The Zhitong Finance App learned that on June 15, China Merchants Securities International released its first research report covering Dao.US (DAO.US). The report gave NetEase YouDao the first to increase its holdings and set a target price of 7.8 US dollars.
China Merchants Securities International believes that NetEase Youdao is an industry leader with both content services and hardware products. In the future, AI will continue to help long-term users/ARPU growth, and revenue for the 2023/2024 fiscal year is expected to increase 18%/21% year-on-year.
According to data provided by consulting firm Frost & Sullivan, as of 2021, NetEase Youdao was the third largest ToC smart hardware supplier in China, with a market share of 5.2% based on revenue statistics. Since NetEase Youdao's flagship product, the Youdao Dictionary Pen, was first launched in 2018, it has sold more than 3 million dollars. NetEase is also actively expanding its product matrix, releasing the Hearing Bao in September 2019, the smart learning light in April 2022, and the learning tablet in August 2022 to meet various learning needs. The compound annual revenue growth rate in 18-22 reached 22%. China Merchants Securities International expects NetEase's Youdao smart hardware business revenue to increase 19% year over year in fiscal year 2023.
From a business perspective, NetEase's Youdao learning service business has maintained a strong growth trend. The quality education and digital content service business maintained a steady growth trend. Total turnover in the first quarter of 2023 increased 40% year on year. Among them, total turnover in February and March increased by more than 70% year on year. China Merchants International Securities expects revenue from this business to increase 16% and 22% year-on-year in the 2023 and 2024 fiscal years, mainly driven by quality education and digital content service businesses.
On the hardware side, after the “double reduction” policy, education demand for learning services and smart hardware was still strong. This mitigated the impact of the policy on compulsory education subject demand to a certain extent. With years of experience in the education industry and self-developed AI technology support, NetEase Youdao is in a unique position among peers, and the success of Dictionary Pen has enabled NetEase to gain a long-term foothold in the field of smart hardware. NetEase has continued to invest in AI technology since 2018, developing its own “Ziyue” big model and organically combining it with its products. Currently, application scenarios such as Youdao Translate AiBox and Youdao Dictionary Pen “Speak Up” are very popular among users.
Previously, many domestic brokerage institutions were optimistic about NetEase's layout in the AIGC field. Huafu Securities, Huatai Securities, CITIC Securities, etc. all gave NetEase a “buy” rating.