Where Will Duolingo Stock Be In 5 Years?

Companies in every industry have looked for innovative ways to introduce artificial intelligence into their products and services. While it has become clear that AI is not a magic wand that will solve every issue, it can be a powerful tool in applications like sifting through immense amounts of data.

AI also excels at creating personalized experiences and making chatbots more effective, which happen to be the two ways that Duolingo (NASDAQ: DUOL) is implementing the technology in its language learning software. The company’s powerful mobile-first platform is now the world’s foremost language education app.

Despite the company’s success, DUOL is under water year-to-date, and it’s down roughly 20% off its all-time high of $251.30, which was just set in May.

It’s not immediately clear why investors have sold DUOL given that the company has enjoyed strong user growth and beaten revenues and earnings estimates for the past four quarters, often in an impressive manner.

After all, it is estimated that two billion people are currently learning a new language, and technology makes the world smaller every day. That makes Duolingo stock an intriguing play over the next few years, so how high could it the stock go?

Why Did Duolingo Stock Drop?

After the company released its Q2 2024 earnings results, DUOL popped as much as 22%. However, the stock still hasn’t quite made it back above $200 per share, where it was trading in just June.

Duolingo now has 34.1 million daily active users, up 59% year-over-year. Out of the platform’s 103.6 million monthly active users, eight million are paid subscribers, a number that’s grown 52% from last year.

The company had $178.3 million in revenue, which was a 41% year-over-year increase. It also beat analysts’ estimates by 0.63%. In addition, Duolingo is increasingly profitable–the company had net income of $24.4 million in Q2 compared to just $3.7 million last year. Diluted earnings per share worked out to $0.51, which beat analysts’ estimates by 8.26%.

Duolingo also has more cash than last year. Cash flow from operating activities was up from $37.2 million to $62.4 million in Q2. Free cash flow improved from $34.3 million to $54.9 million.

It was a successful quarter for Duolingo by nearly every metric, though perhaps investors weren’t wowed by the marginal revenue beat. Still, the post-earnings increase seems more than justified.

Will Duolingo Stock Go Back Up?

Duolingo has been able to achieve its remarkable success by delivering language education that is fun and interactive. The company has a heavy social media focus, and finds culturally relevant and humorous ways to engage and retain its customers.

The platform also encourages its users to share their language-learning journey with friends, and in the second quarter, Duolingo launched a feature called the Friend Streak. If a friend hasn’t completed their lesson, other users can nudge them and keep them on track.

According to Duolingo, 90% of its user growth is organic, coming by way of social media or word of mouth. In the second quarter, the company reported that its organic social media impressions were 190% higher year-over-year.

Aside from the social focus, Duolingo wants to steer its users toward Duolingo Max, its paid subscription service. This tier includes the AI features which allow learners to practice real-time, spoken conversation with Duolingo chatbots in the language of their choice, and receive customized feedback on their mistakes.

While Duolingo Max might be the future of the company, the platform is currently only available in five courses across 27 countries. Those users only amount to approximately 15% of the company’s daily active users.

Duolingo Analysts Ratings

The analysts largely agree that the future is bright for Duolingo. Out of the 19 analysts who have rated the stock there isn’t a single sell rating.

There are 14 buy ratings on DUOL and two analysts believe the stock can outperform the market over the next year. The highest forecast has Duolingo shares soaring 37.5% to $271.

The average price target is $234.09, which would be an 18.8% increase from where the stock currently trades. There are five hold ratings on DUOL, and the lowest forecast has the stock dropping 7.1% over the next 12 months to $183.

Is Duolingo Stock Undervalued?

Wall Street largely believes that Duolingo stock can bounce back, and the company has continued to make bold moves.

In July, Duolingo announced the acquisition of motion design and animation studio Hobbes. Management believes that better design for its gamified platform can improve the user experience and ultimately drive revenues.

Duolingo has also been very successful at creating country-specific marketing. In Japan, for instance, the company recently hired a country marketing manager to oversee the creation of culturally relevant content that incorporates popular trends, influencers, and brands.

The strategy has paid off, because in the second quarter, Duolingo increased its daily active users in Japan by 93% year-over-year. The company is now seeking to apply the same strategy in other countries, like France and Korea.

Where Will Duolingo Stock Be In Five Years?

Duolingo stock is forecast to rise to $184 per share based on a 5-year discounted cash flow forecast analysis.

The team at Duolingo created an immensely popular platform that makes language learning interactive, and it has been able to execute a strong organic marketing strategy. Further, it has beaten revenue and earnings estimates consistently, and it has only begun to build a subscription model that leverages AI.

The company has rolled out new features, made strong acquisitions, and successfully executed country-specific marketing in just the last few months. Wall Street analysts largely agree that the stock is oversold.

DUOL is well off its high of just a few months ago. Its current price-to-sales value of 14.66 doesn’t exactly make the stock look undervalued, though it’s likely not overvalued either.

Still, Duolingo is a compelling stock for investors looking for an artificial intelligence stock at a bargain. It is highly possible that DUOL will reward patient investors five years from now.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.