Goldman Sachs has shifted its stance on Duolingo Inc. (NASDAQ: DUOL), raising the stock from Sell to Neutral. The language learning platform's price target remains set at $198.00.
This change in rating follows Duolingo's Q2 2024 earnings report, which highlighted several positive trends including strong growth in daily active users, rising monetization levels, and bookings that exceeded expectations.
Duolingo's management emphasized the company's continued growth in daily active users and an increase in monetization levels. Bookings for the quarter were notably higher than the guidance provided before the earnings release.
Additionally, the company showed improved adjusted EBITDA momentum, with incremental margins that surpassed previous trends, although timing shifts had an impact on the level of upside.
Despite these positive indicators, Duolingo is still facing challenges with its advertising revenue, which is affecting its gross margin. Nonetheless, the company's focus on product innovation, particularly the adoption of its Max AI feature and the expansion of content globally, is expected to sustain user engagement over the coming quarters and years.
Goldman Sachs' upgrade reflects a more balanced view of the risk/reward profile for Duolingo shares. The firm acknowledges the positive operating momentum and has adjusted its forward operating estimates based on the latest earnings report and management's commentary.
The 12-month price target for Duolingo remains unchanged at $198.00, indicating that the firm's valuation framework is no longer skewed negatively, and they recognize the potential benefits of Duolingo's platform innovations and pricing power.
Duolingo's second-quarter performance surpassed consensus estimates, with a notable increase in bookings, revenue, and adjusted EBITDA. Duolingo's user engagement also saw a boost, with Daily Active Users (DAU) and Monthly Active Users (MAU) showing accelerated growth.
The company's continued success in attracting new learners to its app is a testament to its effective execution, even amidst challenging year-over-year comparisons and currency exchange headwinds.
Analysts from Needham maintained a Buy rating on Duolingo but lowered the price target to $245 from $267. Other financial services firms like DA Davidson and JMP Securities also showed confidence in Duolingo, initiating coverage with a Buy rating and a price target of $250, and upgrading the company to Market Outperform with a price target of $260, respectively. Wolfe Research, however, initiated coverage with a Peerperform rating, suggesting a more cautious outlook.
Duolingo's strategic acquisitions, such as Hobbes, a Detroit-based animation and motion design studio, highlight the company's commitment to enhancing its design capabilities. These acquisitions are anticipated to contribute significantly to the learning platform's user experience.
InvestingPro Insights
Following Goldman Sachs' recent update on Duolingo Inc. (NASDAQ:DUOL), investors may find additional context through InvestingPro metrics and insights. Duolingo's market capitalization stands at $7.67 billion, and while the company's P/E ratio is high at 161.06, the adjusted P/E ratio for the last twelve months as of Q2 2024 reflects a more moderate figure of 111.74. This suggests a potential alignment with near-term earnings growth, a factor that may have influenced Goldman Sachs' reassessment.
The company's revenue growth remains robust at 43.42% for the last twelve months as of Q2 2024, with a gross profit margin impressively high at 73.31%. These figures underscore Duolingo's strong operational performance and could be a driving force behind the stock's potential. Notably, Duolingo's liquid assets exceed its short-term obligations, providing a cushion for operational flexibility.
Investors looking for further insights will find that Duolingo is listed with 15 additional InvestingPro Tips, including expectations for net income growth this year and projections for sales growth in the current year. These tips, along with real-time metrics and analyst forecasts, are available for those seeking a deeper analysis on https://www.investing.com/pro/DUOL.
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