The Zhitong Finance App learned that recently, educational technology company NetEase Youdao (NYSE: DAO.US) announced unaudited financial reports for the fourth quarter of 2023 and fiscal year 2023. Financial reports show that Yudao's net revenue for the fourth quarter reached 1.48 billion yuan, which continued to grow year on year; operating profit and net operating cash inflows all reached record highs. Among them, operating profit achieved a single quarter profit of 80 million yuan, an increase of 209.2% year on year, and net operating cash flow inflow of 160 million yuan, an increase of 91.0% year on year. Regarding this performance, Huatai Securities released the latest report stating that the target price based on SOTP is $8.33 and continues to maintain a “buy” rating.

Huatai Securities pointed out in this report that with strong commercialization capabilities and continuous strength in its advantageous business, 23Q4 achieved revenue of 1,481 billion yuan (vs. Bloomberg's estimate of 1,442 billion yuan), including 784 million yuan for learning services, 220 million for smart hardware, and 470 million yuan for online marketing. Under the catalyst of the “Regulations on the Administration of Out-of-School Training (Draft for Comments)” on February 8, industry boundaries are becoming increasingly clear, and companies with high-quality products are expected to stand out. The company's main education business focuses on deep cultivation in high schools, while at the same time expanding the elementary and middle school business for 24 years, contributing to revenue growth; the online marketing business has benefited from the accumulation of data, traffic and technology over the years, and the potential has yet to be tapped; the smart hardware sector has a clear path to reducing losses. Overall, the company is still the leading online learning service company. Flexibility can be expected as industry demand recovers. 24-26E's revenue is estimated to be 64.60/71.67/7.727 billion yuan.

Regarding the development of various business segments in 2024, Huatai Securities believes that in 2024, digital content services will continue to focus on strengthening product competitiveness. Among them, DaoLing Shi mainly undertakes the company's course services and is currently in a leading position in the industry. YouDao Bowen also launched a new major revision of the core curriculum, expanding it to more age groups and providing more time options. It is expected that in '24, Youdao will provide more non-subject product courses at the K12 stage, which is expected to further increase revenue.

In terms of advertising business, in 2023, Youdao's advertising business grew rapidly, achieving 1.3 billion revenue (yoy +98.1%). On the one hand, the domestic advertising market is growing steadily. On the other hand, the company ADS is actively expanding overseas markets, providing digital marketing solutions for Chinese corporate brand promotion, global influencer marketing, and overseas advertising. It is good at providing translation services in 108 languages, covering 75 countries. According to the Huatai Securities report, with the continued application of AI technology, the company's advertising business is expected to grow rapidly in 24 years.

Regarding the smart hardware sector, Huatai Securities believes that the hardware business's revenue in 2023 was 910 million yuan, mainly due to industry demand and the impact of internal channel sorting. Meanwhile, Youdao recently launched the A6 Pro, a mid-range product dictionary pen. The sales volume reached 50,000 units in the first week. The gross margin remained stable after the product was adapted, which is expected to drive the recovery of hardware revenue growth in 24 years.

Finally, Huatai Securities also mentioned that using the SOTP valuation method, considering that the company's learning service business, which mainly focuses on high school and STEAM courses, contributed most of its revenue, and that its business model is relatively mature, comprehensive considerations gave Youdao 2024E a target market value of US$1,034 million, corresponding to a target price of US$8.33.