Youdao (NYSE:DAO): Assessing Valuation After AI Interpretation Tool Hits 20 Million Users and Rapid Growth

Youdao (NYSE:DAO) has just announced that its AI simultaneous interpretation tool surpassed 20 million cumulative users, marking a near 60% jump in September. With strong adoption among college students and foreign trade professionals, this development spotlights growing demand for its technology.

See our latest analysis for Youdao.

Youdao has built real momentum this year, with its 1-year total shareholder return soaring to 127.1% and its share price gaining more than 53% year to date. Recent enthusiasm around its AI-powered translation tools seems to be resonating with the market, fueling both short-term optimism and a sense that further growth could be ahead.

If Youdao’s tech-driven progress has you interested in what else is taking off, consider using our tool to discover See the full list for free.

But with shares already rallying hard this year, the big question now is whether Youdao’s current price reflects all that future potential or if there is still an opportunity for investors to get in before the next upward move.

Most Popular Narrative: 15.9% Undervalued

Youdao's narrative consensus values the stock at $13.04 per share, above its recent close of $10.97, signaling notable upside according to analysts’ forecasts. This valuation is built on robust growth in digital learning services and future profitability enhancements.

Rapid advancement and integration of proprietary large language models like Confucius are enabling Youdao to deploy personalized and adaptive learning tools (such as AI Essay Grading, Mr. P AI Tutor, and AI-driven course recommendations). These tools 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.

Read the complete narrative.

Want to uncover which bold profit projections justify this premium? The most intriguing part: future growth assumptions hinge on transformative AI rollouts and dramatic shifts in digital revenue. What do analysts think it will take for Youdao to earn this higher price tag? Peek under the hood to see the forecasts driving their valuation math.

Result: Fair Value of $13.04 (UNDERVALUED)

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

However, shrinking gross profit margins and declining deferred revenue in key segments could present challenges for Youdao’s ability to sustain its current growth trajectory.

Find out about the key risks to this Youdao narrative.

Another View: Is the Market Overpricing Youdao?

Looking through the lens of its current price-to-earnings ratio, Youdao trades at 40.9x, which is far higher than the US Consumer Services industry average of 18.9x and the peer average of 22.4x. Even when compared to the fair ratio of 27.2x that the market could move toward, it appears expensive. This raises the chance that optimism is already built into the stock. Could investors be taking on more valuation risk than they realize?

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

Build Your Own Youdao Narrative

If you want to dig into the numbers and craft your perspective, it only takes a few minutes to build your own analysis from the ground up. 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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