Citi has reaffirmed its Buy rating on shares of Gaotu Techedu (NYSE: GOTU) with a steady price target of $5.81. The firm's analysis followed Gaotu's second-quarter 2024 earnings release, which showed revenues of RMB 1.01 billion, marking a 43.6% increase year-over-year, and gross billings that rose by 87.4% to RMB 1.65 billion.
These figures surpassed Citi's projections by 4% and 3%, respectively.
Despite the robust top-line growth, Gaotu's financials reflected a surge in spending. Selling expenses accounted for 82.7% of the revenue, which was higher than the anticipated 79%.
This led to a non-GAAP operating loss of RMB 453 million, which was 4% above Citi's forecast. Moreover, the non-GAAP net loss totaled RMB 418 million, significantly overshooting the expected RMB 347 million by 20%.
Citi's commentary highlighted the strong revenue momentum exhibited by Gaotu, which exceeded estimates. However, the firm also noted that the bottom line did not meet targets, indicating a balance between growth and near-term profitability.
The focus going forward for Gaotu, as per Citi's analysis, is to translate its growth into improved unit economics and establish a more defined route to sustainable profitability.
InvestingPro Insights
Following Citi's positive outlook on Gaotu Techedu (NYSE: GOTU), InvestingPro data and tips provide a deeper dive into the company's financial health and market standing. With a market capitalization of $1.06 billion and a notable gross profit margin of 71.83% for the last twelve months as of Q1 2024, Gaotu demonstrates a strong ability to generate earnings relative to its revenue. Despite this impressive margin, the company has faced challenges, reflected in a net income drop and a lack of profitability over the same period, aligning with analysts' expectations that the company will not be profitable this year.
InvestingPro Tips also highlight Gaotu's status as a prominent player in the Diversified Consumer Services industry. However, the stock price has experienced significant volatility, often moving in the opposite direction of the market, which could be a point of concern for investors seeking stability. Over the last three months, the price has decreased by 34.51%, and over the last six months, the stock has taken a hit of 47.42%, indicating a period of bearish sentiment. On a more positive note, Gaotu holds more cash than debt, suggesting a solid liquidity position, with liquid assets exceeding short-term obligations.
For investors interested in a comprehensive analysis, there are additional InvestingPro Tips available on https://www.investing.com/pro/GOTU, offering further insights into Gaotu's financials and market performance.
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