DUOLINGO ($DUOL)
Company Background:
Sector: Technology
Industry: Online education, professional certification, translation, crowdsourcing, software development,
software application
TTM Financials: Total Revenue =206,736, EBITDA=-25,060, Cost of Revenue=57,120
Q2 2021 Free Cash Flow: $7.9
Market Cap: $6.49 Billion
Earnings per Share (Current Quarter): -$0.44
Gross Margin Profitability: 71.22
Number of Employees: 400+
Company Summary: Founded in 2011, Duolingo is a company that specializes in offering an accessible
language learning platform that allows the user access to a number of language lessons and earn language
certificates.
Online Language Learning Industry:
With the globalization of the economy and adoption of cost-efficient technological products, the need for
accessible language learning is driven by the need for communication around the world. As businesses
expand, the demand for multilingual employees also rises. Currently with advanced AI technology and
low-cost and effective technology, e-language learning is becoming more accessible and popular than
ever.
Competition:
Currently, Duolingo’s competitors are NovaKid, Rosetta Stone, Preply, Coorori, and Cambly. However,
Duolingo is the only platform that offers a majority of their curriculum free to the public, while having a
variety of languages and resources available for the user.
Source of Revenue:
Duolingo operates on a freemium business model and has multiple sources of revenue through their
premium subscription, displayed advertisements, and language proficiency tests.
DUOLINGO GROWTH
Year
Revenue
Valuation
Funding
2011
3.3 million
2012
18 million
Users
Downloads
5/1
2013
5 million
10 million
2014
10 million
25 million
2015
83 million
Available
Courses/
Languages
120 million
11
DUOLINGO ($DUOL)
2016
470 million
30 million
108 million
150 million
18/19
2017
13 million
700 million
2018
36 million
1.5 billion
25 million
300 million
62
2019
78 million
2.4 billion
30 million
385 million
91
2020
161 million
6.5 billion
42 million
500 million
95/38
148 million
200 million
Investment Thesis:
-
I recommend longing $DUOL in the next 12 months due to their user forecasts and development
of new services.
I also recommend that this position be added under the $144 price target, as the current price at
$158 holds the price as overvalued. If added at a strategic time below the $144 price target before
Duolingo announces their newest services, I believe a 15%+ gain is possible.
Strong Growth in Monthly Active Users and Paid Subscribers: According to DUOLINGO’s Q2
Shareholder Presentation, from 2017-2020 the percentage of paid subscribers incrementally increased
from 0-4% along with the increase of monthly active users. This trend is likely to continue with the
market growth. By their next earnings, it is expected that their revenue will increase through their increase
of monthly active users.
Expansion to a variety of education services: Because Duolingo’s long term goal is to provide an
accessible universal education through their platform, they are currently developing services beyond
language learning. In addition to this, they hope to expand the adoption of the Duolingo English Test.
With these new developments underway, the company continues to distinguish itself from other
companies in the market.
Price History
DUOLINGO 1 Year Chart
DUOLINGO ($DUOL)
After releasing its IPO on July 27, 2021 at $102 and trading at $141, Duolingo’s share price continued to
increase unlike many other IPO’ed stocks that tend to rise on their IPO date and deflate drastically
immediately afterwards. Duolingo has a promising uptrend and has only faced one minor tumble near the
end of August when China removed Duolingo from their app stores.
Catalysts:
1. Growing Market for online language learning: The online language learning market is expected to
grow at a CAGR of 18.7% and reach $21.2 billion in 2027. It can safely be assumed that
Duolingo, currently a top rated application, will also grow and gain in popularity along with the
consumer demand for language learning platforms.
2. New Products and Services: From its IPO in July, Duolingo has the potential and technology to
develop new products and services to compete in the growing market as well as allot for more
sources of revenue. According to their Q2 Shareholder presentation, they are ultimately planning
to expand their services beyond language learning and provide universal education in different
subjects.
3. Company Expansion: Duolingo plans to expand their platform accessibility and services to Asia,
which currently has the highest demand for language learning.
Valuation Summary: Currently the company’s valuation is at $6.5 billion, and according to multiple
analysts the stock is overweight, as the average target price is $144. Duolingo, however, still remains
stronger than other companies in the market as it has a higher demand.
Risks:
1. Lack of Innovation and New Products: Over time, without innovation, competitors of
DUOLINGO may replace the app with better technology and services.
2. Decrease of Paid Subscriptions and Users: If percentage of paid subscriptions decrease
throughout time, then DUOLINGO will begin to lose revenue and funding.
3. Worst case scenario: Because this investment is within a year’s term, the share price would not be
immediately affected by the two possible risks. If their next quarterly earnings report a decrease
in revenue and users, then it would be possible for the company to return to its lowest price target
of $125, which would be roughly a 20-21% loss.