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Duolingo (DUOL) Rises 15% in a Month: Is it Time to Invest?
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Duolingo, Inc. (DUOL - Free Report) has recently experienced a notable uptick in its stock price. Over the past month, Duolingo's stock has surged 14.5%, a significant gain when contrasted with the broader industry, which has seen a decline of 3.7% over the same period.
While the one-month performance paints a positive picture, it's crucial to look at the year-to-date metrics for a fuller understanding. DUOL's stock has dropped 10.5% so far this year, suggesting that the recent upward movement is part of a broader recovery phase. Close competitors like Coursera (COUR - Free Report) and Chegg (CHGG - Free Report) have seen declines of 57.4% and 82%, respectively, year to date.
Year-To-Date Price Performance
Image Source: Zacks Investment Research
In the last trading session, Duolingo's stock closed at $203.16, which is 19% below its 52-week high of $251.3. The stock is trading above its 50-day moving average, an indication of bullish sentiment among investors.
With Duolingo's recent momentum, many investors might be contemplating whether now is the opportune moment to buy the stock. Let’s delve deeper to assess this potential.
Driving Growth Through Product Excellence
Duolingo's impressive performance can be largely attributed to its commitment to product excellence and innovation in language education. 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 strategic focus is on teaching more effectively, expanding its user base, and converting those users into paying subscribers. In 2024, Duolingo placed a significant emphasis on refining its subscription offerings, such as the family plan and Duolingo Max. This dedication to product quality has fueled organic growth through word-of-mouth recommendations, generating valuable data that allows for continuous product improvement, further boosting user engagement and subscriber conversion rates.
This strategy is reflected in Duolingo's financial performance. In the second quarter of 2024, the company reported a 41% year-over-year increase in revenues and a 38% rise in bookings. This growth is driven by a 59% increase in daily active users and a 40% increase in monthly active users, along with a 52% surge in the number of subscribers. Additionally, the company posted a net income of $24.4 million for the quarter, a significant jump from $3.7 million in the same period last year. The adjusted EBITDA margin also saw a notable improvement of 1,050 basis points.
Buoyed by strong confidence in its higher-priced subscription tiers and enhancements to the family plan, Duolingo has raised its 2024 bookings growth guidance to $824 million at the midpoint, up from the previous estimate of $813 million. Furthermore, the company has adjusted its EBITDA margin guidance to 24.5% at the midpoint compared to the earlier forecast of 23.5%.
Effective Capital Utilization and Strong Liquidity
A key measure of a company's profitability is its return on equity (ROE), which indicates how efficiently it uses shareholders' investments to generate earnings. At the end of the second quarter of 2024, DUOL's ROE stood at 9.6%, outperforming the industry average of 6.1%.
Image Source: Zacks Investment Research
This suggests that Duolingo has been effective in investing in profitable areas, a point further supported by its return on invested capital, which is 9.1%, well above the industry average of 4.1%.
Image Source: Zacks Investment Research
Duolingo's liquidity position is also robust, with a current ratio of 3.28 at the end of the second quarter of 2024, compared to the industry’s 0.95. A current ratio above 1 indicates that Duolingo is well-positioned to meet its short-term obligations, providing a buffer against potential financial challenges.
Promising Growth Prospects
Looking ahead, the Zacks Consensus Estimate for Duolingo's 2024 earnings is pegged at $1.87, representing an impressive 434.3% growth from the year-ago level. Earnings in 2025 are projected to increase by 50.3% year over year. The company's sales are expected to grow 38.6% in 2024 and 28.5% in 2025, indicating strong top and bottom-line growth prospects.
This positive outlook is reinforced by upward estimate revisions. In the past 30 days, six estimates for 2024 earnings have been revised upwards, with no downward revisions, reflecting strong analyst confidence in the company. The Zacks Consensus Estimate for 2024 earnings has increased by 7.5% during this period.
Duolingo is a Must-Buy
Duolingo's ongoing success is underpinned by its commitment to product excellence, effective monetization strategies, and a growing user and subscriber base. Coupled with its strong financial health and solid liquidity position, the company is well-positioned for sustained growth.
Given the company’s solid financial foundation and positive future outlook, investors might find this an opportune moment to add DUOL to their portfolios.
Image: Bigstock
Duolingo (DUOL) Rises 15% in a Month: Is it Time to Invest?
Duolingo, Inc. (DUOL - Free Report) has recently experienced a notable uptick in its stock price. Over the past month, Duolingo's stock has surged 14.5%, a significant gain when contrasted with the broader industry, which has seen a decline of 3.7% over the same period.
While the one-month performance paints a positive picture, it's crucial to look at the year-to-date metrics for a fuller understanding. DUOL's stock has dropped 10.5% so far this year, suggesting that the recent upward movement is part of a broader recovery phase. Close competitors like Coursera (COUR - Free Report) and Chegg (CHGG - Free Report) have seen declines of 57.4% and 82%, respectively, year to date.
Year-To-Date Price Performance
In the last trading session, Duolingo's stock closed at $203.16, which is 19% below its 52-week high of $251.3. The stock is trading above its 50-day moving average, an indication of bullish sentiment among investors.
With Duolingo's recent momentum, many investors might be contemplating whether now is the opportune moment to buy the stock. Let’s delve deeper to assess this potential.
Driving Growth Through Product Excellence
Duolingo's impressive performance can be largely attributed to its commitment to product excellence and innovation in language education. 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 strategic focus is on teaching more effectively, expanding its user base, and converting those users into paying subscribers. In 2024, Duolingo placed a significant emphasis on refining its subscription offerings, such as the family plan and Duolingo Max. This dedication to product quality has fueled organic growth through word-of-mouth recommendations, generating valuable data that allows for continuous product improvement, further boosting user engagement and subscriber conversion rates.
This strategy is reflected in Duolingo's financial performance. In the second quarter of 2024, the company reported a 41% year-over-year increase in revenues and a 38% rise in bookings. This growth is driven by a 59% increase in daily active users and a 40% increase in monthly active users, along with a 52% surge in the number of subscribers. Additionally, the company posted a net income of $24.4 million for the quarter, a significant jump from $3.7 million in the same period last year. The adjusted EBITDA margin also saw a notable improvement of 1,050 basis points.
Buoyed by strong confidence in its higher-priced subscription tiers and enhancements to the family plan, Duolingo has raised its 2024 bookings growth guidance to $824 million at the midpoint, up from the previous estimate of $813 million. Furthermore, the company has adjusted its EBITDA margin guidance to 24.5% at the midpoint compared to the earlier forecast of 23.5%.
Effective Capital Utilization and Strong Liquidity
A key measure of a company's profitability is its return on equity (ROE), which indicates how efficiently it uses shareholders' investments to generate earnings. At the end of the second quarter of 2024, DUOL's ROE stood at 9.6%, outperforming the industry average of 6.1%.
This suggests that Duolingo has been effective in investing in profitable areas, a point further supported by its return on invested capital, which is 9.1%, well above the industry average of 4.1%.
Duolingo's liquidity position is also robust, with a current ratio of 3.28 at the end of the second quarter of 2024, compared to the industry’s 0.95. A current ratio above 1 indicates that Duolingo is well-positioned to meet its short-term obligations, providing a buffer against potential financial challenges.
Promising Growth Prospects
Looking ahead, the Zacks Consensus Estimate for Duolingo's 2024 earnings is pegged at $1.87, representing an impressive 434.3% growth from the year-ago level. Earnings in 2025 are projected to increase by 50.3% year over year. The company's sales are expected to grow 38.6% in 2024 and 28.5% in 2025, indicating strong top and bottom-line growth prospects.
This positive outlook is reinforced by upward estimate revisions. In the past 30 days, six estimates for 2024 earnings have been revised upwards, with no downward revisions, reflecting strong analyst confidence in the company. The Zacks Consensus Estimate for 2024 earnings has increased by 7.5% during this period.
Duolingo is a Must-Buy
Duolingo's ongoing success is underpinned by its commitment to product excellence, effective monetization strategies, and a growing user and subscriber base. Coupled with its strong financial health and solid liquidity position, the company is well-positioned for sustained growth.
Given the company’s solid financial foundation and positive future outlook, investors might find this an opportune moment to add DUOL to their portfolios.
DUOL currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.