When a company like Youdao (NYSE:DAO) announces a global strategic partnership, investors tend to take notice, especially when it comes with hard numbers attached. This week, Youdao revealed a deal with Maiyue Technology at the China-ASEAN Expo to launch one million ultra-smart portable translation terminals worldwide. The collaboration is notable because it goes beyond a simple product rollout and combines Youdao’s AI-powered language capabilities with Maiyue’s hardware and broader global ambitions. Adding fuel to the excitement is an initial, government-backed purchase of translation glasses in Thailand, hinting that Youdao is seeing real demand outside China.

After a challenging few years, Youdao’s stock has quietly rebounded, with shares up a significant 193% over the past year. Short-term performance has also shown positive momentum, lifting nearly 27% in the past 3 months even after a small dip this month. The strategic partnership comes as Youdao has already been delivering double-digit revenue growth, alongside even faster net income gains. This fresh international boost could accelerate the company’s transformation story.

With new government-backed deals underway and international growth prospects heating up, investors have to ask whether the stock is finally catching up with its long-term potential, or if the market could still be underestimating Youdao’s future.

Most Popular Narrative: 32% Undervalued

According to the most widely followed narrative, Youdao’s shares are undervalued by over 30% compared to analysts’ fair value estimates, based on its future earnings growth and margin expansion potential.

Strong double-digit revenue growth in high-potential verticals such as Digital Content Services (Youdao Lingshi), online marketing services, and AI-powered smart devices indicates successful diversification and capitalizing on higher ARPU, subscription-based and recurring revenue opportunities. This is likely to improve both top-line revenue and gross profit.

Ever wonder what is driving such a bullish view on Youdao’s valuation? The secret sauce involves ambitious growth in both revenue and profits, combined with a daring outlook on future profitability. Curious about just how high analysts expect those earnings and margins to climb over the next few years, and what bold assumptions are built into their calculations? This narrative is grounded in projections that may surprise even seasoned investors.

Result: Fair Value of $13.04 (UNDERVALUED)

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

However, risks remain, including falling gross profit margins and shrinking deferred revenue, which could undermine Youdao's long-term earnings growth story.

Find out about the key risks to this Youdao narrative.

Another View: The Multiples Approach

While fair value estimates point to Youdao being undervalued, a look at its price-to-earnings figure tells a different story. By this measure, Youdao trades well above the industry average. Could this signal overheating, or is it justified by future growth?

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

Stay updated when valuation signals shift by adding Youdao to your watchlist or portfolio. Alternatively, explore our screener to discover other companies that fit your criteria.

Build Your Own Youdao Narrative

If you want to dig into the numbers yourself or approach the story from your own perspective, building a personalized Youdao outlook can take just a few minutes. 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.