It has been a tough summer for investors in Duolingo (NASDAQ:DUOL), as its share price has tanked by over 40% during the past three months.
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More bad news hit last week, when Alphabet announced new features to Google Translate – including AI-supported language conversation tools. This sent DUOL down another few percentage points.
And yet, the company itself seems to be clicking, with its most recent earnings report in early August containing plenty of reasons to smile. The company grew daily active users to 47.7 million (year-over-year growth of 40%), revenues to $252.3 million (a year-over-year increase of 41%), and net income to $44.8 million (a year-over-year rise of 84%).
So, which direction are things headed? Investor LL Insights is quite bullish on the company’s prospects, pointing out that Duolingo’s Q2 earnings was the kind of quarter that “sharpens a thesis.”
“After Q2, the debate is not whether Duolingo can be profitable; it is about how much operating leverage the model will show,” explains the investor.
LL is supremely encouraged by the company’s revenue growth, total bookings, gross margin, and Adjusted EBITDA. Moreover, the investor is pleased with the user engagement metrics, whereby paid subscribers are growing at a fast clip (37% year-over-year).
The company is also having success with its Energy mechanic, which is replacing the previous system of hearts. LL notes that this has helped increase conversion rates, without compromising on user experience – a rare and difficult balance to strike.
“When delight and monetization move together, you get a more resilient growth flywheel,” adds LL.
Moreover, the AI push is not a “hazy promise” for Duolingo, as the company is using generative AI to expand its course offerings. The recent Chess course, which outpaced any other subject DUOL has launched, signals the company has an audience beyond language learning.
The investor spots further catalysts on the horizon, including the expansion of Energy beyond iOS and a growing ad business. In other words, LL believes that this is one to hop on board.
“I remain bullish on Duolingo’s ability to compound quality growth and profitability,” sums up LL, who rates DUOL a Buy. (To watch LL Insights’ track record, click here)
Wall Street seems to be right with the investor. With 13 Buys and 5 Holds, DUOL enjoys a Moderate Buy consensus rating. Its 12-month average price tag of $487.69 has an upside of some 64%. (See DUOL stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.