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Youdao, Inc. Just Reported And Analysts Have Been Lifting Their Price Targets

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It's been a good week for Youdao, Inc. (NYSE:DAO) shareholders, because the company has just released its latest annual results, and the shares gained 4.2% to US$24.85. It was a respectable set of results; while revenues of CN¥1.3b were in line with analyst predictions, statutory losses were 10% smaller than expected, with Youdao losing CN¥6.68 per share. Earnings are an important time for investors, as they can track a company's performance, look at what top analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.

View our latest analysis for Youdao

NYSE:DAO Past and Future Earnings, February 29th 2020
NYSE:DAO Past and Future Earnings, February 29th 2020

After the latest results, the four analysts covering Youdao are now predicting revenues of CN¥2.64b in 2020. If met, this would reflect a major 103% improvement in sales compared to the last 12 months. Losses are expected to be contained, narrowing 14% from last year to CN¥7.63, on a statutory basis. Before this earnings announcement, analysts had been forecasting revenues of CN¥2.75b and losses of CN¥7.21 per share in 2020. Although analysts have lowered their sales forecasts, they've also made a their earnings per share estimates, which implies there's been something of an uptick in sentiment following the latest results.

Analysts lifted their price target 41% to CN¥197, implicitly signalling that lower earnings per share are not expected to have a longer-term impact on the stock's value. The consensus price target just an average of individual analyst targets, so - considering that the price target changed, it would be handy to see how wide the range of underlying estimates is. Currently, the most bullish analyst values Youdao at CN¥245 per share, while the most bearish prices it at CN¥113. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.

It can be useful to take a broader overview by seeing how analyst forecasts compare, both to the Youdao's past performance and to peers in the same market. Analysts are definitely expecting Youdao's growth to accelerate, with the forecast 103% growth ranking favourably alongside historical growth of 78% per annum over the past year. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 18% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Youdao is expected to grow much faster than its market.

The Bottom Line

The highlight for us was that the consensus reduced its estimated losses next year, perhaps suggesting Youdao is moving incrementally towards profitability. Regrettably, they also downgraded their revenue estimates, but the latest forecasts still imply the business will grow faster than the wider market. There was also a nice increase in the price target, with analysts feeling that the intrinsic value of the business is improving.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have forecasts for Youdao going out to 2022, and you can see them free on our platform here.

You can also see our analysis of Youdao's Board and CEO remuneration and experience, and whether company insiders have been buying stock.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.