Latest news with #DuolingoMax
Yahoo
6 days ago
- Business
- Yahoo
Duolingo Set For Q2 Bookings Beat, Guidance Likely Conservative
Duolingo shares have tumbled 24% in the past month amid concerns over slowing growth and rising churn, despite strong global brand momentum. The company will announce its results for the second quarter ending June 30, following the close of the U.S. market on Wednesday, August 6. Against this backdrop of heightened investor caution and mixed sentiment around engagement trends, JP Morgan analyst Bryan M. Smilek reiterated the Overweight rating on Duolingo, Inc. (NASDAQ:DUOL), lowering the price forecast from $580 to $ analyst cautions that some investors suspect that negative chatter on social media about Duolingo's AI-first strategy could be dampening engagement. While that may have briefly impacted virality in the U.S., Smilek emphasizes that Duolingo's brand remains strong, with about 90% of user growth historically being organic. Smilek notes that Duolingo shares have fallen 30% since their May 14 peak, underperforming the S&P 500's 6% gain. This drop is largely tied to concerns stemming from third-party data pointing to a sharper-than-expected slowdown in user and subscription bookings growth, along with rising churn in Duolingo Max. U.S.-based concerns likely have limited global impact, and the company's social media metrics are steady, with TikTok followers even beginning to rise again. Given these trends, investors are likely hoping for second quarter DAU growth between 40% to 42%, near the low end of management's 40 to 45% guidance, and third quarter growth of 37% to 39%, indicating stabilization. Smilek has trimmed DAU forecasts by roughly 1-4% across the second quarter to fourth quarter, now projecting 42% growth in the second quarter, 39% in the third quarter, and 40% in the fourth quarter. Still, the analyst's bullish view remains intact, citing Duolingo's leadership in a largely untapped global market, its 130 million monthly active users represent just 18% of the online language learning market and only 7% of all language learners. Over the medium term, Smilek expects growth to be driven by new products, increased gross additions, returning users, marketing, and better content and outcomes. Smilek projects Duolingo's adjusted EBITDA margins to improve significantly in the second half of the year, driven by AI-related cost savings. For 2025, he models year-over-year operating leverage across all non-GAAP expense categories. The analyst projects bookings growth of 31% year-over-year on a constant currency basis (versus the company's 29.8%–30.9% guidance), with adjusted EBITDA margins reaching 28.3%, up 266 basis points year-over-year and near the top end of the 27.5%–28.5% guidance range. The forecast reflects a combination of factors, including monetization from Duolingo Max, higher pricing and conversions for Super, increasing Family Plan adoption (currently under 25% of subs), and favorable currency effects. Based on these trends, Smilek anticipates Duolingo's second-quarter results will land at the high end of the company's guidance. He also expects Duolingo to raise its full-year outlook for both bookings and adjusted EBITDA, noting that the guidance could prove conservative. Price Action: DUOL shares are trading lower by 0.41% to $359.87 at last check Thursday. Read Next:Photo by DANIEL CONSTANTE via Shutterstock Latest Ratings for DUOL Date Firm Action From To Mar 2022 Evercore ISI Group Maintains Outperform Mar 2022 Piper Sandler Maintains Overweight Jan 2022 Piper Sandler Maintains Overweight View More Analyst Ratings for DUOL View the Latest Analyst Ratings UNLOCKED: 5 NEW TRADES EVERY WEEK. Click now to get top trade ideas daily, plus unlimited access to cutting-edge tools and strategies to gain an edge in the markets. Get the latest stock analysis from Benzinga? This article Duolingo Set For Q2 Bookings Beat, Guidance Likely Conservative originally appeared on © 2025 Benzinga does not provide investment advice. All rights reserved. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
11-06-2025
- Business
- Yahoo
3 Under-the-Radar AI Stocks That Could Help Make You a Fortune
Duolingo's AI-powered language learning app is firing on all cylinders. Confluent will stream and process more data as the AI market expands. MongoDB's non-relational database services are processing more data for AI apps. 10 stocks we like better than Duolingo › Many artificial intelligence (AI) stocks skyrocketed in value in recent years as more companies realized they could accelerate and automate their operations with large language models (LLMs) and generative AI applications. The obvious winners include Nvidia, which produces the data center GPUs for processing those AI tasks, and Microsoft, which acquired a big stake in ChatGPT's creator OpenAI and integrated its AI tools into its own cloud services. While Nvidia and Microsoft are still great long-term AI plays, investors shouldn't overlook the other under-the-radar AI plays that could generate big gains over the next few years. Three of those underappreciated AI-oriented stocks are Duolingo (NASDAQ: DUOL), Confluent (NASDAQ: CFLT), and MongoDB (NASDAQ: MDB). Let's look at how these three lesser-known AI stocks could make you a fortune. Duolingo, which owns the world's most downloaded language learning app, might not seem like an AI company. But it's been using generative AI to produce its online courses at a faster rate, replacing a lot of its human contractors with AI-powered services, and expanding its premium Duolingo Max tier with AI-driven conversations. It also uses its own "Birdbrain" LLM to customize its lessons for its users based on their proficiency, pace, and learning styles. Duolingo served 130.2 million monthly active users (MAUs), 46.6 million daily active users (DAUs), and 10.3 million paid subscribers in the first quarter of 2025. That's up from just 40.5 million MAUs, 9.6 million DAUs, and 2.5 million paid subscribers at the end of 2021. From 2024 to 2027, analysts expect Duolingo's revenue and EPS to grow at a CAGR of 29% and 51%, respectively. That growth should be driven by the expansion of Duolingo Max's AI-driven services, more non-language subjects like math and music, new pricing tiers, and stickier gamification features (like leagues and streaks). Duolingo's stock isn't cheap at 115 times next year's earnings, but its rapid growth, its dominance of the language learning market, and its expanding AI ecosystem all justify that higher valuation. Confluent's cloud-based platform processes "data in motion" as it flows between different applications within an organization. Its namesake platform runs on Apache Kafka, an open-source platform for processing streaming data, but it integrates additional analytics services to differentiate itself from other "Kafka-as-a-service" providers. Confluent doesn't build its own large language models or generative AI platforms, but it accelerates the delivery of data for those services. That's why it set an ambitious goal for becoming the "central nervous system for modern digital enterprises" in its IPO filing four years ago. Its total number of customers grew from 3,470 in 2021 to 6,140 in the first quarter of 2025, and the market's demand for its streaming data services should continue rising as the AI market grows. From 2024 to 2027, analysts expect Confluent's revenue to rise at a CAGR of 19% as it narrows its net losses. Its near-term catalysts include its deeper partnerships with Microsoft's Azure, Alphabet's Google Cloud, OpenAI, Databricks, and other cloud and AI leaders, its growth among larger enterprise customers, and the expansion of its ecosystem. Confluent's stock still seems reasonably valued at 6 times next year's sales, and it should still have plenty of room to grow as the rapid expansion of the AI market drives companies to stream more data across its digital pipelines. MongoDB is another company that helps companies organize large amounts of data for AI applications. Its namesake platform allows companies to store large amounts of unstructured data in a non-relational database. That approach differentiates it from older relational databases, which only store their data in rigidly structured tables and rows, and makes it easier for its clients to customize their data for specific tasks. MongoDB's subscription-based cloud-based service, Atlas, allows its clients to analyze all of that data. Its MongoDB Copilot -- a generative AI assistant that was launched last year -- streamlines, optimizes, and accelerates those queries. It also uses AI to detect suspicious and misconfigured patterns within its database. It served 57,100 customers in the first quarter of fiscal 2026 (which ended this April), up from its 33,000 customers at the end of fiscal 2022. From fiscal 2025 to fiscal 2028, analysts expect its revenue to grow at a CAGR of 16%. It's not profitable yet and might not seem cheap at 7 times next year's sales, but its expansion of Atlas, its recent acquisition of Voyage AI (which adds embedding and reranking models to its apps), and new AI partnerships should fuel its long-term growth. Before you buy stock in Duolingo, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Duolingo wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $660,341!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $874,192!* Now, it's worth noting Stock Advisor's total average return is 999% — a market-crushing outperformance compared to 173% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of June 9, 2025 Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Microsoft, MongoDB, and Nvidia. The Motley Fool recommends Confluent and Duolingo and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy. 3 Under-the-Radar AI Stocks That Could Help Make You a Fortune was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
02-06-2025
- Business
- Yahoo
Is AI Duolingo's Biggest Risk or Biggest Catalyst?
Duolingo is rapidly growing its top and bottom lines, leading to market-beating stock gains. The business is booming thanks to AI but investors need to also consider how AI might be changing the space. 10 stocks we like better than Duolingo › Gamified mobile learning company Duolingo (NASDAQ: DUOL) has been a market-crushing investment. The stock closed its first day of trading in 2021 at $139 per share. As of this writing, just four years later, it's trading at over $520 per share, up 276% and trading near an all-time high. For perspective, the S&P 500 is up just 34% during this time. Duolingo is outrunning the market for at least two simple reasons. First, it's growing like a weed. Second, it's actually quite a profitable business. The end result is that skyrocketing profits are lifting the stock to higher and higher levels. The chart below shows that Duolingo's revenue is up more than its stock price. And its trailing-12-month free cash flow of $289 million is astronomically higher than when it went public. Duolingo's latest quarter was particularly impressive. In the first quarter of 2025, the company's daily active user base took a huge 49% year-over-year jump to 46.6 million. That's impressive enough. But paid subscriptions also had a huge 40% jump to over 10 million. What's driving this impressive growth for Duolingo? It's undeniable that generative artificial intelligence (AI) is a contributing factor. The company is using generative AI to create new features and products. And those efforts appear to be hugely successful. So is generative AI Duolingo's biggest catalyst for growth? Or could it actually be one of its biggest risks? These are questions investors should certainly explore. In its first-quarter letter to shareholders, Duolingo's management enthusiastically shared that it had launched "Nearly 150 new language courses for different geographies in Q1 using AI-generated content." Moreover, its bookings were higher than expected thanks to growth in its most expensive subscription tier, which is Duolingo Max -- the tier that offers special AI features. Given its catalyzed growth rate, it would appear that generative AI is a net positive for Duolingo. But I believe there are some risks to the strategy that are worth considering. For starters, Duolingo's AI content and features are built with large language models (LLMs) but these aren't proprietary to Duolingo. It's using widely available LLMs, including OpenAI's popular GPT-4. Its own machine-learning software uses these models to create the content. So there is some distinct technology at work. But the underlying LLM is available to any company that wants to use it. Some have suggested that Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) is a rising challenge to Duolingo because of AI. The company's Google Meet now offers real-time AI translation, preserving a speaker's tone and voice. Why learn another language when AI translates for you? There's reason to downplay Alphabet's translation AI as a threat to Duolingo. For starters, Alphabet's AI Ultra subscription costs nearly $150 per month versus about $30 per month for Duolingo Max -- the cost difference is real. Moreover, some people enjoy Duolingo's gamified learning experience, which is something they'd forego with Google Meet's new features. That said, I do believe Alphabet's AI translation announcement shows how quickly the space can change. Can another company replicate what Duolingo has built since launching its app in 2012? The possibility is less far-fetched today than it used to be, in my opinion. Investors also shouldn't underestimate the potential impacts AI can have on the Duolingo experience. Launching 150 new products in a single quarter could be too fast to ensure quality. If AI cheapens the Duolingo experience in any way, the company may regret leaning in so strongly. Duolingo stock is too risky for me personally. What I've just described speaks to both the competitive risk and the execution risk. The competitive risk is elevated because generative AI could be quickly changing the language-learning space. And the execution risk is higher than normal because generative AI is new and Duolingo needs to learn and deploy it correctly. Yet there's another risk as well: Duolingo's valuation risk. As of this writing, the stock trades at nearly 30 times its trailing sales. Not only is this high generally speaking but it's also high when compared to the usual valuation for Duolingo stock, as the chart below shows. If Duolingo only had the competitive risk or the execution risk, I might be inclined to give it the benefit of the doubt and invest anyway. But the added valuation risk gives me pause. If it slips at all due to the fast changes brought on by generative AI, the stock has a lot of room to come down due to its pricey valuation. This doesn't mean that Duolingo stock will be a bad investment from here -- as mentioned, the business is absolutely booming right now. If this continues, there's reason to believe shareholders will make money. But when it comes to my own investment portfolio and risk tolerance, I'll stay on the sidelines with Duolingo stock for the reasons I've shared. Before you buy stock in Duolingo, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Duolingo wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $651,049!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $828,224!* Now, it's worth noting Stock Advisor's total average return is 979% — a market-crushing outperformance compared to 171% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of May 19, 2025 Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool recommends Duolingo. The Motley Fool has a disclosure policy. Is AI Duolingo's Biggest Risk or Biggest Catalyst? was originally published by The Motley Fool
Yahoo
02-06-2025
- Business
- Yahoo
Is AI Duolingo's Biggest Risk or Biggest Catalyst?
Duolingo is rapidly growing its top and bottom lines, leading to market-beating stock gains. The business is booming thanks to AI but investors need to also consider how AI might be changing the space. 10 stocks we like better than Duolingo › Gamified mobile learning company Duolingo (NASDAQ: DUOL) has been a market-crushing investment. The stock closed its first day of trading in 2021 at $139 per share. As of this writing, just four years later, it's trading at over $520 per share, up 276% and trading near an all-time high. For perspective, the S&P 500 is up just 34% during this time. Duolingo is outrunning the market for at least two simple reasons. First, it's growing like a weed. Second, it's actually quite a profitable business. The end result is that skyrocketing profits are lifting the stock to higher and higher levels. The chart below shows that Duolingo's revenue is up more than its stock price. And its trailing-12-month free cash flow of $289 million is astronomically higher than when it went public. Duolingo's latest quarter was particularly impressive. In the first quarter of 2025, the company's daily active user base took a huge 49% year-over-year jump to 46.6 million. That's impressive enough. But paid subscriptions also had a huge 40% jump to over 10 million. What's driving this impressive growth for Duolingo? It's undeniable that generative artificial intelligence (AI) is a contributing factor. The company is using generative AI to create new features and products. And those efforts appear to be hugely successful. So is generative AI Duolingo's biggest catalyst for growth? Or could it actually be one of its biggest risks? These are questions investors should certainly explore. In its first-quarter letter to shareholders, Duolingo's management enthusiastically shared that it had launched "Nearly 150 new language courses for different geographies in Q1 using AI-generated content." Moreover, its bookings were higher than expected thanks to growth in its most expensive subscription tier, which is Duolingo Max -- the tier that offers special AI features. Given its catalyzed growth rate, it would appear that generative AI is a net positive for Duolingo. But I believe there are some risks to the strategy that are worth considering. For starters, Duolingo's AI content and features are built with large language models (LLMs) but these aren't proprietary to Duolingo. It's using widely available LLMs, including OpenAI's popular GPT-4. Its own machine-learning software uses these models to create the content. So there is some distinct technology at work. But the underlying LLM is available to any company that wants to use it. Some have suggested that Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) is a rising challenge to Duolingo because of AI. The company's Google Meet now offers real-time AI translation, preserving a speaker's tone and voice. Why learn another language when AI translates for you? There's reason to downplay Alphabet's translation AI as a threat to Duolingo. For starters, Alphabet's AI Ultra subscription costs nearly $150 per month versus about $30 per month for Duolingo Max -- the cost difference is real. Moreover, some people enjoy Duolingo's gamified learning experience, which is something they'd forego with Google Meet's new features. That said, I do believe Alphabet's AI translation announcement shows how quickly the space can change. Can another company replicate what Duolingo has built since launching its app in 2012? The possibility is less far-fetched today than it used to be, in my opinion. Investors also shouldn't underestimate the potential impacts AI can have on the Duolingo experience. Launching 150 new products in a single quarter could be too fast to ensure quality. If AI cheapens the Duolingo experience in any way, the company may regret leaning in so strongly. Duolingo stock is too risky for me personally. What I've just described speaks to both the competitive risk and the execution risk. The competitive risk is elevated because generative AI could be quickly changing the language-learning space. And the execution risk is higher than normal because generative AI is new and Duolingo needs to learn and deploy it correctly. Yet there's another risk as well: Duolingo's valuation risk. As of this writing, the stock trades at nearly 30 times its trailing sales. Not only is this high generally speaking but it's also high when compared to the usual valuation for Duolingo stock, as the chart below shows. If Duolingo only had the competitive risk or the execution risk, I might be inclined to give it the benefit of the doubt and invest anyway. But the added valuation risk gives me pause. If it slips at all due to the fast changes brought on by generative AI, the stock has a lot of room to come down due to its pricey valuation. This doesn't mean that Duolingo stock will be a bad investment from here -- as mentioned, the business is absolutely booming right now. If this continues, there's reason to believe shareholders will make money. But when it comes to my own investment portfolio and risk tolerance, I'll stay on the sidelines with Duolingo stock for the reasons I've shared. Before you buy stock in Duolingo, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Duolingo wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $651,049!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $828,224!* Now, it's worth noting Stock Advisor's total average return is 979% — a market-crushing outperformance compared to 171% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of May 19, 2025 Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool recommends Duolingo. The Motley Fool has a disclosure policy. Is AI Duolingo's Biggest Risk or Biggest Catalyst? was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
20-05-2025
- Business
- Yahoo
Duolingo: The Owl Expands Its Wings Beyond Language
In my previous article about Duolingo (NASDAQ:DUOL), I argued that despite a post-earnings stock drop of over 16% after Q4 2024, caused by an EPS miss and temporary margin dip tied to heavy AI investments, Duolingo's fundamentals were very much alive and thriving. I treated that pullback as an opportunity and raised my price target to $343 per share. Since then, the shares not only hit that level but jumped over 60% from the time of the article. In this update, I'll dig into the latest numbers to determine whether this rally was earned and whether the shares still offer long?term upside. Fast forward to Duolingo's Q1 2025 earnings, and the latest results show the company extending its growth streak while starting to benefit from the earlier investments. Duolingo reported $230.7 million in Q1 revenue, up 38% year-over-year (YoY), and about 10% higher than Q4's $209.6 million. That performance handily beat consensus and remains near 40% top-line growth even as it scales. To put that in perspective, the company now generates nearly ten times the top-line it generated in Q1 2020. Source: Gurufocus On the user front, Duolingo added 6 million daily active users (DAU) in Q1, ending the quarter with 46.6 million, a 49% increase from 31.4 million a year ago. This sequential jump from 40.5 million in Q4 2024 was the largest quarterly gain in Duolingo's history. It likely reflects seasonal New Year engagement (as users set new learning resolutions) and the continued viral popularity of the app. Monthly active users (MAU) climbed over 130 million, and the engagement ratio (DAU/MAU) also improved to 36%, showing that a growing share of visitors engage with the app each day, a sign of strong habit formation. Paid subscribers also crossed the ten-million mark for the first time, increasing 40% YoY to 10.3 million and reinforcing Duolingo's strategy to convert free users into Super and Max plan customers. Paid penetration has climbed to 8.9% of MAUs and subscription and other bookings grew strongly as well. Duolingo doesnt break out per-user economics, but a quick back-of-the-envelope calculation from the Q1 2025 tells a story. Subscription revenue of $191 million spread over an average of 9.9 million paid subscribers puts quarterly subscription ARPU at roughly $19. Advertising contributed $17.9 million, or just $0.16 per free monthly active user in the quarter. In other words, this explains why management is intentionally dialing down third-party ads and using that ad time to promote Duolingo Max to free learners. A Max upgrade is far more accretive than squeezing a few extra cents of ad revenue out of non-paying users. Sales-and-marketing spend was just $27 million, roughly 12% of revenue, underscoring how little Duolingo relies on paid acquisition. In my view, Duolingo remains one of the best experts of high?impact marketing. This quarter's Duo Owl fakes his own death' social campaign generated an estimated 1.7 billion impressions worldwide without meaningful media spend, driving strong user acquisition and brand engagement. Source: Duolingo Shareholder Letter On margins, the expansion of Duolingo Max continues to apply modest pressure. Gross margin dropped about 190 basis points (bps) to roughly 71.1% as GenAI costs in Max outpaced the mix shift toward higher-margin subscriptions. Yet because Max subscribers pay more, total gross profit dollars rose strongly, highlighting that a lower margin percentage does not necessarily mean less cash generation. Management expects this trend to continue in Q2 and accelerate in Q3 and Q4. Indeed, operating margin improved 40 bps to 10.2%, and GAAP net income reached $35 million, or $0.72 per share, comfortably ahead of estimates. Free cash flow (FCF) of $104 million in the quarter works out to about $0.80 per MAU, or 45% of revenue. When combined with 38% top-line growth, delivers a Rule of 40 score in the low-80s, a rare showing for a fast-growing consumer tech company. The balance sheet is stellar, with $1?billion in cash and marketable securities and no debt. Stock-based compensation was $31 million, or about 13% of revenue, leading to only a 2% increase in share count year-over-year. That equity spend has been carefully managed even as Duolingo scales up its AI and product teams. Finally, even amid geopolitical turbulence, demand for language study keeps rising. Management lifted full?year 2025 revenue guidance to a midpoint of $991 million, and a modest beat would push Duolingo past the $1 billion mark. Generative AI has prompted questions about whether AI tutors will render Duolingo obsolete. In my view, the opposite is true. AI is the fuel that powers Duolingo's next phase of growth to become an even better, more efficient company. Duolingo has invested heavily in AI to generate and personalize content. CEO Luis von Ahn has made it clear that every member of the organization now works alongside AI tools to streamline routine tasks and focus human effort on higher-value work. Behind the scenes, Duolingo's Birdbrain engine analyzes billions of data points from daily lessons to refine and personalize content in real time. At the content-creation level, AI dramatically slashes both the time and cost required to build new courses. Duolingo uses AI to run millions of A/B tests, draft example sentences, generate conversational prompts, and even craft detailed explanations for answers. These capabilities underpin premium features like Duolingo Max's Explain My Answer and Roleplay chat, which not only enrich the learning experience but also justify a higher subscription price. For example, Duolingo is working heavily on making Video Call with Lily a more immersive experience and bolstering retention. It's adding new improvements that let users review past conversations, receive and replay voice messages from Lily, and explore a fully 3D environment with interactive objects for users to engage with. Once the core app framework is in place, plugging in an entirely new subject or language requires only incremental effort. In April, Duolingo added 148 new language pairings, enabling, for example, a Portuguese speaker to learn Korean directly rather than routing through English. AI automates the bulk of translation, example generation, and localization, meaning Duolingo can expand its catalog faster than any traditional publisher. This rapid, low-cost rollout of high-quality content is, in my view, Duolingo's greatest moat. Smaller rivals simply cannot match the speed or scale at which Duolingo, backed by AI and continuous A/B testing, brings new learning experiences to millions of users around the world. Duolingo has demonstrated optionality through its expansion beyond languages into new learning verticals. After rolling out math and music, the company is now preparing to launch chess in 2025 for English-speaking iOS users. The origin story of this course underscores Duolingo's AI advantage as CEO Luis von Ahn described, two team members with neither programming nor chess experience who used generative AI to prototype the entire curriculum. Once they had a solid draft, a dedicated team refined and polished it for public beta, demonstrating how AI can slash development time and cost. I should mention something amazing about the chess is that it really started with a team of two people, neither of whom knew how to program, so they were not programmers and they basically made prototypes and did the whole curriculum of chess by just using AI. Also neither of them knew how to play chess -- and we started that for several months. And eventually, when they had a really good prototype, we had a whole team to professionalize it and put it in the app. So we're very happy with it. This is, at the moment, mainly going to be to increase users who we think there's a huge demand for chess. There's hundreds of millions of people who want to play chess. The course uses interactive chess puzzles and mini-games to teach concepts. For example, a lesson might ask you to move a knight to the correct spot to practice the L-shaped move, or solve a checkmate puzzle with a king trapped in a corner. Users can even play mini-matches or full chess games against a Duolingo AI coach named Oscar as they progress. In my opinion, Duolingo is applying the same formula it uses for language lessons, short sessions, fun exercises, immediate feedback, and leveling up, to the game of chess. While the gamified approach is similar, the content domain is entirely new. Instead of vocabulary and grammar, the chess course teaches moves, tactics, and strategies. That differs from language learning, where direct application (conversation) often happens outside the app. Chess also allows Duolingo to introduce new kinds of interactive content (like an AI opponent) that weren't part of language lessons. Moving into subjects like chess could attract users who aren't currently using Duolingo. For instance, someone not interested in learning a new language might still be interested in improving their chess skills through a fun app. By entering the chess arena, Duolingo can attract users who may never have been drawn to language learning. with over 211 million members, currently dominates the market by offering lessons, computer opponents, and online play. advantage, beyond its massive member list, is that users can play against human opponents, a feature Duolingo could add to create an interactive, competitive experience on its own platform, in my opinion. For those who doubted Duolingo's optionality beyond languages, this multi-subject strategy offers clear proof of concept. Each new vertical, whether math, music, or chess, not only broadens the addressable market but also deepens engagement and cross-sell opportunities. Imagine a family plan where one member practices Spanish, another tackles algebra, and a child learns chess, all within the same app. While these non-language cohorts are still small, they are expanding faster than the core language business. While Duolingo lacks a direct public competitor, many apps compete with Duolingo, even so, it remains the top pick. A public competitor in the educational space is Chegg (NYSE:CHGG). Chegg is an education company that originally focused on textbook rentals and now on subscription homework help (Chegg Study). Product-wise, Chegg is about answering specific academic questions (think problem solutions, tutoring, writing help), primarily for high school and college students. It's less of a learning platform and more of a study aid. The rise of free AI tools like OpenAI's ChatGPT directly threatened Chegg's value proposition in 2023, causing a sharp drop in its growth. Engagement for Chegg is need-based, not habit-based, meaning that a student might subscribe for a semester to get through a tough course, then cancel. By contrast, Duolingo has users who stick around for years, continuously learning. Another example is Babbel, a language?learning app similar to Duolingo that planned an IPO in 2021, but canceled late that year as the business model failed to woo investors. These examples underscore how difficult it is to sustain daily engagement in educational software, and they show why I believe Duolingo's mix of network effects (more users -> more data -> better AI -> better product -> more users), AI-driven personalization, and gamification creates a durable moat. That said, Duolingo continues to trade at a premium. The stock is currently priced at a P/S multiple of 27x, with a forward P/S of about 21x and a price-to-FCF ratio of 75x. Despite the company's robust growth, these metrics are now sitting above the company's historical range and are getting difficult to justify. The PEG ratio, on the other hand, remains under 2 at 1.65x, suggesting investors are still paying a reasonable premium for high-teens growth. Source: Gurufocus In my updated model, I incorporate the raised 2025 revenue guidance, then assume that growth gradually slows down. I build in near?term margin pressures while anticipating that continued innovation, including enhancements to Lily and expansion into new verticals, will help restore and even improve margins over time. Under these assumptions, I raised my price target to $360 per share, but, after the recent run, it implies roughly 25% downside. Source: Author From a Guru's perspective, billionaire investor Ron Baron (Trades, Portfolio) opened a position in Q3 2024. Ray Dalio (Trades, Portfolio) added to his stake in Q4 2024, both signaling confidence in Duolingo's unique combination of engagement and monetization. On the other end, Baillie Gifford (Trades, Portfolio) trimmed its stake by 14% but still owns over 6% of shares outstanding, evidence that many gurus remain committed to Duolingo's growth story even as they rebalance portfolios. I can't overlook the challenges Duolingo faces as it stretches beyond its language roots. First, execution risk is real. Chess, math and music must prove they can match the habit-forming engagement and learning outcomes that made language courses so sticky. If retention in these new verticals disappoints, the cross-sell and engagement benefits will fall short of expectations. Second, each subject brings entrenched competition. already has over 211 million members, math learners have a wealth of options from Khan Academy to STEM-focused apps, and music education platforms vie for the same users. Duolingo's gamification edge must be strong enough to lure consumers away from these specialist incumbents. Finally, Duolingo's valuation already reflects lofty assumptions about future growth and margin expansion. With premiums built on continued outperformance, any shortfall in execution, user engagement or profitability could trigger a sharp share-price correction. Duolingo's expansion into chess, math and music underscores just how much optionality lives in its platform. What began as a simple language app is fast evolving into a gamified learning platform that spans multiple disciplines. Overall, Q1's results showed that Duolingo's engine is firing on all cylinders. Revenue continues to grow near 40%, paid subscriptions just crossed 10 million, and free cash flow remains extraordinarily strong. These metrics confirm that Duolingo has truly cracked the code on habit-forming education. If new verticals like chess, math and music gain traction, they'll open the door to fresh user segments and new revenue streams without a proportionate rise in costs. That optionality comes with execution and valuation risks, which I've outlined above, but I continue to view today's share price as reflecting not just the strength of the core language business but the promise of a multi-subject learning platform. I remain confident that Duolingo is ahead of its peers, however, in my view, the stock overshot after a great quarter. I intend to remain a shareholder, considering a modest trim to lock in some gains after this strong rally, because I believe Duolingo's blend of AI, engagement, and network effects offers long-term upside that few public companies can match. This article first appeared on GuruFocus. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
