Youdao(US:DAO)2024-03-02 16:00Investment Rating - The report maintains a "Buy" rating for Youdao, indicating an expectation that the company's stock will outperform the benchmark index by more than 20% over the next 6-12 months [3]. Core Insights - Youdao achieved record high operating profit and operating cash flow in Q4 2023, with operating revenue of 1.48 billion RMB, a year-on-year increase of 1.8% and a quarter-on-quarter decrease of 3.8% [3]. - The company's GAAP operating profit reached 76.28 million RMB, up 209% year-on-year, while the GAAP net profit attributable to shareholders was 56.48 million RMB, a 359% increase year-on-year [3]. - Non-GAAP net profit attributable to shareholders was 69.28 million RMB, reflecting a 123% year-on-year increase [3]. - The total operating revenue for 2023 was 5.39 billion RMB, a year-on-year increase of 7.5%, with a non-GAAP net loss of 475.4 million RMB, narrowing by 25.7% year-on-year [3]. Summary by Sections Financial Performance - Q4 2023 operating revenue was 1.48 billion RMB, with a year-on-year growth of 1.8% and a quarter-on-quarter decline of 3.8% [3]. - The learning services revenue was 780 million RMB, down 2.8% year-on-year, while smart hardware revenue fell 45.3% year-on-year to 220 million RMB [3]. - Online advertising revenue surged to 470 million RMB, a 96.9% increase year-on-year, driven by effective advertising demand from third-party platform collaborations [3]. Cost Management - Marketing expenses were significantly reduced, with sales, management, and R&D expense ratios at 29.8%, 3.6%, and 11.4% respectively, showing improvements from the previous year [3]. - The overall sales/management/R&D expense ratios for 2023 were 42.1%, 4.1%, and 13.8%, respectively, indicating a decrease in costs [3]. AI Development - The company launched a new AI product matrix in January 2024, including the "Ziyue Education Model 2.0" and several innovative applications, enhancing its product offerings [3]. - The AI language model technology is expected to be applied more extensively in smart devices and online marketing in 2024, broadening monetization channels [3]. Valuation - The report projects revenues of 6.24 billion RMB, 6.99 billion RMB, and 7.64 billion RMB for 2024, 2025, and 2026 respectively, with corresponding price-to-sales ratios of 0.60, 0.54, and 0.49 [4].