The Zhitong Finance App learned that recently, Citibank, a well-known international investment bank, released the latest report stating that it maintains the domestic education technology company NetEase Youdao (DAO.US) purchase rating, with a target price of 7 US dollars, and expects NetEase Youdao's losses to narrow significantly in 2024.

On February 29, NetEase Youdao released its financial report for the fourth quarter of 2023 and an unaudited financial report for the fiscal year 2023. Among them, net revenue for the fourth quarter reached 1.48 billion yuan, which continued to grow year-on-year. At the same time, operating profit achieved a single quarter profit of 80 million yuan, an increase of 209.2% over the previous year, and a net operating cash flow inflow of 160 million yuan, an increase of 91.0% over the previous year.

Citi pointed out in the report that NetEase Youdao's online marketing business achieved an astonishing 97% year-on-year growth rate in the Q4 quarter. This high growth trend is expected to continue into the Q1 quarter of this year, and since NetEase Youdao developed many channels including overseas advertising platforms in the Q4 quarter, and with the continuous application of AI technology, it is expected that the business will continue to maintain a good level during the year.

Regarding the smart hardware business, NetEase Youdao actively optimized some distribution channels with low ROI in 2023, leading to a year-on-year decline. However, since Youdao is preparing more new products with AI functions and are extremely cost-effective, such as the company recently launched the mid-range dictionary pen A6 Pro, which sold 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. Citi believes that this business segment has upside potential, and is expecting moderate growth in 2024.

The Citigroup report placed special emphasis on NetEase's leading high school learning business. Under the catalyst of the “Regulations on the Administration of Out-of-School Training (Draft for Comments)” on February 8, industry boundaries are becoming more and more clear. NetEase Youdao will focus on high school courses, which is expected to bring rapid growth of 25% year-on-year to the Q1 quarter of 2024. At the same time, Citi expects Youdao's growth in the learning service business in the Q1 quarter to match the 13% growth rate for the whole year.

NetEase Youdao was founded in 2006 and is an educational technology company with the mission of achieving “efficient learning” for learners. Relying on powerful Internet AI technology, NetEase has created a series of learning products and services that users love around learning scenarios. It includes diverse intelligent learning tools such as YouDao Translator and YouDao Dictionary Pen, as well as an online course platform covering all academic levels, such as quality education and adult vocational education. In October 2019, NetEase Youdao landed on the New York Stock Exchange (NYSE: DAO), becoming the first independent listed company under NetEase. NetEase Youdao is the NetEase Group's important layout in the field of education.

NetEase has been forward-looking in the AI field since 2017. In 2019, the dictionary pen was first equipped with Transformer-based translation technology. The company's algorithm team has 5-6 years of experience in implementing, optimizing, and adapting the corresponding technology. In January 2023, Youdao launched Ziyue Education Model 2.0, which significantly improved oral communication, knowledge question-and-answer, and text processing capabilities. Based on Ziyue 2.0, Youdao launched the country's first AI tutor covering all classes and subjects, “Little P Teacher”. Currently, Teacher P is on the Youdao AI learning machine X20. According to statistics, on the X20 learning machine, Little P's frequency of use is nearly 40%, making it one of the most popular apps on the learning machine. In addition, Mr. Xiao P has also been widely recognized by the industry and won the “AIGC TOP Intelligent Application” award in CSDN's 2023 China Developer Influence Annual List.

Furthermore, many domestic brokerage firms continue to be optimistic about NetEase's layout in the AIGC field. Huatai Securities maintained a “buy” rating and set a target price of 8.33 US dollars, which is higher than Citi's target price.