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Why Did Duolingo Soar 12% on Thursday?

Shares of Duolingo (DUOL) soared a solid 12.2% on Thursday’s extended trade after the company reported better-than-expected Q1 results, backed by growth in bookings and active users.

The company operates a mobile learning platform that people use to learn languages. It is one of the top-grossing apps on Google Play and Apple App Store in the Education category.

Results in Detail

Net loss came in at $0.31 per share, much narrower than the analyst estimates of a loss of $0.57 per share. Also, the reported figure compares favorably with a loss of $1.04 in the same quarter last year.

Growth in income from all the product types offered by Duolingo supported topline growth in Q1. Total revenues climbed 47% year-over-year to $81.2 million and exceeded the consensus estimate of $77.4 million.

Delving deeper into the revenue components, Subscription revenue, comprising about 71% of revenues, rose 45% from the same quarter last year. Notably, the company ended Q1 with paid subscribers of about 2.9 million, up 60%. Also, subscription bookings of $78.5 million, increased 56% from the prior-year quarter.

Advertising revenue was also up 27% to $11.7 million. Duolingo English Test income climbed 60% to $8.1 million.

Duolingo also witnessed record-high monthly active users (MAUs) and Daily active users (DAUs) during the quarter. MAUs grew 23% to 49.2 million, while DAUs rose 31% to 12.5 million from the prior-year quarter.

Duolingo posted an adjusted EBITDA of $3.9 million, much higher than the $0.9 million delivered in the same quarter last year. The rise in adjusted EBITDA was due to elevated stock-based compensation expenses related to equity awards.

Outlook

For the second quarter of 2022, Duolingo is projecting total bookings of between $86 million and $89 million. Revenue is expected to range between $84 million and $87 million, compared with the consensus estimate of $81.4 million. Adjusted EBITDA loss is expected between $4 million and $1 million.

The company also provided guidance for the full-year 2022. Total bookings are anticipated to be in the range of $388 million to $397 million. Revenues are projected to be between $349 million and $358 million, compared with the Street’s estimates of $338.9 million.

Stock Rating

Following the release, JMP Securities analyst Andrew Boone reiterated a Buy rating on the stock with a price target of $128, implying 91.1% upside potential to current levels.

The analyst said, “With product optimization that improves the user experience and makes it more effective and fun, we believe Duolingo has a long runway for growth as it penetrates the $50B language learning market. Additionally, with multiple near-term catalysts including the accelerating rollout of the family plan, regional pricing, and a redesigned home screen as well as ongoing testing, we believe elevated growth can persist.”

Overall, the Street has a bullish outlook on the stock, with a Strong Buy consensus rating based on four Buys and one Hold. The Duolingo average price target of $110.20 implies upside potential of about 64.5% from current levels.

Insider Trading

The insider trading picture at Duolingo is also bright. Corporate insider sentiment is Positive on DUOL, as there has been $76.4 million in shares bought by insiders over the past quarter. Since January, there have been 27 buying transactions and 20 selling transactions.

Takeaway

Duolingo’s performance in the first quarter seems impressive. We expect the demand for its products to remain strong in the near term due to the hybrid working model opted by several companies as well as the inclination of consumers to take classes from the comfort of their homes.

Furthermore, the bullish sentiments of analysts and insiders keep us optimistic. Investors interested in the stock may want to delve deeper into DUOL’s fundamentals.

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