Youdao: The Way To Play Chinese Digital Education (NYSE:DAO)

Investment Thesis

Youdao (DAO), a subsidiary of NetEase (NTES), is an online education platform focused on the China market. From a macro perspective, online education is seeing strong tailwinds given an easier engagement model vs. in-person tutoring centers as well as COVID-related shifts towards socially distant education models. This has driven strong performance YTD as illustrated below. Although the stock has come down quite a bit from August highs, it is still at a material premium to the IPO price in Q4 2019.

Data by YCharts

The company generates revenues from two core segments: online education which accounts for 66% of revenues and digital advertising which accounts for 33% of revenues. Online education specifically consists of online courses and online education tools (dictionary/notebook) with a focus on K-12 and a growing platform focused on continuing education for adults.

A unique technology offering that Youdao has is the Smart Pen offering.

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