Reassessing Youdao (NYSE:DAO) Valuation After Mixed Q3 2025 Results and Improved Year‑to‑Date Profitability

Youdao (NYSE:DAO) just reported its third quarter 2025 results, and they are a bit of a mixed bag, with modest revenue growth for the quarter but a sharp drop in quarterly profit, alongside stronger nine-month profitability.

See our latest analysis for Youdao.

Despite the wobble in quarterly profit, investors seem to be looking through the noise. A solid year-to-date share price return of 34.22% and a 1-year total shareholder return of 44.78% suggest momentum is still broadly constructive, even when set against a much weaker 5-year total shareholder return.

If Youdao’s latest move has you rethinking your education tech exposure, it could be a good moment to scan fast growing stocks with high insider ownership for other fast moving ideas.

With shares still trading at a roughly 31 percent discount to analyst targets and earnings trending higher over nine months, is Youdao quietly undervalued, or are markets already pricing in the next leg of growth?

Most Popular Narrative: 26.6% Undervalued

With Youdao closing at $9.57 against a narrative fair value of $13.04, the implied upside leans heavily on sustained 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.

Read the complete narrative.

Curious how steady revenue gains, rising margins and ambitious earnings forecasts combine into that valuation gap? The narrative leans on bold compounding assumptions and a premium future earnings multiple. Want to see exactly how those projections stack up year by year and why they justify a richer price tag? Dive in to unpack the full playbook behind this fair value call.

Result: Fair Value of $13.04 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, still, falling smart device demand and ongoing margin pressure in online marketing could quickly challenge assumptions behind Youdao’s upbeat valuation story.

Find out about the key risks to this Youdao narrative.

Another View: Rich on Earnings

That 26.6% upside looks appealing, but the earnings lens tells a different story. Youdao trades on a steep 56.9x price to earnings ratio versus 15.9x for the US Consumer Services industry and 14.2x for peers, well above a 37.4x fair ratio the market could drift back toward. Is this growth story strong enough to defend that premium?

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own Youdao Narrative

If this perspective does not sit right with you, or you would rather interrogate the numbers yourself, you can build a fresh view in minutes: Do it your way.

A great starting point for your Youdao research is our analysis highlighting 2 key rewards and 2 important warning signs that could impact your investment decision.

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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.

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