Citi double downgrades Gaotu to Sell on profitability concerns

Citi analyst Alice Cai double downgraded Gaotu Techedu to Sell from Buy with a price target of $2.94, down from $5.81. The company’s Q2 results underscore its “struggle to reconcile aggressive expansion with financial viability,” the analyst tells investors in a research note. The firm cites Gaotu’s projected net losses and “surged” expenses stemming from its aggressive offline expansion initiatives for the double downgrade. As a result, Citi materially cut its earnings estimates by up to 234% over the next three years. The firm “strongly” cautions investors about the company’s “deteriorating risk-reward profile amid escalating profitability concerns.” The stock in midday trading is down 16% to $3.42.