We recently published a list of Top 10 Stocks to Buy According to Durable Capital Partners. In this article, we are going to take a look at where Duolingo, Inc. (NASDAQ:DUOL) stands against other top stocks to buy according to Durable Capital Partners.
Durable Capital Partners is a Maryland-based hedge fund management firm founded in the second quarter of 2019 by Henry Ellenbogen. The firm primarily follows a long-term equity investment strategy, with a focus on early-stage and durable growth in small- and mid-cap equities across public markets. Ellenbogen, who serves as the Managing Partner and Chief Investment Officer, leads the firm’s investment approach.
Ellenbogen established Durable Capital Partners in 2019 and currently holds the roles of Managing Partner and Chief Investment Officer. Before founding Durable, he spent nearly two decades at T. Rowe Price Associates, Inc., where he served as Vice President and Chief Investment Officer for U.S. Equity Growth. During his tenure, he led the U.S. Small-Cap Growth Equity Strategy and managed the New Horizons Fund. Additionally, he was an active member of the U.S. Equity Steering Committee and the Corporate Governance Committee for U.S. Equity.
Between 2001 and 2019, Ellenbogen spearheaded private market investments in several high-profile companies. His leadership at the New Horizons Fund contributed to its recognition with multiple industry awards. Notably, the fund received Investor’s Business Daily’s Best Mutual Funds Award in 2018 across categories such as U.S. Diversified Equity Funds, Growth Funds, and Small-Cap Funds. Additionally, it earned the Thomson Reuters Lipper Fund Award for Best Small-Cap Growth Fund over a ten-year period (2017), a five-year period (2016), and both five- and ten-year periods (2013). Prior to his investment career, Ellenbogen served as Chief of Staff for U.S. Representative Peter Deutsch and gained experience as a Summer Associate at Goldman Sachs.
Academically, he graduated magna cum laude from Harvard College with a degree in History and Science. He later earned a J.D. from Harvard Law School and an MBA from Harvard Business School, where he was recognized as a Baker Scholar. Additionally, he has taught as an adjunct professor at New York University’s Graduate School of Politics. Ellenbogen is a member of the Barron’s Roundtable and contributes to the Investment Committee of the Smithsonian Institution. He also serves as Chairman of the Board for The Posse Foundation.
According to its most recent 13F filing for the fourth quarter of 2024, Durable Capital Partners reported $12.26 billion in managed 13F securities, with its top 10 holdings accounting for 47.59% of its portfolio.
Our Methodology
The stocks discussed below were picked from Durable Capital Partners’s Q4 2024 13F filings. They are compiled in the ascending order of the hedge fund’s stake in them as of December 31, 2024. To assist readers with more context, we have included the hedge fund sentiment regarding each stock using data from over 1,000 hedge funds tracked by Insider Monkey in the fourth quarter of 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A close up macro image of someone using a mobile device to learn a new language.
Duolingo, Inc. (NASDAQ:DUOL)
Number of Hedge Fund Holders as of Q4: 52
Durable Capital Partners’ Equity Stake: $751.98 Million
Duolingo, Inc. (NASDAQ:DUOL) is a US-based educational technology company specializing in learning applications and language certification. The platform offers courses in 43 languages, including widely spoken ones like English, French, and Spanish, as well as less common languages such as Welsh and Irish. In addition to language learning, Duolingo has expanded its offerings to include courses in music and math.
In the fourth quarter, Duolingo, Inc. (NASDAQ:DUOL) experienced a sharp decline in stock value after reporting earnings that fell short of market expectations. The company posted earnings of $0.28 per share on revenue of $209.6 million, missing analysts’ estimates of $0.48 per share, despite surpassing the revenue forecast of $205.5 million. Comparatively, in the same period the previous year, Duolingo earned $0.26 per share on revenue of $151 million.
Despite the earnings miss, the company outperformed projections in subscriber and user growth. By the end of 2024, Duolingo, Inc. (NASDAQ:DUOL) had 9.5 million paying subscribers, reflecting a 43% year-over-year increase. It also reported a rise in engagement, with 40.5 million daily active users and 116.7 million monthly active users, marking increases of 51% and 32%, respectively.
Looking ahead, Duolingo, Inc. (NASDAQ:DUOL) anticipates strong revenue growth. The company projects first-quarter revenue of approximately $222 million, representing a 32.5% increase compared to the same period last year. For the full year, sales are expected to grow by 30%, reaching an estimated $970.5 million.
Meanwhile, Jefferies analyst John Colantuoni adjusted his price target for Duolingo’s stock from $370 to $360 while maintaining a Hold rating. He noted that while the company demonstrated impressive revenue growth, a weaker-than-expected margin outlook—attributed to investments in artificial intelligence and marketing during the first half of the year—raised concerns. Additionally, early signs indicate that Duolingo’s new Video Call feature is driving increased adoption of its premium Max subscription, but uncertainty remains regarding short-term margin performance.
Baron Opportunity Fund stated the following regarding Duolingo, Inc. (NASDAQ:DUOL) in its Q3 2024 investor letter:
“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.”
Overall, DUOL ranks 2nd on our list of top stocks to buy according to Durable Capital Partners. While we acknowledge the potential for DUOL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than DUOL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.