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Shares of Gaotu Techedu (NYSE:GOTU) are rallying Wednesday following a double upgrade from Citigroup to Buy from Sell after an adverse event at a rival platform fueled momentum in viewership.
A recent surge in viewership at Gaotu Techedu (GOTU), which resulted amid controversy over attribution at its rival East Bay, produced a "significant yet transient boost in engagement" at Gaotu (GOTU) that will likely translate into marginally higher GMV than before the event, Citigroup said in a note to clients.
It's this event at East Bay and subsequent shift to Gaotu Techedu (GOTU) that Citi believes counteracts its earlier concerns about the company's struggle in capturing market traffic.
Additionally, in the company's latest earnings release, gross billings were up 5.3% in the latest quarter which drove up net revenues by 30.2% from the same quarter last year.
The Beijing-based business, which provides K-12 after-school tutoring as well as foreign language courses and test prep, predicts Q4 gross billings to increase another 4%, prompting Citi to hike its Q4 revenue forecast by 4%. For 2024, Citi expects revenue to increase by a substantial 12%.
But while Gaotu Techedu's (GOTU) e-commerce business has stabilized, Citi remains cautiously optimistic given the potential shifts from online to offline market dynamics in a post-pandemic and deregulated China.
Along with a Buy rating, Citi lifted its price target on Gaotu Techedu (GOTU) by more than 80% to $4.50, a 37% premium above Tuesday's closing price.
Shares were up more than 13% on Wednesday.