Duolingo (NASDAQ:DUOL) stock has experienced significant growth, more than doubling in the past year and outperforming the Nasdaq-100 Index. As of now, Duolingo is valued at a market cap of just over $8 billion. The language-learning platform went public in July 2021 and has returned 36% to shareholders since then. With its impressive performance, investors may be wondering if it’s still a good time to buy DUOL stock at its current valuation.
Q3 2023 Performance
In the third quarter of 2023, Duolingo reported strong growth metrics. Daily active users (DAUs) increased by 63% year-over-year to 24.2 million, while monthly active users grew by 47% to 83.1 million. Paid subscribers reached 5.8 million, a 60% YoY increase. The company reported a net income of $2.8 million, a significant improvement from a net loss of $18.4 million in the same period last year. Adjusted EBITDA rose 10x to $22.5 million, with a healthy margin of 16.3%. Duolingo also raised its full-year guidance, expecting total bookings to grow 40% YoY.
Diversification Efforts
While Duolingo is known for language learning, it has successfully increased user growth through gamification. The platform operates on a freemium model, offering free access or subscription for advanced features. Subscription revenue accounted for 77% of total revenue in Q3. Duolingo’s expansion into new subjects, such as the recently launched Music course, aims to unlock additional revenue streams.
Financial Outlook
Analysts project Duolingo’s sales to increase from $369 million in 2022 to $700 million in 2024. Adjusted earnings are forecasted at $0.81 per share in fiscal 2024, compared to a loss of $1.51 per share in 2022. Despite being priced at 11.5 times forward sales and 253.3 times forward earnings, Duolingo’s potential 2024 free cash flow margin of 30% could result in a more reasonable valuation of 26 times FCF.
Analyst Recommendations
Out of 11 analysts covering DUOL, three recommend “strong buy,” one recommends “moderate buy,” and seven recommend “hold.” The average 12-month price target has already been reached, but the Street-high target price of $230, recently raised by Bank of America, indicates a potential upside of nearly 19%.
Conclusion
While Duolingo’s valuation may seem high, its strong user growth, diversification efforts, and positive financial outlook make it an attractive investment for those looking for exposure to the ed-tech sector. Investors should carefully consider the company’s potential for continued expansion and innovation.
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