2. 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.”
