Youdao Inc ADR Class A (DAO.US) target price $13.56. Huatai reiterates "buy" rating. AI-driven performance exceeds expectations.

Recently, Huatai released a research report, announcing that it will maintain a "buy" rating for Netease Inc Sponsored ADR Youdao Inc ADR Class A (DAO.US), and raise the target price from $12.46 to $13.56. This rating adjustment is mainly based on the strong growth momentum shown by Youdao Inc ADR Class A in the fourth quarter of 2025 and for the full year, especially the explosive performance of the advertising business under the AI application trend, as well as the fundamental improvement in the company's cash flow. Financial data shows that Youdao Inc ADR Class A recorded revenue of 1.56 billion yuan in Q4 2025, a year-on-year growth of 16.8%, significantly exceeding the market's previous expectation of 12.4%. In terms of profitability, the company's operating profit for the quarter reached 60.2 million yuan, far exceeding the market consensus expectation of 26.5 million yuan. Thus far, Youdao Inc ADR Class A has achieved six consecutive profitable quarters, with a significant year-on-year increase of 48.7% to 220 million yuan in operating profit for 2025, and for the first time in the company's history, achieved a full-year operating cash flow net inflow, with a stable financial structure. The advertising business has become the most eye-catching growth engine this quarter, achieving revenue of 660 million yuan, a year-on-year increase of 37.2%. This core of unexpected growth, Beijing Dynamic Power, has intensified competition in the AI industry, significantly increasing the demand for customer acquisition of AI applications by major manufacturers, driving a year-on-year increase of over 50% in AI application-related advertising revenue for Youdao Inc ADR Class A, and the gaming sector also contributed to a growth of over 50%. Additionally, the layout of Youdao Inc ADR Class A in overseas markets has also shown initial results, with overseas KOL revenue growing by over 50%, and marketing services covering over 50 countries around the world. In the field of educational services, the business has successfully returned to a growth trajectory, with revenue reaching 727 million yuan in Q4 2025, a year-on-year increase of 17.7%. Among them, revenue for the high school business "Youdao Inc ADR Class A Ling Shi" grew by over 40%, with a renewal rate reaching 75%. It is worth noting that AI subscription services showed strong performance, with quarterly sales breaking the billion-yuan mark for the first time, a year-on-year increase of over 80%, mainly attributed to the surge in demand for Youdao Inc ADR Class A dictionary AI simultaneous interpretation services and the exclusive partnership with academic journals and Turnitin. Looking ahead, Huatai predicts that the overall revenue of Youdao Inc ADR Class A in 2026 will continue the growth trajectory seen in Q4 2025. Although the company plans to increase strategic investment in the main business in the short term, which may cause short-term profit fluctuations, in the long run, the high-speed growth of the advertising business will continue to release profit space.