Breakeven On The Horizon For Youdao, Inc. (NYSE:DAO)

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$4.2b market-cap company announced a latest loss of CN¥1.8b on 31 December 2020 for its most recent financial year result. 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.

Check out our latest analysis for Youdao

Consensus from 9 of the American Consumer Services analysts is that Youdao is on the verge of breakeven. They anticipate the company to incur a final loss in 2022, before generating positive profits of CN¥716m in 2023. Therefore, the company is expected to breakeven roughly 2 years from now. In order to meet this breakeven date, we calculated the rate at which the company must grow year-on-year. It turns out an average annual growth rate of 50% is expected, which is extremely buoyant. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

Underlying developments driving Youdao's growth isn’t the focus of this broad overview, though, bear in mind that typically a high forecast growth rate is not unusual for a company that is currently undergoing an investment period.

Before we wrap up, there’s one issue worth mentioning. Youdao 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. These losses tend to occur only on paper, however, in other cases it can be forewarning.

Next Steps:

There are too many aspects of Youdao to cover in one brief article, but the key fundamentals for the company can all be found in one place – Youdao's company page on Simply Wall St. We've also compiled a list of pertinent aspects you should look at:

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.

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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. 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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