Youdao, Inc.'s (NYSE:DAO) market cap dropped US$300m last week; Public companies bore the brunt

Key Insights

• Significant control over Youdao by public companies implies that the general public has more power to influence management and governance-related decisions

• The largest shareholder of the company is NetEase, Inc. with a 54% stake

• 19% of Youdao is held by insiders

To get a sense of who is truly in control of Youdao, Inc. (NYSE:DAO), it is important to understand the ownership structure of the business. We can see that public companies own the lion's share in the company with 54% ownership. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

While insiders who own 19% came under pressure after market cap dropped to US$823m last week,public companies took the most losses.

Let's delve deeper into each type of owner of Youdao, beginning with the chart below.

Check out our latest analysis for Youdao

ownership-breakdown

What Does The Institutional Ownership Tell Us About Youdao?

Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.

We can see that Youdao does have institutional investors; and they hold a good portion of the company's stock. This suggests some credibility amongst professional investors. But we can't rely on that fact alone since institutions make bad investments sometimes, just like everyone does. When multiple institutions own a stock, there's always a risk that they are in a 'crowded trade'. When such a trade goes wrong, multiple parties may compete to sell stock fast. This risk is higher in a company without a history of growth. You can see Youdao's historic earnings and revenue below, but keep in mind there's always more to the story.

earnings-and-revenue-growth

We note that hedge funds don't have a meaningful investment in Youdao. Our data shows that NetEase, Inc. is the largest shareholder with 54% of shares outstanding. This implies that they have majority interest control of the future of the company. With 16% and 12% of the shares outstanding respectively, Feng Zhou and Orbis Investment Management Limited are the second and third largest shareholders. Feng Zhou, who is the second-largest shareholder, also happens to hold the title of Chief Executive Officer.

While it makes sense to study institutional ownership data for a company, it also makes sense to study analyst sentiments to know which way the wind is blowing. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of Youdao

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

Insider ownership is positive when it signals leadership are thinking like the true owners of the company. However, high insider ownership can also give immense power to a small group within the company. This can be negative in some circumstances.

It seems insiders own a significant proportion of Youdao, Inc.. Insiders have a US$158m stake in this US$823m business. We would say this shows alignment with shareholders, but it is worth noting that the company is still quite small; some insiders may have founded the business. You can click here to see if those insiders have been buying or selling.

General Public Ownership

With a 11% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Youdao. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

Public Company Ownership

Public companies currently own 54% of Youdao stock. We can't be certain but it is quite possible this is a strategic stake. The businesses may be similar, or work together.

Next Steps:

I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. To that end, you should learn about the 2 warning signs we've spotted with Youdao (including 1 which shouldn't be ignored) .

But ultimately it is the future, not the past, that will determine how well the owners of this business will do. Therefore we think it advisable to take a look at this free report showing whether analysts are predicting a brighter future.

NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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