CICC: Maintains a "outperform" rating on Youdao Inc ADR Class A (DAO.US), with a target price of $6.0.

Recently, CICC released a research report, conducting a thorough analysis of the performance in the third quarter of 2024 and future development trends of Youdao Inc ADR Class A (DAO.US), and providing expected guidance. CICC maintains a "outperform industry" rating for Youdao Inc ADR Class A, raising its target price by 30% to $6.00, corresponding to 0.8 times the 2025 market-to-sales ratio. CICC believes that Youdao Inc ADR Class A is currently trading at 0.7 times the 2025 market-to-sales ratio, with a 23% upside potential. The research report pointed out that Youdao Inc ADR Class A's third quarter performance exceeded market expectations, with revenue increasing by 2.2% year-on-year to 1.57 billion RMB, and non-GAAP net profit attributable to shareholders reaching 88.66 million RMB, achieving significant profit improvement compared to the same period last year. The report emphasized that Youdao Inc ADR Class A's advertising business maintained high growth, especially the performance of online marketing services exceeded expectations, with revenue growing by 45.6% year-on-year, mainly driven by the growth in RTA and KOL advertising demands. Considering the more optimistic outlook for the growth of the advertising business, the advertising business's P/E ratio was raised from 5 times to 13 times, corresponding to 0.8 times the 2025 market-to-sales ratio. In the field of smart hardware, Netease Inc Sponsored ADR Youdao Inc ADR Class A also performed well, with third quarter revenue reaching 315 million RMB, a 25.2% year-on-year increase. This growth is mainly attributed to the launch and market performance of the Youdao Inc ADR Class A dictionary pen X series new products. In terms of learning services, although the revenue decreased by 19.2% year-on-year, the company stated that this was due to focusing resources on high ROI customer acquisition channels and adopting a more cautious investment strategy during the summer. CICC mentioned that Youdao Inc ADR Class A recorded operating profit of 107 million RMB, with an operating profit margin of 6.8%, achieving its first positive operating profit in the third quarter. The company is expected to achieve positive operating profit for the full year 2024. In addition, well-known brokerage firms Huatai and Jerreries both commented on the third quarter performance of Youdao Inc ADR Class A, giving a consistent "buy" rating with target prices set at $5.92 and $6.20 respectively. As of the closing on November 19th, the share price of Netease Inc Sponsored ADR Youdao Inc ADR Class A was $5.10.