Analysts Expect Breakeven For Youdao, Inc. (NYSE:DAO)

Youdao, Inc.'s (NYSE:DAO): Youdao, Inc., an internet technology company, provides online services in content, community, communication, and commerce in China. On 31 December 2019, the US$2.4b market-cap posted a loss of -CN¥637.4m for its most recent financial year. The most pressing concern for investors is DAO’s path to profitability – when will it breakeven? In this article, I will touch on the expectations for DAO’s growth and when analysts expect the company to become profitable.

Check out our latest analysis for Youdao

Consensus from the 7 Consumer Services analysts is DAO is on the verge of breakeven. They anticipate the company to incur a final loss in 2021, before generating positive profits of CN¥326m in 2022. So, DAO is predicted to breakeven approximately 2 years from now. How fast will DAO have to grow each year in order to reach the breakeven point by 2022? Working backwards from analyst estimates, it turns out that they expect the company to grow 58% year-on-year, on average, which is extremely buoyant. Should the business grow at a slower rate, it will become profitable at a later date than expected.

Underlying developments driving DAO’s growth isn’t the focus of this broad overview, but, take into account that typically a high forecast growth rate is not unusual for a company that is currently undergoing an investment period.

Before I wrap up, there’s one issue worth mentioning. DAO currently has a debt-to-equity ratio of over 2x. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, and DAO has considerably exceeded this. Note that a higher debt obligation increases the risk in investing in the loss-making company.

Next Steps:

There are too many aspects of DAO to cover in one brief article, but the key fundamentals for the company can all be found in one place – DAO’s company page on Simply Wall St. I’ve also put together a list of pertinent aspects you should further examine:

1. Valuation: What is DAO 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 DAO 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 back ground.
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.

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.

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