Duolingo announced quarterly results on 11/19. The results were positive. The market saw this, and pushed the price to impressive gains on HEAVY volume. These types of PowerMoves get my attention. Especially when on the back on big fundamental growth and new products.
What is the story?
IMO, the story is “top selling language app grows users at a significant pace while initiating a strategic shift into a multi disciplinary offering to accelerate growth and engagement”
Lets dig in.
Company Mission:
“Duolingo launched in 2012 and has since become the leading mobile learning platform globally. Our flagship app has organically become the world’s most popular way to learn languages and the top-grossing app in the Education category on both Google Play and the Apple App Store. Our global team works together to make learning fun, free, and effective for anyone who wants to learn, wherever they are.”
I Want To Focus On:
Recent growth in users
New learning offerings (Math and Music with more to come in my opinion)
Can these also become top grossing subsegments?
How their recent growth can cross leverage new offerings and rapidly allow for increase in sales and continuation in user growth.
Growth Highlights
User Growth: Duolingo experienced a remarkable increase in its user base. Daily Active Users (DAUs) grew by 63%, while Monthly Active Users (MAUs) increased by 47%. The number of Paid Subscribers also saw a 60% increase compared to the previous year.
Revenue and Bookings: Total revenues for the quarter reached $137.6 million, marking a 43% increase from the previous year. Subscription revenues contributed significantly, amounting to $105.9 million. Total bookings were $153.6 million, a 49% increase, and subscription bookings were up 54%, reaching $121.3 million.
Profitability Improvement: Net income showed a dramatic turnaround, with the company posting a net income of $2.8 million compared to a net loss of $18.4 million in the prior year's quarter. Adjusted EBITDA was $22.5 million, a significant rise from $2.1 million in the previous year.
New Products or Services
Strategic Shift to Multi-Subject Offering: Duolingo announced a strategic shift towards becoming a multi-subject learning platform, adding Math and Music courses to its flagship language app. This diversification is expected to enhance user engagement and value.
Future Outlook
Updated Guidance for Q4 and Full Year 2023: Duolingo's updated guidance for the fourth quarter and full year 2023 suggests continued positive trends. The company expects total bookings to be between $598 million and $601 million, revenues between $525 million and $528 million, and adjusted EBITDA between $87.2 million and $89.2 million. The projected Adjusted EBITDA margin is around 16.6% to 16.9%.
Investment Appeal
Diversification and Innovation: Duolingo's move to expand beyond language learning into other educational subjects can attract a broader user base and increase the platform's appeal.
Strong User and Revenue Growth: The substantial increase in DAUs, MAUs, and revenue growth indicates a strong market presence and increasing adoption of Duolingo's services.
Improved Profitability: Transitioning from a net loss to a net income and a significant rise in adjusted EBITDA demonstrates improved operational efficiency and financial health.
Positive Forward Guidance: The company's optimistic future outlook suggests confidence in sustained growth and profitability.
Expansion into New Subjects
Introduction of Math and Music Courses: Duolingo has added Math and Music courses to its platform. This expansion marks a departure from its exclusive focus on language learning and represents a foray into other popular and significant areas of education.
Strategic Implications of Expansion
Broader Audience Appeal: By offering Math and Music, Duolingo can attract a wider range of users, including those interested in subjects other than languages. This could lead to an increase in the user base, both in terms of casual learners and those who might use the app for more structured learning.
Leveraging Existing Platform Strengths: Duolingo's success in language learning hinges on its engaging, game-like learning experience. By applying the same principles and technology to Math and Music, the company aims to replicate this success in these new domains.
Cross-Selling Opportunities: Users already engaged with language courses may be enticed to try out the new offerings, leading to increased user engagement and potentially higher revenue per user.
Competitive Differentiation: This move sets Duolingo apart from other language-only learning apps, positioning it as a more comprehensive educational platform.
Potential Benefits
Increased User Engagement: Offering a variety of subjects could lead to users spending more time on the app, as they can now learn different subjects within the same platform.
Revenue Growth: Diversification into new subjects could open up additional revenue streams. This could come from direct course fees, increased subscription revenue, or in-app purchases.
Brand Reinforcement: By expanding its educational portfolio, Duolingo can strengthen its brand as a versatile and innovative learning platform.
Challenges and Considerations
Quality and Effectiveness: Ensuring that the new courses maintain the high quality and effectiveness that users expect from Duolingo will be crucial.
Market Acceptance: Duolingo will need to ensure that its new offerings resonate with its current user base and attract new users.
Resource Allocation: Expanding into new areas requires significant investment in content development, technology, and marketing. Balancing these needs with the ongoing development of its language courses will be important.
Charts
DUOL made a fresh all time high on the back of the largest weekly volume ever in the name. ALWAYS take note of those types of advances
On the daily chart, we see a robust PowerMove on HEAVY volume.
Chasing is hard. Not having a position in a game changing name like DUOL can be hard as well.
I have a position and will look to add if we get some weakness or consolidation in the name. In my opinion, this is top shelf, high quality IPO merchandise that you need to have on your watchlist, if not in your portfolio.
—NS