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Youdao, Inc.'s (NYSE:DAO) Path To Profitability

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·3 min read
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With the business potentially at an important milestone, we thought we'd take a closer look at Youdao, Inc.'s (NYSE:DAO) future prospects. Youdao, Inc., an internet technology company, provides online services in content, community, communication, and commerce in China. The US$1.7b market-cap company’s loss lessened since it announced a CN¥1.8b loss in the full financial year, compared to the latest trailing-twelve-month loss of CN¥1.4b, as it approaches breakeven. The most pressing concern for investors is Youdao's path to profitability – when will it breakeven? In this article, we will touch on the expectations for the company's growth and when analysts expect it to become profitable.

View our latest analysis for Youdao

Youdao is bordering on breakeven, according to the 6 American Consumer Services analysts. They expect the company to post a final loss in 2022, before turning a profit of CN¥155m in 2023. The company is therefore projected to breakeven just over a year from today. How fast will the company have to grow each year in order to reach the breakeven point by 2023? Working backwards from analyst estimates, it turns out that they expect the company to grow 86% year-on-year, on average, which is rather optimistic! If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

earnings-per-share-growth
earnings-per-share-growth

Underlying developments driving Youdao's growth isn’t the focus of this broad overview, however, keep in mind that typically a high growth rate is not out of the ordinary, particularly when a company is in a period of investment.

One thing we would like to bring into light with Youdao is it currently has negative equity on its balance sheet. This can sometimes arise from accounting methods used to deal with accumulated losses from prior years, which are viewed as liabilities carried forward until it cancels out in the future. Oftentimes, losses exist only on paper but other times, it can be a red flag.

Next Steps:

There are key fundamentals of Youdao which are not covered in this article, but we must stress again that this is merely a basic overview. For a more comprehensive look at Youdao, take a look at Youdao's company page on Simply Wall St. We've also put together a list of pertinent factors you should further research:

  1. Valuation: What is Youdao worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether Youdao is currently mispriced by the market.

  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Youdao’s board and the CEO’s background.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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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