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Duolingo (DUOL) has a great, unique growth story that is only getting bigger, and the consistent string of better-than-expected results has the stock hitting all-time highs, writes Mike Cintolo, editor of Cabot Growth Investor.

To review, Duolingo is far and away the top-grossing education app out there, with a fun, game-like system that has goals and rewards along the way. There are more people learning certain languages on the app, in fact, than there are native speakers of those languages.

The firm also uses a “freemium” model, with many using the app for free (it has a total of 83.1 million monthly active users, up 47% from a year ago), with ads bringing in some revenue for the firm. However, the driver here is subscriptions, with more and more users choosing to pay up for added features.

Paid subscribers (5.8 million total, up 60% from a year ago) are growing nicely, with subscription revenue up 47% from the year before. The firm also does a small business in selling virtual goods on the app, as well as providing an English Learning Test for many institutions and academies.

Growth here has been both rapid and consistent, and with so many free users on the platform, converting a few percent of them will keep the arrow pointed up for a long time to come. That’s the main story. But we think a big part of the excitement in the fourth quarter of 2023 came from Duolingo’s launch of music and math courses on its app, which obviously opens up entire new revenue opportunities.

To be clear, management doesn’t expect material contributions from those areas for a while as it tests what works. But given the success it has proven to have in languages, Wall Street is discounting the company succeeding in those (and maybe other) new areas down the road.

As for the stock, it started to really get off its duff in March. But the next few months were very choppy, with three separate 20% corrections. The Q3 report brought a massive breakout to all-time highs, though. We think shares can do very well, assuming the market shakes off its bearish vibes from the past two years.

About the Author

During his more than ten years at Cabot, Michael Cintolo has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides, which has helped Cabot place among the top investment newsletters numerous times. 

Cabot Growth Investor has been consistently recognized for outstanding performance by Hulbert Financial Digest and Timer Digest. It is one of Hulbert's top five newsletters for five-year risk-adjusted performance with a 13.2% annualized return as of June 30, 2011. It is also ranked among the Top Ten Newsletters by Timer Digest for long-term performance.

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