Earnings Release: Here's Why Analysts Cut Their Youdao, Inc. (NYSE:DAO) Price Target To US$5.55

As you might know, Youdao, Inc. (NYSE:DAO) recently reported its second-quarter numbers. It was a respectable set of results; while revenues of CN¥1.3b were in line with analyst predictions, statutory losses were 16% smaller than expected, with Youdao losing CN¥0.85 per share. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.

View our latest analysis for Youdao

After the latest results, the eight analysts covering Youdao are now predicting revenues of CN¥5.91b in 2024. If met, this would reflect a modest 3.1% improvement in revenue compared to the last 12 months. Before this earnings announcement, the analysts had been modelling revenues of CN¥5.94b and losses of CN¥1.06 per share in 2024. Overall, while the analysts have reconfirmed their revenue estimates, the consensus now no longer provides an EPS estimate. This implies that the market believes revenue is more important after these latest results.

Intriguingly,the analysts have cut their price target 7.1% to US$5.55 showing a clear decline in sentiment around Youdao's valuation. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. There are some variant perceptions on Youdao, with the most bullish analyst valuing it at US$7.06 and the most bearish at US$4.04 per share. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or thatthe analysts have a strong view on its prospects.

Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that Youdao's revenue growth is expected to slow, with the forecast 6.3% annualised growth rate until the end of 2024 being well below the historical 28% p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 10% annually. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than Youdao.

The Bottom Line

The clear take away from these updates is that the analysts made no change to their revenue estimates for next year, with the business apparently performing in line with their models. On the plus side, there were no major changes to revenue estimates; although forecasts imply they will perform worse than the wider industry. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.

At least one of Youdao's eight analysts has provided estimates out to 2026, which can be seen for free on our platform here.

However, before you get too enthused, we've discovered 1 warning sign for Youdao that you should be aware of.

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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.