10 Reasons Why Duolingo (DUOL) Is the Best Growth Stock to Buy in 2024

Duolingo, Inc. (near)is leading the digital language learning market with an innovative and engaging approach that stands out in the consumer discretionary space. Featuring its iconic green owl mascot, Duolingo gamifies language learning, turning vocabulary and grammar lessons into an addictive game-like experience. Utilizing a freemium model, the company offers classes in more than 40 languages ​​and has seen rapid growth in both its user base and paid subscriptions.

Duolingo’s secret sauce? A combination of cutting-edge technology and gamification. By applying AI to personalize the learning experience, Duolingo continues to connect its 97.6 million monthly active users. You can access classes anytime, anywhere via your smartphone, turning idle time into productive learning opportunities. This approach not only took education out of the classroom, it put it right at our fingertips.

Expand your user base

DUOL’s strong user engagement is evident in its impressive growth in daily active users. 31.4 million people in the first quarterIt was a significant increase compared to 20.3 million the previous year. Additionally, the number of paid subscribers increased 54% from the previous year to 7.4 million (the proportion of paid subscribers increased from 8% to 8.6%). Clearly, learners are willing to pay for a premium experience.

Duolingo’s learning innovation, now with AI

Beyond language learning, Duolingo is expanding into new areas of education, including math and music, using the same gamified and engaging format. Duolingo last year We launched a multi-topic app Experience new music courses and updated math courses integrated into our flagship app. This allows iOS learners to seamlessly transition into the world of language learning, math skills, or music. This expansion not only adds value but also attracts a wider audience, increasing routine activity and user retention.

But it doesn’t end there. Building on its commitment to innovation, Duolingo recently introduced AI-based features to enhance the learning experience. With the launch of the premium subscription tier, Duolingo Maxgives users access to two powerful AI tools designed to accelerate language skills.

One of them is Roleplay, an AI chatbot that provides real-time feedback and guidance to facilitate conversation practice in the user’s chosen language. Meanwhile, the other Explain My Answer improves comprehension and memory by providing personalized feedback on mistakes made in each lesson.

As the company continues to evolve its platform, you can expect more AI-based learning tools that will further enhance the user experience and drive subscription growth. Additionally, these innovations are just the beginning of Duolingo’s long-term growth potential.

financial performance

at First quarter For the year ended March 31, 2024, DUOL’s net revenue increased 44.8% year over year to $167.55 million, and subscription revenue increased 53% to $131.69 million. Total profit increased 45.4% year over year to $122.36 million.

The company’s operating performance also saw a significant recovery, with operating income reaching $16.44 million compared to a loss of $8.52 million the previous year. In the March quarter, DUOL achieved its highest quarterly adjusted EBITDA, reaching $44.01 million, up $28.9 million from the prior year.

Moreover, net income was $26.96 million, or $0.57 per share, compared to a net loss of $2.58 million, or $0.06 per share, in the prior year. The rise in margins and profits means that Duolingo has leveraged its economies of scale to attract millions of new users and successfully convert them into paying subscribers.

As of March 31, 2024, cash, cash equivalents and restricted cash were $832.45 million, an increase of 29.8% compared to the same period last year. Additionally, free cash flow increased 176.5% year-on-year to $79.62 million.

Moreover, the company completely beat Wall Street’s EPS and revenue estimates. In the first quarter, DUOL’s earnings per share were 119.2% higher than consensus estimates, and revenue was $1.9 million higher than analysts’ estimates.

Optimistic Outlook and Analyst Forecasts

Duolingo is optimistic about sales and earnings growth in 2024, driven by strong user engagement and the launch of new monetization strategies. Second quarter revenue is expected to be between $175 million and $177.5 million, with adjusted EBITDA expected to be between $36.8 million and $39.1 million.

The company expects full-year sales to be between $726.5 million and $735.5 million, with adjusted EBITDA estimated to be between $167.1 million and $176.5 million. Additionally, total bookings are expected to hit a record high of $181.5 million in the June quarter and $817.5 million this year.

The consensus revenue estimate for the fiscal second quarter (ending June 2024) is $177.02 million, representing a 39.6% increase from the prior year. The consensus EPS estimate for the current quarter is $0.28, representing a 252.8% improvement over the prior year. The company has a remarkable history of beating consensus revenue estimates in each of the four subsequent quarters.

Looking ahead, analysts expect DUOL’s revenue and EPS to increase 38% and 344.2% year-over-year for the coming year (ending December 2024), to $732.95 million and $1.55, respectively. Sales and EPS in fiscal 2025 are expected to grow by 27.4% and 52.7%, respectively, compared to the same period last year.

impressive historical growth

Duolingo stands out as a leading growth stock with a focus on innovation, effective marketing strategies, and strong unit economics. Over the past three years, DUOL’s revenue has grown at a CAGR of 45.6%. Additionally, the company’s total assets grew at a CAGR of 82.1% over the same period, and leveraged free cash flow improved at a CAGR of 79.9%.

Why did Duolingo plummet after earnings?

Despite the impressive performance in its latest earnings report, the company fell nearly 20%, its steepest decline of the day. Investors seem spooked by a slight slowdown in daily active user growth, falling from a 65% year-over-year surge in the previous quarter to a 54% increase in Q1 2024. 57% to 54%.

Duolingo’s high valuation adds to the pressure. This is because the forward price/sales ratio is 10.50x, well above the industry average of 0.87x. Likewise, its forward EV/Sales ratio of 9.44x exceeds the industry standard by 671.8%, and its forward non-GAAP P/E ratio of 46.69x is 193.3% higher than the industry average of 15.92x.

Nonetheless, DUOL’s stock price is up nearly 36% over the past nine months and more than 20% over the past year.

conclusion

Duolingo’s impressive user growth, revenue, and earnings highlight its dominance in the global learning market. As the digital language learning market is expected to surpass $101.94 billion in 2032, the company’s revenue forecast for this year barely taps its potential. This means Duolingo has more room to grow. Moreover, with interest rates expected to stabilize or fall in the near future, Duolingo could again become an attractive investment for growth-oriented investors.

With a track record of innovation, efficient marketing, and strong profitability, Duolingo is well positioned to capture opportunities in 2024 and beyond. Therefore, considering its strong fundamentals and growth prospects, it may be wise to invest in DUOL now.