Duolingo, Inc. DUOL has witnessed a significant jump in its stock price over the past six months. The DUOL stock has risen 39.7% compared with the broader industry’s 26.4% rise and 17.3% growth of the Zacks S&P 500 composite.
DUOL’s performance surpasses its close competitors, Pearson plc PSO and TAL Education Group TAL. PSO shares have gained 10%, while TAL witnessed a 12.5% decline in the same period.
Six Months Price Performance
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In the last trading session, Duolingo's stock closed at $286.5, close to its 52-week high of $297.56. The stock is trading above its 50-day moving average, indicating bullish sentiment among investors.
DUOL Trades Above 50-Day Average
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Looking beyond the six-month performance, Duolingo shares have gained 26.3% and 72.2% in the year-to-date period and the past year, respectively. This continued rise in the DUOL stock might be tempting for investors to buy the shares. Therefore, we will discuss and find out whether it is the right to invest.
Innovation Boosts DUOL’s Paid Subscriber Conversion
In the second quarter of 2024, the company reported a 59% year-over-year rise in Daily Active Users. At the same time, the conversion rate of the Monthly Active Users remained strong, with a 7.9% increase from the first quarter of 2024 and an 8.6% rise on a year-over-year basis. This performance can be attributed to Duolingo’s commitment to product innovation to acquire users while engaging with existing customers to increase the conversion of Paid Subscribers to Duolingo Max or Family Plan tiers.
The company’s latest features include Friend Quests, Leaderboards and Friend Streak, which boost social interactions among users, subsequently transforming learning into a shared journey.
DUOL, in its Duocon 2024, released a new AI feature, Video Call, wherein Duolingo Max subscribers can interact with Lily and Adventures, who are Duolingo’s popular characters. It will provide an exploration-game-like feeling to assist learners in applying their acquired skills in language to realistic scenarios, leading to greater retention and acquisition of customers.
DUOL Raises Guidance, Exudes Management Optimism
In the second quarter of 2024, the company raised its revenue guidance to $731.3-$738.3 million from the view of $726.5-$735.5 million given at the end of the previous quarter. Strong confidence in higher-priced subscription tiers and improvements to the family plan led the company to raise its booking guidance to $820.5-$827.5 million from the $808.5-$817.5 million provided in the first quarter of 2024.
Management raised the adjusted EBITDA guidance to $175.5-$184.6 million from $167.1-$176.5 million provided at the end of the previous quarter on the back of an anticipated rise in operational efficiency.
DUOL’s Effective Capital Utilization
A vital measure of a company's profitability is its return on equity (ROE), which suggests how efficiently it uses shareholders' investments to generate earnings. At the end of the second quarter of 2024, DUOL's ROE stood at 9.6%, above the industry average of 9.1%. This indicates that Duolingo has been effective in investing in profitable areas, a point further supported by its return on invested capital, which is 9.1%, well above the industry average of 4.2%.
Duolingo’s Robust Liquidity Position
DUOL has a strong liquidity position, with a current ratio of 3.28 at the end of the second quarter of 2024 compared with the industry’s 0.92. A current ratio above 1 indicates that Duolingo is well-positioned to meet its short-term obligations and enable it to mitigate potential financial crises.
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DUOL’s Strong Top & Bottom-Line Outlook
Duolingo’s earnings and revenue prospects for 2024 and 2025 are remarkable. The Zacks Consensus Estimate for 2024 earnings is pegged at $1.9 per share, suggesting a massive rise of 434.3% on a year-over-year basis. The consensus estimate for 2025 earnings is pegged at $2.8 per share, indicating a year-over-year increase of 50.6%.
The Zacks Consensus Estimate for 2024 revenues is pegged at $736.1 million, implying year-over-year growth of 38.6%. The consensus estimate for 2025 revenues is pegged at $945.6 million, hinting at a 28.5% rise on a year-over-year basis.
Now is the Best Time to Invest in Duolingo
DUOL serves as a compelling investment opportunity. The company’s commitment to product innovation is significant for its subscriber conversion, leading to greater revenues. New features added to the application lead to higher customer acquisition and retention. Its efficient capital utilization, strong liquidity position, and promising top and bottom-line prospects contribute to its potential for continued success.
We advise investors to buy the stock now as we anticipate the stock price to increase further on the back of robust financial health, positive outlook and strategic initiatives that might strengthen its market position.
DUOL currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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Pearson, PLC (PSO) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
