Sarah Travers
Last year was a remarkable one for Duolingo (DUOL 0.45%), with its shares soaring by an impressive 219%, more than tripling in value. However, 2024 has told a different story so far, with Duolingo’s stock trading 18% lower despite a generally rising market. Yet, there remains substantial optimism about Duolingo’s future. While another tripling of its stock price in 2024 may be unrealistic, several factors could lead to significant gains for the language learning specialist.
Continuous Growth Despite Setbacks
Duolingo’s stock faced a notable setback on May 9, when it dropped by 18% in a single day following the release of financial results that the market received poorly. However, a deeper look reveals that the reaction might have been overblown. Duolingo reported a 45% increase in revenue for the first quarter of 2024, reaching $167.6 million, surpassing its own forecasts of a 42% to 44% increase. Additionally, bookings rose by 41%, and adjusted EBITDA nearly tripled, both metrics exceeding guidance. These impressive figures prompted Duolingo to raise its outlook for the year.
Furthermore, user engagement metrics have also been on the rise. The number of monthly active users grew by 35% to 97.6 million, while daily active users saw an even more significant jump of 54%, reaching 31.4 million. This indicates that more users are not only trying out the app but also using it regularly, showcasing the platform’s growing stickiness and appeal.
Impressive Bottom-Line Performance
Duolingo has consistently outperformed Wall Street profit targets, even as its stock has faced declines. This is not a case of the company lowering expectations to beat them easily; rather, analyst estimates for 2024 and 2025 have increased over the last three months. This trend underscores the company’s robust financial health and ability to deliver strong earnings.
Despite the recent stock price decline, Duolingo’s financial performance remains solid. The company’s ability to consistently exceed profit expectations while continuing to grow its user base highlights its potential for future success. As analysts continue to raise their estimates, the foundation is set for potential stock price recovery and growth.
Transforming Challenges into Opportunities
While many education stocks have struggled recently, Duolingo has managed to turn potential headwinds into tailwinds. Competitors like Chegg have faced significant challenges, particularly with AI affecting user growth. In contrast, Duolingo’s approach has set it apart. The app’s gamified learning experience, featuring leaderboards, virtual currency, and competitive elements, has proven to be a major draw for users.
Duolingo’s freemium model allows users to explore the app for free, with premium features available for those who want an enhanced experience. This model has contributed to a growing percentage of users opting for premium subscriptions. The combination of engaging, game-like elements and an effective monetization strategy has positioned Duolingo as a leader in the language learning space, even as others struggle.
Promising Future Despite Challenges
Despite a challenging start to 2024, Duolingo remains a promising stock with substantial growth potential. The company’s strong financial performance, increasing user engagement, and ability to transform challenges into opportunities all point toward a bright future. While it may not triple again this year, the factors driving Duolingo’s success could very well lead to significant returns for investors. As the company continues to innovate and expand its reach, it stands poised to regain its 2023 momentum and deliver impressive results for the remainder of 2024.
