Duolingo stock price rebounded by over 18% in the extended hours after the company published its financial results. DUOL jumped to $406, up by 25% from its lowest level this month. So, is Duolingo a good edtech stock to buy ahead of earnings?
Duolingo published strong earnings
Duolingo, a top language learning company, has been in a strong bullish trend this year. Its annual revenue rose from $161.7 million in 2020 to over $748 million in the last financial year.
The company has moved from a net loss of over $60.1 million in 2021 to a profit of $88.6 million. This growth continued in the last quarter as the number of members jumped.
Duolingo had over 47.7 million in daily active users, up by 40% from the same period last year. The monthly active users has jumped by 24% to 128.3 million, while the paid subscribers jumped to 10.9 million.
These numbers led to a quarterly revenue of $252.3 million, up by 41% from a year earlier. This growth was notable as it came in the same period that the world economy reacted to Donald Trump’s tariffs.
Duolingo’s adjusted EBITDA jumped by 31.2% to $78.7 million, a trend that the management believes will continue. The management expects that the annual bookings will grow by about 32%, while the revenue will be 36%. In a note, the CEO said:
“Engagement remained strong, and we’ve seen encouraging early signals from new product initiatives like our Energy mechanic and Chess course.”
DUOL growth to accelerate
According to Yahoo Finance, the average revenue estimate for the current quarter will be $257.4 million, up by 33% on a YoY basis.
They also expect that the fourth-quarter revenue will be $273 million, leading to an annual revenue of $1 billion. It will then make $1.27 billion in the coming year.
There are also signs that artificial intelligence (AI) hype is not hurting its growth trajectory. The initial fear was that users would start to use AI in place of learning applications.
In reality, AI has presented an opportunity to lower its costs and improve its margins.
Analyts believe that Duolingo stock is cheap as it trades at $343, which is about 43% lower than their target price of $493. Some of the most bullish analysts are from companies like JMP Securities, JPMorgan, and Morgan Stanley.
At the same time, valuation metrics show that the company is cheap because of its robust growth. Adding its forecasted revenue growth of 36% and its net income margin of 11% gives a rule-of-40 metric of 47%.
Duolingo stock price analysis
DUOL stock chart | Source: TradingView
The daily chart shows that the DUOL share price was in a relentless bear market before the earnings. It had crashed by over 38% from the highest level this year, moving to the ascending trendline that connects the lowest levels since August last year.
Duolingo stock has now rebounded to $418, the highest point since June 16. Its recovery means that it will cross the moving averages and invalidate the mini death-cross that was forming.
Therefore, the Duolingo share price will likely continue rising as bulls target the year-to-date high of $540. This price target is about 30% above the current level.
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