With the business potentially at an important milestone, we thought we'd take a closer look at Youdao, Inc.'s (NYSE:DAO) future prospects. Youdao, Inc., an internet technology company, provides online services in the field of content, community, communication, and commerce in China. The US$443m market-cap company announced a latest loss of CN¥550m on 31 December 2023 for its most recent financial year result. As path to profitability is the topic on Youdao's investors mind, we've decided to gauge market sentiment. In this article, we will touch on the expectations for the company's growth and when analysts expect it to become profitable.

Consensus from 8 of the American Consumer Services analysts is that Youdao is on the verge of breakeven. They expect the company to post a final loss in 2024, before turning a profit of CN¥79m in 2025. So, the company is predicted to breakeven just over a year from now. What rate will the company have to grow year-on-year in order to breakeven on this date? Using a line of best fit, we calculated an average annual growth rate of 105%, which signals high confidence from analysts. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

We're not going to go through company-specific developments for Youdao given that this is a high-level summary, though, keep in mind that typically a high growth rate is not out of the ordinary, particularly when a company is in a period of investment.

Before we wrap up, there's one issue worth mentioning. Youdao currently has negative equity on its balance sheet. This can sometimes arise from accounting methods used to deal with accumulated losses from prior years, which are viewed as liabilities carried forward until it cancels out in the future. These losses tend to occur only on paper, however, in other cases it can be forewarning.

Next Steps:

This article is not intended to be a comprehensive analysis on Youdao, so if you are interested in understanding the company at a deeper level, take a look at Youdao's company page on Simply Wall St. We've also compiled a list of pertinent factors you should further examine:

1. Valuation: What is Youdao worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether Youdao is currently mispriced by the market.
2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Youdao's board and the CEO's background.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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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.