2024-01-30 15:44:45 ET
Summary
- Duolingo's stock surged but faces risks with a potential US economic slowdown and challenges in international monetization.
- Low switching costs make the language learning platform vulnerable to competition, threatening its pricing power.
- The stock's current valuation appears overly optimistic, signaling a possible 10-18% downside from its peak.
Introduction and Investment Thesis
Duolingo ( DUOL ) is an education technology company that primarily teaches languages on its app. Its stock had climbed 236% in 2023, outperforming the indices. Although the stock price has dropped 21% since it reached a peak of $245 in December 2023, I believe that the stock still has room to fall another 10–18% from its current levels. There is no doubt that the company has been rapidly innovating by extending its offerings to Maths and Music as well as introducing a new premium-tier subscription, Duolingo Max, that is built on OpenAI's language model. However, I believe that at current price levels, the stock price has fully priced in future growth expectations for the company, leaving little to no room for error....
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Duolingo's Product Innovation Is Exciting, But Not Its Stock Price