NetEase's Education Unicorn Youdao Seeks $300 Million U.S. Listing

NetEase's Youdao, initially launched as a search engine before turning to the education market, had 100 million average monthly active users in the first half-year.

Belinda Zhou
    Oct 01, 2019 2:20 PM  PT
NetEase's Education Unicorn Youdao Seeks $300 Million U.S. Listing
author: Belinda Zhou   

Youdao Inc., the online education unit of Chinese conglomerate NetEase Inc. (Nasdaq: NTES), has filed for an initial public offering in New York, seeking to raise up to $300 million. 

Upon the IPO, the company plans to complete a private placement of $125 million in Class A shares to certain investment funds managed by Orbis Investment Management Ltd., NetEase's largest institutional shareholder.

Founded in 2006, Youdao offers learning products and services. It operates online learning tools like its flagship Youdao Dictionary and Youdao Translation, as well as online courses including Youdao Premium Courses. The company also sells smart devices like Youdao Smart Pen and develops interactive learning apps, according to its filings. NetEase owns a 66.2% controlling stake in Youdao. 

The Hangzhou-based company reported its revenue reached $79.9 million in the first half-year, up 68% year-over-year. Its net loss, it said, has doubled from a year ago to $27.6 million, or 30 cents per American depositary share, in the first six months through June. For 2018, Youdao reported revenue of $106.6 million on losses of $30.4 million.

In the six months through June, it had 100 million average monthly active users, according to its prospectus.

Meanwhile, Youdao Dictionary had 51.2 million monthly active users in the first half-year, making it the largest language app in China on the basis of MAU, the company said in its filing, citing research by Frost & Sulivan. 

Youdao said it seeks to use the proceeds of its IPO for technology and product development, branding and marketing, user growth and other general corporate purposes.

Citigroup Global Markets Inc. and Morgan Stanley & Co. LLC will act as the underwriters on the expected deal, together with China International Capital Corp. Hong Kong Securities Ltd., Credit Suisse Securities (USA) LLC and HSBC Securities (USA) Inc., according to Youdao's filing on Monday. 

The e-learning unicorn has applied to trade its shares under the ticker symbol "DAO" on the New York Stock Exchange. 

"Youdao" stands for "the path connecting questions to answers" and "making a profit in a proper way" in Chinese. 

Initially, Youdao was designed to compete with Baidu Inc. (Nasdaq: BIDU) as a search engine but failed and turned to a dictionary tool, according to various Chinese media. "In 2014, we strategically shifted our focus to the intelligent learning industry," the company said in its prospectus.

The filing by Youdao came amid a tightening of listing rules by U.S. stock exchanges and rumored delisting threats by the White House. 

Shares in NetEase closed at $262.75 per ADS on Tuesday, down more than 1%.