Home » 1 Year After Its IPO, Duolingo Is Proving the Bears Wrong

1 Year After Its IPO, Duolingo Is Proving the Bears Wrong

by WorldFinance
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In July 2021, language-learning mobile-app company Duolingo (DUOL -1.14%) made its debut on the public market. Investors were immediately attracted to the company given its high growth, free-cash-flow positivity, and large addressable market. However, I decided not to buy shares, worried about this potentially being a high-churn business.

Now, over one year later, Duolingo is proving the bears (including me) wrong. In the second quarter of 2022, the company reported numbers for paying subscribers that are forcing me to reconsider my bearish thesis. Could Duolingo stock be a good buy after all?

I’ve been wrong (so far) about Duolingo

Duolingo offers an app to help people learn to speak other languages. The app is monetized with advertising and in-app purchases. But people can also pay for a subscription to keep it ad-free and unlock other features

I’ve doubted the viability of an investment in this space more than I’ve doubted Duolingo itself. People learn languages for finite time periods. This differs from a subscription to an app for mental health, for example. Theoretically, if you’re willing to prioritize your mental health today, you’ll be willing to continue prioritizing it for a long time, consequently keeping your subscription to the app.

If I want to learn Italian, I might use Duolingo. After a few years, I’ll either be successful or I won’t. But either way I’m not going to study Italian indefinitely, meaning it makes sense to eventually drop my Duolingo subscription. By contrast, a consumer might keep their Netflix subscription for as long as they enjoy the ever-updating content library. It’s the subtle difference between a learning subscription and an entertainment subscription.

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