On Friday, Jefferies began coverage of Duolingo Inc. (NASDAQ:) by assigning a Hold rating to the company’s shares, accompanied by a price target of $370.00. The research firm cited Duolingo’s impressive 42.5% revenue growth and industry-leading 73% gross profit margin as reasons for a premium valuation. Nonetheless, Jefferies expressed concerns about the company’s future growth prospects, particularly regarding its expansion into new user segments.
In the statement provided, Jefferies acknowledged Duolingo’s success but pointed to potential challenges ahead. According to InvestingPro, the company maintains strong financial health with a “GREAT” overall score and holds more cash than debt on its balance sheet. The slowdown in the growth of paying casual learners was noted as a factor that could make the bullish outlook for the company more dependent on its ability to attract intermediate learners. Jefferies highlighted that Duolingo’s new product, Max, represents a departure from the company’s traditional approach to language learning, which could complicate efforts to expand its user base.
The Hold rating indicates a neutral stance on Duolingo’s stock, suggesting that Jefferies does not currently see significant upside or downside potential in the near term. Based on InvestingPro’s Fair Value analysis, the stock appears overvalued at its current market cap of $14.8 billion and P/E ratio of 167. The price target of $370.00 implies a cautious optimism, recognizing the company’s achievements while also acknowledging the uncertainties it faces.
Get deeper insights into Duolingo’s valuation and growth prospects with InvestingPro, which offers 15+ additional exclusive ProTips and comprehensive financial analysis. Duolingo has been recognized for its innovative approach to language learning, offering a gamified platform that has attracted millions of users worldwide. Despite this, the ability to convert casual learners into paying customers, especially those at the intermediate level, remains a critical factor for sustained growth and profitability.
The research firm’s position is based on a combination of Duolingo’s historical performance and the challenges it may encounter as it attempts to broaden its appeal. Investors and potential shareholders will likely monitor Duolingo’s progress in engaging intermediate learners and the market’s reaction to new product offerings like Max.
In other recent news, Duolingo Inc. has been the focus of several developments. Analysts from JP Morgan have reiterated an Overweight rating on the company’s stock, expressing optimism about the expanded Video Call feature that now includes Android devices and five new languages. The firm projects significant increases in paid subscribers for Duolingo’s Max product, estimating 450,000 in 2024 and 1.37 million in 2025, translating to $45.8 million and $153.0 million in revenue respectively.
Duolingo has also expanded its AI-driven conversation feature, Video Call, to Android users, adding support for five new languages. This expansion is part of the company’s effort to provide advanced learning tools that were traditionally accessible only through travel or personal tutoring. The company has reported revenue growth of 42.47% in the last twelve months and maintains strong gross profit margins of 73.13%.
On the other hand, BofA Securities downgraded Duolingo from “Buy” to “Neutral,” citing less upside potential as shares are currently trading at peak valuation. However, the firm acknowledges Duolingo’s high-quality status and consistent growth trajectory. Meanwhile, Needham maintained a Buy rating on Duolingo, citing the company’s new growth phase driven by GenAI-powered features aimed at attracting new English learners.
In a recent earnings call, Duolingo reported a significant increase in daily active users (DAUs), a 54% year-over-year growth, and raised its full-year guidance. The company anticipates bookings growth of 36% and revenue growth of 40%. Duolingo’s new AI-powered video call feature, part of the Duolingo Max subscription tier, has reached about 50% of its users, with plans for further expansion.
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