - Hardware: - The focus for the hardware segment is on achieving profitability throughout the year [2].