Core Insights - Duolingo, Inc. will announce its fourth quarter and full year results for 2024 on February 27, 2025, after the U.S. market closes [1] - A live video webcast will be held at 5:30 p.m. ET on the same day, accessible through Duolingo's Investor Relations website [2] - Duolingo is recognized as the leading mobile learning platform globally, with its app being the most popular for language learning and the top-grossing app in the Education category on major app stores [3] Company Overview - Duolingo's mission is to provide the best education in the world and make it universally available, focusing on a fun, engaging, and effective learning experience [3] - The company has consistently invested in technology to enhance its learning platform [3]

Investment Rating - The report maintains a "Buy" rating for Duolingo (DUOL US) with a target price of USD 400, implying a potential upside of 17% from the current price of USD 341 8 [2][8] Core View - Duolingo is benefiting from a surge in Chinese language learning in the US, driven by the "TikTok Refugee" phenomenon, with Mandarin learners increasing by 216% YoY from December 1, 2024, to January 13, 2025 [1] - The company's innovative gamified language learning model has significantly lowered user barriers, covering over 40 languages and targeting a global market of over 2 billion foreign language learners with a current penetration rate of less than 6% [8] - Duolingo is expected to achieve 1 76 billion MAUs by 2026, with a CAGR of 30%, and paid subscribers are projected to reach 15 6 million by 2026, growing at a CAGR of 33% [8] Financial Performance and Forecasts - Revenue is forecasted to grow from USD 369 million in FY22 to USD 1,218 million in FY26E, with a CAGR of 34 7% [2][9] - Operating profit is expected to turn positive in FY24E at USD 66 million, increasing to USD 196 million by FY26E [2][9] - Net income is projected to rise from USD 16 million in FY22 to USD 390 million in FY26E, with a significant improvement in profitability [2][9] - Adjusted EBITDA is forecasted to grow from USD 16 million in FY22 to USD 390 million in FY26E, with an EBITDA margin of 24 4% in 4Q24 [8][9] User Metrics and Growth - MAUs are expected to reach 115 million in 4Q24, a 30% YoY increase, with DAUs nearing 40 million [8] - Paid subscription users stood at 8 6 million in 3Q24, with a paid rate of 7 6%, and are expected to grow to 15 6 million by 2026 [8] Valuation Metrics - The target EV/EBITDA multiples are 88 3x for FY24E, 60 0x for FY25E, and 42 9x for FY26E [2][9] - The target P/E multiples are 68x for FY25E and 52x for FY26E [8] Market Context - Duolingo's stock price has shown strong performance, with a 52-week range of USD 145 05 to USD 378 48, and a current market cap of USD 15,034 million [2] - The company's stock has outperformed the S&P 500 index significantly over the past year [6]

Group 1 - Duolingo shares increased nearly 7% due to a significant rise in users learning Mandarin, with a 216% increase in Mandarin learners compared to the previous year, while Spanish learners grew by 40% in the same period [1][4] - RedNote, a Chinese social media app, has become the No. 1 free app on the Apple App Store, contributing to the surge in Duolingo's Mandarin learners [2] - The U.S. user exodus from TikTok has benefited RedNote, which saw a 20-fold increase in U.S. app downloads over the last week [4] Group 2 - Duolingo offers courses in 42 languages, with 48.8 million Spanish learners, 27.3 million French learners, and 10.7 million Chinese learners [4] - Duolingo's shares rose by 43% last year, outperforming the Nasdaq's 29% gain [5]

Core Insights - Duolingo has expanded its Video Call feature to Android devices and added five new languages, enhancing its AI conversation partner for language learning [1][3] - The AI tool allows Duolingo Max subscribers to engage in realistic conversations, providing a personalized experience tailored to individual skill levels [2][3] - The Video Call feature is now available for learners of English, Spanish, French, German, Italian, Portuguese, Japanese, and Korean, with ongoing enhancements planned [3][4] Company Overview - Duolingo is recognized as the leading mobile learning platform globally, with its app being the most popular and top-grossing in the Education category on major app stores [5] - The company focuses on leveraging technology to create engaging and effective learning experiences while aiming to make quality education universally accessible [5] Feature Enhancements - Recent enhancements to the Video Call feature include expressive animations for the character Lily, conversation transcripts for review, and occasional calls from Lily to encourage regular practice [6]

Company Performance - Duolingo, Inc. (DUOL) closed at $316.38, reflecting a -0.72% change from the previous trading day's closing, underperforming compared to the S&P 500's daily gain of 0.16% [1] - The company's shares have decreased by 5.74% over the last month, which is worse than the Business Services sector's loss of 5.61% and the S&P 500's loss of 2.2% [1] Upcoming Earnings - Duolingo, Inc. is expected to report an EPS of $0.49, representing an increase of 88.46% from the prior-year quarter [2] - The consensus estimate for revenue is $204.66 million, which is up 35.54% from the prior-year quarter [2] Analyst Estimates - Recent adjustments to analyst estimates for Duolingo, Inc. indicate changing near-term business trends, with positive revisions suggesting a favorable outlook on the company's health and profitability [3] Zacks Rank and Valuation - The Zacks Rank system currently rates Duolingo, Inc. as 2 (Buy), with an average annual return of +25% for 1 stocks since 1988 [5] - The Forward P/E ratio for Duolingo, Inc. is 104.54, significantly higher than the industry average of 23.65, indicating that the company is trading at a premium [6] Industry Context - The Technology Services industry, part of the Business Services sector, has a Zacks Industry Rank of 75, placing it in the top 30% of over 250 industries [6] - The Zacks Industry Rank measures the strength of industry groups, with the top 50% rated industries outperforming the bottom half by a factor of 2 to 1 [7]

Group 1 - Duolingo, Inc. (DUOL) is part of the Business Services group, which consists of 305 companies and ranks 4 in the Zacks Sector Rank [2] - The Zacks Rank system focuses on earnings estimates and revisions, with DUOL currently holding a Zacks Rank of 2 (Buy) and a 8.2% increase in full-year earnings estimates over the past 90 days [3] - DUOL has achieved a year-to-date return of approximately 46.9%, significantly outperforming the average 22% gain of Business Services stocks [4] Group 2 - Duolingo, Inc. is categorized under the Technology Services industry, which includes 162 companies and currently ranks 55 in the Zacks Industry Rank [6] - Stocks in the Technology Services industry have gained about 55.3% year-to-date, indicating that DUOL is slightly underperforming its industry peers [6] - AppLovin (APP), another stock in the Business Services sector, has shown exceptional performance with a year-to-date return of 741.1% and a Zacks Rank of 1 (Strong Buy) [4][5]

Core Insights - Duolingo has successfully maintained user motivation through innovative features and engagement strategies, contributing to its growth in the language-learning market [1][4][10] User Trends - Over the past three years, Duolingo has seen significant growth in user metrics, with monthly active users increasing from 41.7 million in Q3 2021 to 113.1 million in Q3 2024, a 171% increase [11] - Daily active users rose from 9.8 million to 37.2 million, marking a 280% growth [11] - Paid subscribers surged from 2.2 million to 8.6 million, reflecting a 291% increase [11] Revenue Generation - In Q3 2024, 82% of Duolingo's revenue was derived from subscription sales, highlighting the importance of paid subscribers for the company's financial health [7] - The introduction of a higher-priced subscription tier, Duolingo Max, which includes generative AI features, is expected to further boost revenue as its adoption grows [12][13] AI Integration - AI is seen as a potential tailwind for Duolingo, with features like a video-call option enhancing user experience and engagement [4][14] - The company is optimistic about the impact of AI on its business, anticipating significant gains in 2025 as AI tools become more integrated into its offerings [15] Future Outlook - Duolingo's growth trajectory appears strong, particularly with the potential for increased subscriptions from the Max tier as it becomes more widely available [9][13] - The company is well-positioned for continued success in the language-learning sector, leveraging both user engagement strategies and technological advancements [14][15]

Investment Rating - The report initiates coverage on Duolingo (DUOL.US) with a "Buy" rating and a target price of $400, indicating a potential upside of 16% from the current price of $344.35 [1][3][4]. Core Insights - Duolingo is one of the largest language learning platforms globally, with a monthly active user (MAU) count of 113 million as of Q3 2024, representing a year-over-year growth of 36%. The company integrates game elements into its free content and monetizes through subscriptions, advertising, and the Duolingo English Test (DET) [1][2][27]. - The report highlights the significant market potential, with only 6% of the global language learning market penetrated, suggesting a substantial growth opportunity as the company aims to reach an MAU of 176 million by 2026, with a compound annual growth rate (CAGR) of 30% [1][40]. - Subscription services, particularly the Super Duolingo and Duolingo Max, are crucial for revenue, contributing approximately 80% of total income. The number of paid subscribers reached 8.6 million in Q3 2024, a 48% increase year-over-year, with expectations to exceed 15.6 million by 2026 [2][45][48]. Summary by Sections User Engagement and Growth - Duolingo's gamified approach significantly enhances user engagement, with features like leaderboards and reward systems that lower barriers to entry for new users. The platform's MAU has grown rapidly, with daily active users (DAU) reaching 37.2 million, a 54% increase year-over-year [1][35][40]. Commercialization Strategies - The company’s primary revenue source is paid subscriptions, which account for about 80% of total revenue. The introduction of family plans and the Duolingo Max service, which leverages AI capabilities, is expected to further drive growth in paid users [2][45][48]. Market Position and Competitive Landscape - Duolingo holds a leading position in the online language learning market, with a 60% share of total usage in 2023. The global online language learning app market is projected to grow significantly, with Duolingo's innovative marketing strategies aimed at attracting younger users [40][43][51]. Financial Projections - The report forecasts substantial revenue growth, with expected revenues of $742 million in FY24, increasing to $1.218 billion by FY26. The EBITDA is projected to grow at a CAGR of approximately 60% from FY23 to FY26 [3][67].

Market Overview - The stock market has seen significant growth this year, with the S&P 500 up by 27%, nearly tripling its average annual gain since 1957 [1] Technology Sector Performance - The technology sector is leading market gains, particularly companies involved in the AI revolution, with Duolingo and Lemonade seeing substantial stock price increases of 50% and 150% respectively in 2024 [2] Duolingo Analysis - Duolingo is the largest digital language education platform, boasting 113.1 million monthly active users, a 36% increase year-over-year [3] - The company has accelerated its paying user growth by 47%, reaching 8.6 million, aided by the introduction of a new subscription tier called Max, which includes advanced AI features [4][6] - Duolingo's revenue for the third quarter was $192.6 million, a 40% increase from the previous year, leading to a raised revenue guidance for 2024 to up to $744 million [7] - The current price-to-sales (P/S) ratio for Duolingo is 23.5, significantly above its historical average of 15.1, but projected revenue growth could make the stock appear less expensive in the future [8] - If Duolingo maintains its P/S ratio and meets Wall Street's 2025 revenue forecast of $962 million, the stock could potentially rise by 52% [9] Lemonade Analysis - Lemonade operates in multiple insurance markets and serves 2.3 million customers, particularly attracting younger, underinsured demographics [10] - The company utilizes AI for customer interactions and claims processing, significantly reducing response times and improving customer experience [11][12] - Lemonade's in-force premium reached a record $889 million, a 24% increase year-over-year, while also reducing its employee headcount by 7% [14] - The gross loss ratio fell to 73%, the lowest in four years, indicating effective risk management and operational efficiency [15] - Lemonade's stock is currently trading at a P/S ratio of 6.1, well below its historical average of 19.3, suggesting it may be undervalued despite a 150% gain in 2024 [16][17]

Group 1 - Duolingo is perceived as an AI company and is expected to benefit from the ongoing AI revolution, indicating significant growth potential for this small company [1] Group 2 - The investment strategy focuses on high-growth opportunities across various industries, utilizing a value investing approach that emphasizes strong business models and strategic foresight [2] - The discounted cash flow (DCF) valuation methodology is primarily employed, while also being adaptable to other valuation techniques for comprehensive analysis [2] - Business model frameworks from reputable institutions are leveraged to gain insights into a company's intrinsic value and strategic positioning within its industry [2]