Duolingo (DUOL) is part of the fast-growing language learning industry that is projected to maintain a compound annual growth rate (CAGR) above 20% between now and 2032. Duolingo’s revenue has outpaced the industry’s growth rate as the company’s app attracts new users and existing customers convert to paying subscribers. For these reasons, I’m bullish on DUOL stock.
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Duolingo’s Engagement Is Soaring
Duolingo’s paid subscribers are growing, which is a reason why I have a positive outlook on the company and its stock. Duolingo provides insights into its daily active users and paid subscribers each quarter. For Q2 2024, the company’s growth rate was impressive, surpassing 100 million monthly active users, up 40% year over year. Other categories posted even stronger growth.
Daily active users rose 59% year over year to 34.1 million users. More than 20% of daily active users have been using Duolingo’s services each day for more than a year, indicating loyalty and brand strength.
The company has also done a great job of converting free users into paid subscribers. The language learning firm reported eight million paid subscribers in Q2 of this year, up 52% from a year earlier. The high growth rate suggests that the app is in high demand.
Revenue and Profits
DUOL has been posting high revenue growth in recent quarters, which is another reason why I’m bullish on the stock. Revenue growth in the second quarter increased 41% from the same period of 2023. Duolingo also recently became profitable and has been expanding its profit margins. Turning profitable is what first caught my attention concerning this stock.
During Q2, Duolingo delivered $24.4 million of net income. That’s a significant increase from the $3.7 million earned in the same quarter of last year. Duolingo’s Q2 profit margin came in at 13.7%, up from less than 10% a year earlier.
Strong financials are a critical component of any growth stock. Duolingo delivers in that regard, and it’s a big reason why DUOL stock is up by 18% so far in 2024. The share price has rallied more than 30% since the Q2 results were made public as investors pile into the stock. The language learning market still has plenty of room to run, which should help Duolingo moving forward and keep its share price rising.
Expansion into New Areas
Investors should be bullish on Duolingo given that the company has established itself as one of the top resources for learning new languages. The company has verbal and written lessons that anyone can access for free, with the option to remove advertisements and unlock other perks with a paid account. Duolingo currently offers instruction in 42 languages, but is expanding into new subjects and attracting more users in the process.
Last year, the company added math and music to its platform. Students can now learn lessons in these subjects, in addition to languages. Duolingo’s expansion into new subject areas such as math opens more avenues for growth. Looking ahead, Duolingo could also expand into history, science, and other topics that will increase its addressable market. Additional subjects will also increase Duolingo’s value proposition for both free users and paid subscribers.
The push into new subjects should also increase the amount of time people spend on the app and fuel the company’s growth in years to come. For instance, some people may want to learn a new language and music. Knowing they can learn both skills from the same app will make them more loyal to Duolingo.
Is DUOL Stock a Buy?
Duolingo is rated a Moderate Buy among 12 Wall Street analysts. The stock currently has eight Buy and four Hold recommendations. No analyst rates the stock a Sell. However, even though the stock has a decent consensus rating, the average price target of $238.56 implies 11% downside from current levels.
Also, the stock’s high forecasted price target of $271 suggests only modest 1% upside. While many analysts are bullish on DUOL stock, they don’t seem to agree on the current share price.
Read more analyst ratings on DUOL stock
Conclusion
Duolingo is a leader in the rapidly growing language learning market. The company knows how to attract and retain customers and recently surpassed 100 million monthly active users. Paid subscribers have been growing at a faster rate than people using the free version of the platform. The firm is posting high revenue growth and rising profit margins help make the stock more attractive.
