Youdao(US:DAO)2024-02-25 16:00Investment Rating - The report assigns a "Buy" rating to the company, with a market price of $3.96 and an initial rating of "No Rating" [1]. Core Insights - The company, Youdao, is a technology-driven leading education firm that has fully integrated AI large models into its learning services and hardware products. The report highlights the company's strong focus on AI in education and its diverse offerings in learning services, smart hardware, and online marketing [4][5]. - Youdao's learning services cover a wide range, with a focus on quality education and high school courses. The company has developed various programs in humanities, chess, programming, and more, utilizing AI technology to enhance user experience [5][28]. - The report emphasizes Youdao's leading position in the smart hardware market, particularly with its flagship product, the Youdao Dictionary Pen, which incorporates advanced technologies such as OCR, NMT, and TTS [5][19]. - The online marketing segment has seen rapid revenue growth, with a year-on-year increase of 80%-100% in Q1-Q3 2023, attributed to enhanced AI applications in advertising [5][19]. Summary by Sections Company Overview - Youdao was established in 2006 and launched its flagship product, Youdao Dictionary, in 2007. The company has since expanded its offerings to include learning content services, smart hardware, and online marketing [5][14]. - As of March 31, 2023, NetEase holds a 55.0% stake in Youdao, with a management team composed of individuals with strong backgrounds in computer science [5][16]. Financial Performance - In Q3 2023, Youdao achieved a record revenue of 1.54 billion RMB, a year-on-year increase of 9.72% and a quarter-on-quarter increase of 27.53%. The company is nearing profitability, with a significant reduction in net losses [19][25]. - The revenue breakdown for Q3 2023 includes 950 million RMB from learning services, 250 million RMB from smart hardware, and 340 million RMB from online advertising, showcasing diverse income streams [19][25]. Market Position and Strategy - Youdao's strategy focuses on leveraging AI technology to enhance educational services and products. The company has launched several AI-driven products, including the "1+3+1" AI product matrix, which features new models and applications [19][28]. - The report notes the growing demand for quality education and the expansion of the quality education market in China, projected to exceed 600 billion RMB in 2023 [31][32].