The Zhitong Finance App learned that recently, Jefferies, a well-known investment bank on Wall Street, released the latest report saying that it will maintain the purchase rating of domestic education technology company NetEase Youdao (DAO.US) and expects strong growth in the company's performance in the second half of the year.
Jefferies pointed out in the report that in the short term, the company's education services other than vocational education are expected to resume growth. The company stated at the 2023Q1 performance conference that its turnover increased by more than 70% in February-March. In the medium to long term, the company relies on technical and content advantages to continuously explore the application of AIGC related technology in the field of education, enhance teaching experience and efficiency, and drive long-term growth. Currently, the company's valuation is at a historically low level, maintaining a “buy” rating.
On May 25, Youdao released its unaudited financial report for the first quarter of 2023. According to the data, NetEase Youdao's net revenue for Q1 reached 1.16 billion yuan, of which the net revenue for learning services was 730 million yuan, the net revenue of smart hardware was 210 million yuan, and the net revenue of online marketing services was 220 million yuan.
Since the first quarter, there have been ways to accelerate implementation and empower products through AI technology. The AI learning machine has completed product function upgrades, and the academic information board function has been fully digitized. At the same time, a special training function for Chinese and English vocabulary has also been added, making it easier for language learners to consolidate new vocabulary in a timely manner. Furthermore, since the first quarter, the company has accelerated the implementation of AI technology in various business scenarios. The company made phased progress in the development of AI speaking teachers and Chinese essay correction functions based on the “Ziyue” big model; the launch of the AI Box function contributed to a year-on-year increase of nearly 200% in the monthly revenue of Youdao Dictionary members; Youdao introduced the “Speak Up” function in the dictionary pen, which enabled AI to interact with users in a corresponding role after users freely set scenarios to improve the user's speaking level.
During the performance conference call, Youdao management emphasized the recent recovery trend and the launch of new smart devices in the second half of the year. The company's management expressed full confidence in the full year of 2023 and looked forward to all three aspects of the company's business.
First, Dao saw strong demand for learning services and had a strong and growing product lineup. Sales of learning services (excluding adult courses) increased by more than 40% in the first quarter. The growth was due to strong user demand and the launch of Youdao's new digital content service. For example, Daobo News, high school services, and Youdaolei reading are all growing, and new learning services will be launched one after another this year. Therefore, Youdao is confident in the growth of learning services.
Second, when it comes to smart hardware, Youdao has also seen a good recovery trend. The number of dictionary pen activations increased 20% year over year in March. Dao plans to release new smart hardware in the second and third quarters.
Third, advertising has been growing for two consecutive quarters. Advertising increased 58% year over year in the fourth quarter of last year. In the first quarter, the growth rate was even higher, reaching almost 80%. There is an opinion that it is in the midst of an advertising growth cycle. The algorithm upgrade of Youdao's platform in the fourth quarter proved to be very effective, which enabled Youdao to attract more customers and more budgets. In the current macro environment, merchants are more inclined to use performance advertising to speed up the recovery. As a result, it is anticipated that the advertising growth cycle will continue.
Furthermore, many domestic brokerage firms have seen AIGC's potential to lay out AIGC in the future. CITIC Securities, Huatai Securities, and Huafu Securities all maintain “buy” ratings for the company.