Target price $7 Citigroup maintains a buy rating on NetEase Youdao (DAO.US); "The Analects" large model approved, first answer sheet exceeds market expectations three months later.

Recently, the internationally renowned investment bank Citibank released a latest report stating that it maintains a buy rating for the domestic education technology company NetEase Youdao (DAO.US) with a target price of $7 and expects NetEase Youdao's losses to significantly narrow by 2024. On February 29, NetEase Youdao released its fourth quarter 2023 financial report and unaudited financial report for the 2023 fiscal year. In the fourth quarter, net revenue reached 1.48 billion yuan, continuing to grow year-on-year. At the same time, operating profit reached 80 million yuan in the quarter, a 209.2% increase year-on-year, and net operating cash flow reached 160 million yuan, a 91.0% increase year-on-year. Citibank pointed out in the report that NetEase Youdao's online marketing business achieved an astonishing 97% year-on-year growth rate in the fourth quarter, a growth momentum that is expected to continue into the first quarter of this year. Due to NetEase Youdao opening up various channels in the fourth quarter, including overseas advertising platforms, and with the continued application of AI technology, it is expected that this business will continue to maintain a good level throughout the year. Regarding the intelligent hardware business, NetEase Youdao actively optimized some low-ROI distribution channels in 2023, leading to a slight decrease year-on-year. However, as Youdao prepares to launch more AI-featured and cost-effective new products, such as the A6 pro mid-range product recently launched by the company, with first-week sales of 50,000 units, the gross profit margin is maintained steadily after optimization and is expected to drive the recovery of hardware revenue growth in 2024. Citibank believes that this business segment has potential for growth and has made moderate growth expectations for 2024. Citibank's report specifically emphasizes its focus on NetEase Youdao's high school learning business. With the catalysis of the "Regulations on Off-campus Training Management (Draft for Solicitation of Comments)" on February 8, the industry boundaries are increasingly clear, and NetEase Youdao will focus on high school courses, which is expected to bring a rapid growth of 25% year-on-year in the first quarter of 2024. At the same time, Citibank expects that Youdao's growth in learning services in the first quarter will be the same as the 13% growth rate for the whole year. Founded in 2006, NetEase Youdao is an educational technology company with a mission to achieve "efficient learning" for learners. Relying on strong Internet AI technology, NetEase Youdao has created a series of popular learning products and services around learning scenarios. This includes diverse intelligent learning tools such as Youdao Translation, Youdao Dictionary Pen, and online course platforms covering all stages of education such as quality education and adult professional education. In October 2019, NetEase Youdao was listed on the New York Stock Exchange (NYSE: DAO) as the first independent listed company under NetEase. NetEase Youdao is an important layout of NetEase Group in the education field. NetEase Youdao has been proactively layoutin...