Huatai Securities released a research report on May 22, maintaining a "Buy" rating on Youdao (DAO.US) and raising its target price from $13.56 to $13.99. The primary reason for the increase is a higher valuation assigned to the advertising business. The report highlights that Youdao's Q1 operating cash flow performance was the best for the same period since 2022. Advertising revenue accounted for 43% of total revenue, and quarterly sales from AI subscription services exceeded CNY 1 billion for the first time, growing over 70% year-over-year. Huatai employed a Sum-of-the-Parts (SOTP) valuation method, assigning an 18x P/E multiple to the online marketing business, which maintains a premium compared to the peer average of 16.3x. The firm forecasts non-GAAP net profit attributable to the parent company to reach CNY 254 million, CNY 431 million, and CNY 609 million for 2026, 2027, and 2028, respectively. According to Youdao's previously released Q1 2026 financial results, the company reported net revenues of CNY 1.348 billion, a year-over-year increase of 3.8%. Operating profit remained positive for the seventh consecutive quarter. Advertising business revenue was CNY 611 million, up 20.9% year-over-year, while learning services revenue reached CNY 627 million, a 4.2% increase. On the AI front, the "Ziyue" large language model was upgraded to version 4.0 on May 20, marking a full entry into the multimodal era, with simultaneous open-sourcing of its multimodal model and TTS engine. Youdao CEO Zhou Feng stated that the company will steadfastly pursue its "AI-native" strategy, continuously iterating its vertical large models for education and advertising.