On Thursday, DA Davidson maintained a Buy rating on Duolingo Inc. (NASDAQ:DUOL) and raised the price target to $350 from the previous $250, following the company's third-quarter earnings report. The language learning platform's performance surpassed consensus estimates across all key metrics.
Duolingo reported a third-quarter revenue of $192.6 million, marking a 40% increase year-over-year. The company's adjusted EBITDA reached $47.5 million, translating to a 24.7% margin and a significant 111% growth from the previous year. Daily active user (DAU) numbers also impressed, with a 54% year-over-year increase.
The firm expressed increased confidence in Duolingo's ability to both draw new users and re-engage those who had previously stopped using the platform. Despite Duolingo's stock price soaring 97.6% since the second quarter report, outperforming the NASDAQ's 17.2% gain, DA Davidson believes Duolingo warrants a premium multiple. The firm highlighted the company's continuous product improvements, which have led to better metrics each quarter and a compounding effect on growth.
Duolingo's approach focuses on product innovation, which has been driving operating leverage in core expenses while also fostering significant growth in both the user base and revenue. For the fourth quarter, Duolingo anticipates further operating leverage in Research & Development and Sales and Marketing, expecting to drive 70 basis points and 90 basis points respectively. Additionally, the company projects over 50% year-over-year DAU growth and approximately 38.4% year-over-year revenue growth.
Over the past nine quarters, Duolingo has consistently achieved DAU growth in excess of 50%, with no indicators of slowing growth or detriment to EBITDA margins.
In other recent news, Duolingo Inc. has seen significant developments in its financial outlook and business operations. Goldman Sachs recently raised its price target for Duolingo to $275, maintaining a neutral rating on the shares. This decision follows Duolingo's third-quarter earnings report, which highlighted continuous growth in daily active users (DAUs), increased monetization, and bookings surpassing their pre-earnings guidance.
On the other hand, JMP Securities downgraded Duolingo's stock from 'Market Outperform' to 'Market Perform', despite the company's potential to surpass consensus estimates. Meanwhile, Evercore ISI anticipates Duolingo's third-quarter revenues to reach $189 million, a 37% increase year-over-year. The firm also expects Monthly Active Users (MAU) growth to surpass the market's estimate, hinting at an 8% quarter-over-quarter increase.
In addition to these financial adjustments, Duolingo has made several significant advancements in its product offerings. The company recently unveiled new AI-driven features and the Duolingo Max product, which are expected to improve user experience and engagement. These developments have led to raised price targets from firms like Needham and JPMorgan due to strong growth prospects.
InvestingPro Insights
Duolingo's impressive performance is further supported by recent data from InvestingPro. The company's revenue growth remains strong, with a 42.47% increase over the last twelve months as of Q3 2024, aligning with the 40% year-over-year growth reported in the article. This robust growth is complemented by Duolingo's impressive gross profit margin of 73.13%, highlighting the company's efficiency in converting revenue into profit.
InvestingPro Tips suggest that Duolingo's financial health is solid, with the company holding more cash than debt on its balance sheet. This strong financial position supports Duolingo's ability to continue investing in product innovation, a key driver of its success as mentioned in the article.
The stock's recent performance has been remarkable, with InvestingPro data showing a 97.55% price return over the last three months, mirroring the 97.6% gain since the second quarter report noted in the article. This surge has brought Duolingo's stock price to 99.82% of its 52-week high, reflecting strong investor confidence in the company's growth trajectory.
For investors seeking a deeper understanding of Duolingo's potential, InvestingPro offers 21 additional tips, providing a comprehensive analysis of the company's financial health and market position.
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