Huatai Securities has reaffirmed its "Buy" rating on Youdao (DAO.US) and raised its target price from $12.46 to $13.56. This adjustment is primarily based on Youdao's strong growth momentum demonstrated in its Q4 2025 and full-year financial results, particularly the explosive performance of its advertising business amid the wave of AI application adoption, alongside a fundamental improvement in the company's cash flow position. Financial reports show that Youdao recorded revenue of 1.56 billion yuan in Q4 2025, a year-on-year increase of 16.8%, significantly surpassing the market's previous expectation of 12.4%. In terms of profitability, the company's operating profit for the quarter reached 60.2 million yuan, far exceeding the market consensus estimate of 26.5 million yuan. With this, Youdao has achieved profitability for six consecutive quarters. Full-year operating profit for 2025 saw a substantial increase of 48.7% year-on-year to 220 million yuan, and the company achieved its first-ever annual net positive operating cash flow in its history, indicating a trend towards greater financial stability. The advertising business was the standout growth engine this quarter, generating revenue of 660 million yuan, a sharp increase of 37.2% year-on-year. The core driver behind this above-expectation growth stems from intensifying competition within the AI industry, which has significantly boosted customer acquisition demand for AI applications among major players. This drove advertising revenue related to Youdao's AI applications to grow by over 50% year-on-year, while the gaming sector also contributed to growth exceeding 50%. Furthermore, Youdao's strategic expansion into overseas markets is beginning to yield results, with overseas KOL-related revenue growing over 50% year-on-year, and its marketing services now covering more than 50 countries globally. In the learning services segment, the business has successfully returned to a growth trajectory, with Q4 2025 revenue reaching 727 million yuan, up 17.7% year-on-year. Within this segment, revenue from the high school business "Youdao Lead the Future" grew over 40%, and the renewal rate improved to 75%. Notably, AI subscription services demonstrated robust performance, with quarterly sales exceeding 100 million yuan for the first time, representing a year-on-year increase of over 80%. This is largely attributed to a surge in demand for Youdao Dictionary's AI simultaneous interpretation feature and an exclusive partnership established between its academic product and Turnitin. Looking ahead, Huatai Securities anticipates that Youdao's overall revenue in 2026 will continue the growth trajectory seen in Q4 2025. Although the company plans to appropriately increase strategic investment in its core businesses in the short term, which may lead to some volatility in near-term profits, the rapid growth of the advertising business is expected to continue unlocking profit potential over the long term.