12 Best Aggressive Growth Stocks To Buy According to Hedge Funds

9. Duolingo, Inc. (NASDAQ:DUOL)

Revenue Growth: 39.9%

Number of Hedge Fund Investors In Q3 2024: 31

Duolingo, Inc. (NASDAQ:DUOL) is one of the few software-based language learning-focused firms in the world. As it is one of the earliest movers in the industry, the firm has managed to create a sizable moat for itself fueled particularly through its profitability during the coronavirus pandemic. Duolingo, Inc. (NASDAQ:DUOL) has also managed to capitalize on the surge in generative artificial intelligence technologies by introducing new features such as Video Calls and Duocons to try to use AI to replace traditional language teachers. Its focus on technology sets the firm up well to capitalize on young users who are more tech-savvy. At the same time, like any other social media or associated firm, Duolingo, Inc. (NASDAQ:DUOL)’s hypothesis depends on its monthly active users, their growth, and retention. The firm boasts of having 100 million monthly active users and 8 million subscribers, which hints at the potential that lies ahead of it in terms of market penetration.

Baron Funds mentioned Duolingo, Inc. (NASDAQ:DUOL) in its Q3 2024 investor letter. Here is what the fund said:

“Duolingo, Inc. (NASDAQ:DUOL) is the world’s leading language learning app with over 100 million monthly active users, known for its effective gamification and high engagement. After monitoring the company over the past year and a half, we developed conviction to buy the stock for a few reasons. The company has maintained premium levels of user growth (daily average user growth of over 50%) and revenue growth (40%-plus), executed well against their product roadmap, gained early traction with new functionality, and maintained impressive 40%-plus incremental margins. We view the founder-led management team as best in class, technically capable (CEO and CTO both earned PhDs in machine learning from Carnegie Mellon University), and product focused. We initiated a position in the quarter as the share price fell to what we deemed attractive levels from a long-term valuation perspective, coupled with material catalysts on the horizon, particularly the broader launch of AI functionality (branded “Max”) that enables users to have real-time conversations with AI based characters and a substantial improvement of the company’s Advanced English offering. We believe that these two initiatives take Duolingo from more of a hobby app to a company that can address the broader market of 1.8 billion people learning English today. As these products roll-out in the coming quarters, we believe their adoption should drive the realization of higher pricing, faster revenue growth, lower churn, and continued margin improvement. We also believe there is additional optionality in newer products such as math and music, which are earlier in their product evolution.”