Youdao(DAO.US) target price $13.56 Huatai Securities reiterates "Buy" rating AI-driven performance exceeds expectations

Recently, Huatai Securities released a research report, maintaining a “Buy” rating for NetEase Youdao (DAO.US) and raising the target price from $12.46 to $13.56. This upgrade is mainly based on Youdao’s strong growth momentum in its Q4 and full-year 2025 financial reports, especially the explosive performance of its advertising business amid the AI application wave, as well as the fundamental improvement in the company’s cash flow situation.

Financial data shows that Youdao achieved revenue of 1.56 billion RMB in Q4 2025, a year-over-year increase of 16.8%, significantly surpassing the market expectation of 12.4%. In terms of profitability, the company recorded an operating profit of 60.2 million RMB in the quarter, far exceeding the consensus estimate of 26.5 million RMB. As a result, Youdao has achieved six consecutive quarters of profitability, with full-year 2025 operating profit soaring 48.7% year-over-year to 220 million RMB, and the company also posted its first-ever full-year net operating cash inflow, indicating a more stable financial structure.

Advertising became the most impressive growth engine this quarter, generating revenue of 660 million RMB, a 37.2% increase year-over-year. This outperformance was driven by intensified AI industry competition, with major companies significantly increasing their customer acquisition efforts through AI applications, leading to over 50% year-over-year growth in Youdao’s AI-related advertising revenue. The gaming segment also contributed over 50% growth. Additionally, Youdao’s overseas expansion has begun to show results, with overseas KOL revenue increasing over 50% year-over-year, and marketing services now covering more than 50 countries globally.

In the education services sector, the business has successfully returned to growth, with Q4 2025 revenue reaching 727 million RMB, up 17.7% year-over-year. Notably, the high school business “Youdao Ling Shi” saw revenue growth of over 40%, with renewal rates rising to 75%. Of particular interest is the strong performance of AI subscription services, with quarterly sales surpassing 100 million RMB for the first time, an increase of over 80% year-over-year, mainly driven by the explosive demand for Youdao Dictionary AI simultaneous translation and the exclusive partnership with Turnitin for academic plagiarism detection.

Looking ahead, Huatai Securities expects Youdao’s overall revenue in 2026 to continue the growth trajectory seen in Q4 2025. Although the company plans to strategically increase investments in its core business in the short term, which may cause short-term profit fluctuations, the high-speed growth of the advertising business is expected to continue unlocking profit potential in the long run.