Youdao(DAO) 交银国际证券·2024-11-17 09:03Investment Rating - The report maintains a "Buy" rating for the company with a target price raised from 7.30, indicating a potential upside of 47.5% from the current price of $4.95 [2][5][12]. Core Insights - The company achieved its first profitable quarter in Q3, with an adjusted net profit of 89 million RMB, exceeding market expectations of 35 million RMB. Revenue grew by 2% year-on-year, despite a 19% decline in learning services revenue due to reduced customer acquisition spending under strict ROI standards. AI-driven subscription services saw a significant increase, with sales reaching 70 million RMB, a 150% year-on-year growth [3][4]. - Hardware revenue increased by 25% year-on-year, driven by the launch of new products, particularly the X7 series of dictionary pens, which helped restore hardware revenue and gross margin, achieving a gross margin of 42.8%, up 13 percentage points quarter-on-quarter [3][4]. - The company continues to focus on its AI and education strategy, with a high school renewal rate reaching 70%, up 5 percentage points year-on-year, laying a solid foundation for long-term business growth [3][4]. Financial Forecast Changes - Revenue forecasts for 2024 and 2025 have been adjusted downwards by 6.2% and 7.2% respectively, reflecting a strategic shift towards profitability. The 2025 revenue is now projected at 6,419 million RMB, while the adjusted net profit for 2024 is expected to be 63 million RMB, increasing to 122 million RMB in 2025 [4][16]. - The gross profit margin is projected to be 49.3% in 2024, slightly improving to 50.1% in 2025, while the adjusted operating profit margin is expected to rise to 4.1% in 2025 [4][16].