Last Update 21 Feb 26

Fair value Increased 1.36%

DAO: Citi Upgrade And Completed Buyback Will Support Higher Future Earnings Multiple

Narrative Update: Youdao Analyst Price Target Shift

Analysts have nudged their fair value estimate for Youdao to $11.75 from $11.59, reflecting updated views on revenue growth, profit margin, and future P/E assumptions following recent research such as the upgrade highlighted by Citi.

Analyst Commentary

Recent research behind the fair value adjustment to US$11.75 points to a mix of optimism about Youdao’s execution potential and caution around how consistently that potential can translate into earnings and valuation support.

Bullish Takeaways

Bullish analysts see the updated fair value as better aligned with current assumptions on revenue growth and margins. They view this as more reflective of Youdao’s operating profile than the prior US$11.59 level.
The price target tweak is framed as a response to refreshed P/E assumptions. Bullish analysts indicate that, under their scenarios, current pricing leaves some room for upside if execution tracks their models.
Supportive commentary highlights the company’s ability to adjust its business mix and cost base. Analysts think this could help protect profitability assumptions embedded in their target.
Some bulls point to Youdao’s positioning in its core markets as a reason to maintain constructive growth expectations. This feeds into their willingness to assign a firmer valuation multiple.

Bearish Takeaways

Bearish analysts focus on the relatively modest move in fair value from US$11.59 to US$11.75. They view this as a signal that upside may be more incremental than transformative under current forecasts.
Cautious views stress that the target relies on specific P/E and margin assumptions, and that any shortfall on profitability could pressure those inputs and, in turn, the justified price level.
There is concern that execution risk around growth and cost control leaves limited room for error, given that the fair value change is small and tied closely to model sensitivities.
Some bearish analysts flag the possibility that if revenue or margin outcomes differ from the assumptions used in the latest research, the market could question whether the US$11.75 estimate is sustainable.

What's in the News

Youdao reported that from October 1, 2025 to December 31, 2025, it repurchased 0 shares for US$0 under its existing buyback program, so there was no incremental change to the share count in that period (Key Developments).
The company stated that it has completed the repurchase of 7,500,000 shares in total under the buyback announced on November 17, 2022, representing 6.19% of its shares and an aggregate spend of US$33.8m (Key Developments).

Valuation Changes

Fair Value: The fair value estimate has risen slightly from $11.59 to $11.75, a small upward adjustment in the model output.
Discount Rate: The discount rate is broadly unchanged, moving marginally from 8.00% to 8.00%.
Revenue Growth: CN¥ revenue growth assumptions have been trimmed from about 13.12% to about 12.78%, indicating a slightly lower growth profile in the latest inputs.
Net Profit Margin: CN¥ net profit margin assumptions have fallen from about 5.98% to about 5.11%, pointing to more conservative profitability expectations.
Future P/E: The assumed future P/E multiple has risen from about 23.48x to about 28.55x, reflecting a higher valuation multiple in the updated framework.

Proprietary AI and operational efficiencies are boosting user retention, lowering costs, and positioning Youdao for expanding digital education margins and growth.
Diversification into digital content, smart devices, and international markets supports recurring revenue streams and strengthens Youdao's leadership in online education and marketing.
Margin compression, weak smart device demand, declining deferred revenue, and reliance on volatile ad markets pose significant risks to long-term profitability and revenue stability.

Catalysts

About Youdao

An internet technology company, provides online services in the fields of content, community, communication, and commerce in China.What are the underlying business or industry changes driving this perspective?

Rapid advancement and integration of proprietary large language models like Confucius are enabling Youdao to deploy personalized and adaptive learning tools (e.g., AI Essay Grading, Mr. P AI Tutor, and AI-driven course recommendations), which are driving record-high user retention and positioning the company to capture structural growth in digital, lifelong, and AI-powered education-supporting future revenue growth and margin expansion.
Strong double-digit revenue growth in high-potential verticals such as Digital Content Services (Youdao Lingshi), online marketing services, and AI-powered smart devices indicates successful diversification and capitalizing on higher ARPU, subscription-based and recurring revenue opportunities-likely to improve both top-line revenue and gross profit.
Investment in generative AI for advertising optimization and creative automation (e.g., AI Ad Placement Optimizer, iMagicBox) is supporting significant gains in advertising revenue (notably gaming and overseas segments) and is expected to drive further advertiser spend, broader client base, and improved operating leverage-positively impacting future segment margins and earnings.
Strategic focus on operational efficiency-with meaningful reductions in sales and marketing and R&D expenses-and deeper integration of hardware and learning services is reducing user acquisition costs, driving higher retention/utilization, and demonstrably improving operating profitability, which should strengthen net margins and earnings going forward.
Positive momentum in overseas expansion and technology partnerships (e.g., with NetEase, TikTok, Google), combined with scalable digital infrastructure, positions Youdao to benefit from the global normalization of blended learning and rising international demand for high-quality online education and marketing services, supporting sustainable multi-year revenue growth.

Youdao Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Youdao's revenue will grow by 12.1% annually over the next 3 years.
Analysts assume that profit margins will increase from 4.1% today to 4.9% in 3 years time.
Analysts expect earnings to reach CN¥388.3 million (and earnings per share of CN¥3.49) by about September 2028, up from CN¥228.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CN¥553.8 million in earnings, and the most bearish expecting CN¥234 million.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 37.0x on those 2028 earnings, up from 32.6x today. This future PE is greater than the current PE for the US Consumer Services industry at 20.4x.
Analysts expect the number of shares outstanding to grow by 0.77% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.14%, as per the Simply Wall St company report.

Youdao Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The company's gross profit actually decreased by 4.3% year-over-year despite revenue growth, primarily due to a steep fall in online marketing gross margins (down 13 percentage points to 25.8%), signaling ongoing margin compression in a high-growth segment; sustained margin pressure could negatively impact net margins and long-term profitability.
Revenue from the smart devices segment declined 23.9% year-over-year, and the company cited a strategic reduction in hardware marketing spend and end-of-life for certain products, indicating possible weak long-term demand, dependence on a narrow product portfolio, and potential further declines in this segment's revenue.
Deferred revenue (contract liabilities) from online learning services dropped significantly from RMB 961 million to RMB 856.7 million over six months, pointing to slower growth or rising churn in prepaid educational services, which could signal structural headwinds and diminishing future cash inflows.
The company's increasing reliance on the online marketing (advertising) business-particularly via partnerships with gaming and overseas clients-raises exposure to cyclical industries (e.g., gaming) and intensifying regulatory/growth risks in China's and global ad markets, which may produce volatile or unsustainable top-line growth and reduce earnings stability.
While AI and LLM investments are core to the company's product strategy, the broader edtech market faces severe threats from regulatory scrutiny in China, potential commoditization of AI-powered features, and slow-growing K-12 demographics-which together risk long-term revenue stagnation and persistent downward pressure on net margins.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $13.045 for Youdao based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $18.28, and the most bearish reporting a price target of just $9.68.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥7.9 billion, earnings will come to CN¥388.3 million, and it would be trading on a PE ratio of 37.0x, assuming you use a discount rate of 8.1%.
Given the current share price of $8.72, the analyst price target of $13.04 is 33.2% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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