© Reuters. Netease Youdao (DAO.US) Gets “Buy” Rating from Jefferies and Citigroup on Strong Smart Hardware Sales
Zhitong Finance APP has learned that well-known investment banks Jefferies and Citigroup have released research reports on Netease Youdao (DAO.US)’s recently announced stronger-than-expected Q4 and full-year financial results. Among them, Jefferies raised the rating of Netease Youdao (DAO.US) from “hold” to “buy”, and raised the target price from $4.6 to $10. Citigroup also raised Netease Youdao’s target price from US$8.8 to US$9.8, and maintained its “buy” rating on the company. In the research report, Citigroup gave NetEase Youdao’s non-K12 business a valuation of 15 times the price-earnings ratio, and it is expected that the company’s net profit margin will reach 10% next year.
Jefferies stated in the research report that the target price increase is mainly due to Netease Youdao’s outstanding performance in Q4, and the annual revenue growth momentum of various business segments is strong, which is better than market expectations. The company’s growth momentum is expected to continue through 2023, with annual revenue growth of 21%. Given NetEase Youdao’s current P/E ratio and its new phase of growth opportunities, the company has potential momentum to achieve a higher market valuation. Jefferies regards it as a highly recommended company in the education industry.
On the other hand, Citigroup wrote in a research report that the maintenance of the “buy” rating is due to the fact that Netease Youdao has made substantial progress in education digital solutions, and the sales of smart hardware have increased by 28% in a single quarter. Citigroup expects that due to the company’s good service and strong demand for dictionary pens and learning tablet products, smart hardware will become the main source of growth for the company’s future performance.
In addition, Citigroup further pointed out that the gradual liberalization of regulatory measures by institutions, the company’s active development strategy, and strategic changes may promote Netease Youdao’s future sales growth in market segments including non-K12 courses.
In terms of financial reports, NetEase Youdao achieved net income of 1.45 billion yuan (RMB, the same below) in Q4 of 2022, a year-on-year increase of 38.6%; gross profit margin reached 53.3%, an increase of 10.8 percentage points from the same period last year. The net income for the whole year of 2022 will be 5.01 billion yuan, a year-on-year increase of 24.8%. Among them, the net income of the smart hardware business increased the fastest, reaching 1.26 billion yuan, mainly due to the substantial increase in sales of various new products such as the newly launched Youdao Dictionary Pen X5.
