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Duolingo (DUOL) Down 15% Year to Date: Should You Buy the Dip?
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Duolingo, Inc. (DUOL - Free Report) has been on a downward spiral lately with significant selling pressure. The stock has declined 15% year to date, a considerable drop compared to the 21.5% rally in the industry it belongs to and the 17.5% rise in the Zacks S&P 500 composite.
This drop mirrors the performance of its closest competitors, Coursera (COUR - Free Report) and Chegg (CHGG - Free Report) , which have seen declines of 63% and 76%, respectively, over the same period.
One-Year Price Performance
Image Source: Zacks Investment Research
Looking beyond the year-to-date performance, DUOL’s stock has surged an impressive 39% over the past year, indicating that the current downturn may be part of a correction phase.
As of the last trading session, Duolingo's stock closed at $193.09, which is 23% below its 52-week high of $251.3. Additionally, it is trading below its 50-day moving average, suggesting a bearish sentiment among investors.
APTV Stock Trades Below 50-Day Average
Image Source: Zacks Investment Research
Given the recent weakness in DUOL shares, investors might be tempted to buy the stock. But is this the right time to buy DUOL? Let’s find out.
Product Excellence Driving Subscriber Conversion
Duolingo’s success hinges on its product excellence and innovative approach to language learning. The platform offers interactive lessons in multiple languages, employing gamified techniques to engage users through exercises, quizzes and challenges. Its user-friendly interface makes language acquisition enjoyable and accessible for learners worldwide.
The company's strategy revolves around teaching more effectively, expanding its user base and converting users into subscribers. In 2024, Duolingo focused on optimizing its subscription offerings, such as the family plan and Duolingo Max. This focus on product excellence drives word-of-mouth growth, generating valuable data that helps refine the product further, thereby enhancing user engagement and subscriber conversion.
The impact of this strategy is evident in the company’s financial performance. In the first quarter of 2024, Duolingo reported a 45% year-over-year increase in revenues and a 41% rise in bookings. This growth is attributed to an increase in daily and monthly average users, along with a surge in the number of subscribers. Notably, the company's net income for the first quarter of 2024 was $27 million, a significant improvement from a net loss of $2.6 million in the same quarter of the previous year. The adjusted EBITDA margin also improved by 1,320 basis points.
Confidence in its higher-priced subscription tiers and improvements to the family plan has led Duolingo to raise its 2024 bookings growth guidance to 38% at the midpoint, up from the previous expectation of 28%. Additionally, the company has revised its adjusted EBITDA margin guidance to 23.5% compared to the earlier forecast of 22.5%.
Healthy Returns on Capital
Return on equity (ROE), an indicator of profitability, shows how efficiently a company uses its shareholders' investments to generate earnings. DUOL’s ROE has hovered around 7% over the last few years and outperformed the industry average. ROE was 7.1% at the end of the first quarter of 2024 compared with the industry’s 6.1%.
Duolingo has demonstrated effective investment in profitable areas, as reflected in its return on invested capital (ROIC). The company’s trailing 12-month ROIC is 6.8%, ahead of the industry average of 4.1%.
Strong Liquidity
DUOL’s liquidity position is robust, with a current ratio of 3.22 at the end of the first quarter of 2024, compared to the industry’s 0.97. A current ratio of more than 1 suggests that Duolingo can comfortably meet its short-term obligations, providing a cushion against potential financial challenges.
Image Source: Zacks Investment Research
Strong Top and Bottom-line Prospects
The Zacks Consensus Estimate for DOUL’s 2024 earnings is pegged at $1.74, indicating 397% growth from the year-ago level. Earnings in 2025 are expected to increase 51.8% from the prior-year actuals. The company’s sales for 2024 are expected to increase 37.8% and 26.8% year over year, respectively, in 2024 and 2025.
Northward Estimate Revisions
Six estimates for 2024 moved north in the past 60 days versus no southward revision, reflecting analysts’ confidence in the company. The Zacks Consensus Estimate for 2024 earnings has moved up 26.1% in the past 60 days.
Is Duolingo a Must-Buy?
Duolingo’s product excellence, monetization efforts, expanding user and subscriber base, and strong liquidity position contribute to its potential for sustained success. The company’s solid financial health, coupled with strong top and bottom-line growth prospects, make it an attractive investment opportunity.
The significant correction in the year-to-date period, without a loss of fundamental strength, presents a compelling case for buying Duolingo stock at its current levels.
Image: Bigstock
Duolingo (DUOL) Down 15% Year to Date: Should You Buy the Dip?
Duolingo, Inc. (DUOL - Free Report) has been on a downward spiral lately with significant selling pressure. The stock has declined 15% year to date, a considerable drop compared to the 21.5% rally in the industry it belongs to and the 17.5% rise in the Zacks S&P 500 composite.
This drop mirrors the performance of its closest competitors, Coursera (COUR - Free Report) and Chegg (CHGG - Free Report) , which have seen declines of 63% and 76%, respectively, over the same period.
One-Year Price Performance
Looking beyond the year-to-date performance, DUOL’s stock has surged an impressive 39% over the past year, indicating that the current downturn may be part of a correction phase.
As of the last trading session, Duolingo's stock closed at $193.09, which is 23% below its 52-week high of $251.3. Additionally, it is trading below its 50-day moving average, suggesting a bearish sentiment among investors.
APTV Stock Trades Below 50-Day Average
Given the recent weakness in DUOL shares, investors might be tempted to buy the stock. But is this the right time to buy DUOL? Let’s find out.
Product Excellence Driving Subscriber Conversion
Duolingo’s success hinges on its product excellence and innovative approach to language learning. The platform offers interactive lessons in multiple languages, employing gamified techniques to engage users through exercises, quizzes and challenges. Its user-friendly interface makes language acquisition enjoyable and accessible for learners worldwide.
The company's strategy revolves around teaching more effectively, expanding its user base and converting users into subscribers. In 2024, Duolingo focused on optimizing its subscription offerings, such as the family plan and Duolingo Max. This focus on product excellence drives word-of-mouth growth, generating valuable data that helps refine the product further, thereby enhancing user engagement and subscriber conversion.
The impact of this strategy is evident in the company’s financial performance. In the first quarter of 2024, Duolingo reported a 45% year-over-year increase in revenues and a 41% rise in bookings. This growth is attributed to an increase in daily and monthly average users, along with a surge in the number of subscribers. Notably, the company's net income for the first quarter of 2024 was $27 million, a significant improvement from a net loss of $2.6 million in the same quarter of the previous year. The adjusted EBITDA margin also improved by 1,320 basis points.
Confidence in its higher-priced subscription tiers and improvements to the family plan has led Duolingo to raise its 2024 bookings growth guidance to 38% at the midpoint, up from the previous expectation of 28%. Additionally, the company has revised its adjusted EBITDA margin guidance to 23.5% compared to the earlier forecast of 22.5%.
Healthy Returns on Capital
Return on equity (ROE), an indicator of profitability, shows how efficiently a company uses its shareholders' investments to generate earnings. DUOL’s ROE has hovered around 7% over the last few years and outperformed the industry average. ROE was 7.1% at the end of the first quarter of 2024 compared with the industry’s 6.1%.
Duolingo has demonstrated effective investment in profitable areas, as reflected in its return on invested capital (ROIC). The company’s trailing 12-month ROIC is 6.8%, ahead of the industry average of 4.1%.
Strong Liquidity
DUOL’s liquidity position is robust, with a current ratio of 3.22 at the end of the first quarter of 2024, compared to the industry’s 0.97. A current ratio of more than 1 suggests that Duolingo can comfortably meet its short-term obligations, providing a cushion against potential financial challenges.
Strong Top and Bottom-line Prospects
The Zacks Consensus Estimate for DOUL’s 2024 earnings is pegged at $1.74, indicating 397% growth from the year-ago level. Earnings in 2025 are expected to increase 51.8% from the prior-year actuals. The company’s sales for 2024 are expected to increase 37.8% and 26.8% year over year, respectively, in 2024 and 2025.
Northward Estimate Revisions
Six estimates for 2024 moved north in the past 60 days versus no southward revision, reflecting analysts’ confidence in the company. The Zacks Consensus Estimate for 2024 earnings has moved up 26.1% in the past 60 days.
Is Duolingo a Must-Buy?
Duolingo’s product excellence, monetization efforts, expanding user and subscriber base, and strong liquidity position contribute to its potential for sustained success. The company’s solid financial health, coupled with strong top and bottom-line growth prospects, make it an attractive investment opportunity.
The significant correction in the year-to-date period, without a loss of fundamental strength, presents a compelling case for buying Duolingo stock at its current levels.
DUOL currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.