On Thursday, KeyBanc maintained a Sector Weight rating on Duolingo Inc. (NASDAQ:DUOL), reflecting a steady outlook for the language learning platform. The firm acknowledged Duolingo's second-quarter performance, which highlighted an increase in active users, providing some relief to investors concerned about the company's ability to attract new users.
Duolingo's recent report indicated more than a 50% growth in daily active users (DAUs) for an upcoming period, a positive sign for the company's user engagement. However, KeyBanc expressed caution regarding the sustainability of such growth rates into 2025, considering the significant number of net additions required.
Despite the uptick in user growth, KeyBanc pointed out that the long-term debate surrounding Duolingo remains largely unchanged. The firm is looking for evidence that Duolingo's product initiatives can counteract the expected natural slowdown in bookings as the company continues to scale.
In light of the recent data, KeyBanc has increased its estimates for Duolingo's earnings before interest, taxes, depreciation, and amortization (EBITDA) for the years 2024 and 2025 by 6% and 11%, respectively. Additionally, KeyBanc has introduced a projection for the company's 2026 EBITDA at $360 million.
Overall, while Duolingo has shown promising user growth, KeyBanc's position remains cautious as it awaits further signs of the company's long-term profitability and growth trajectory.
In other recent news, Duolingo, the renowned language-learning platform, has shared updates on its growth strategy during an earnings call. The company's new product, Max, which is currently available in five courses across 27 countries, is projected to be accessible in most countries by year-end on both Android and iOS platforms.
The full financial impact of this new product is expected to materialize by 2025. Duolingo has also noted robust user engagement, with 7 million users maintaining a daily streak for a year or longer, and has raised its bookings growth expectations to over 30% for this year.
The company is planning to introduce new features to Max, including AI-powered immersive conversational practice. Duolingo is also expanding into new educational fields such as math and music. The firm is investing in research and development as part of its capital allocation strategy to drive organic growth.
Despite the slower growth of other revenue streams like ads and in-app purchases compared to subscription bookings, Duolingo remains confident about its momentum. These are among the recent developments for the company.
InvestingPro Insights
As Duolingo Inc. (NASDAQ:DUOL) continues to attract attention with its user growth and product initiatives, insights from InvestingPro provide a deeper look into the company's financial health and market performance. With a market capitalization of $8.56 billion and a high revenue growth rate of 43.42% over the last twelve months as of Q2 2024, Duolingo demonstrates strong potential in expanding its market reach. This is further supported by a gross profit margin of 73.31%, indicating efficient operations and control over costs.
InvestingPro Tips highlight that Duolingo holds more cash than debt on its balance sheet and that analysts expect both net income and sales to grow in the current year. These factors, combined with a significant return over the last week of 10.1% and over the last year of 50.91%, suggest a robust short-term performance. However, with a P/E ratio of 125.93, investors are paying a high price for near-term earnings growth, which may raise questions about the sustainability of the current valuation.
For those interested in a comprehensive analysis, InvestingPro offers additional tips on Duolingo, which can be accessed on their platform. These insights could provide valuable context for investors as they weigh the cautious outlook from KeyBanc against Duolingo's recent performance and future growth prospects.
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