On Tuesday, Goldman Sachs increased its price target for Duolingo Inc. (NASDAQ: DUOL) to $250 from the previous target of $198, while maintaining a Neutral rating on the stock. The revision follows a reassessment of the company's operating estimates ahead of its third-quarter 2024 earnings report.
The firm's analyst highlighted key insights gained from Duolingo's participation at the Communacopia + Technology conference held in early September and the insights from DuoCon on September 24th. These events provided data that prompted an upward adjustment in daily and monthly active user estimates. Additionally, the analyst raised the average revenue per user (ARPU) expectations, citing positive effects from a shift towards family plans and the introduction of Duolingo Max.
Despite the optimistic user engagement and monetization outlook, the Neutral rating reflects ongoing debates among investors regarding the sustainability of Duolingo's revenue growth and margin trajectory. The analyst emphasized Duolingo's strong position in the global language learning market, with its user engagement and monetization significantly outperforming direct competitors.
The stock's current performance was also a factor in maintaining the Neutral rating. Duolingo's shares have seen a +27% increase year-to-date compared to the S&P 500's +20% and have surged +75% over the past 12 months, outpacing the S&P 500's +33%. This robust performance suggests that expectations for future growth and margin improvements may already be reflected in the stock's price.
The price target adjustment to $250 is based on the revised growth profile implied by the new operating estimates, as stated by the Goldman Sachs analyst. The updated target reflects the firm's outlook on Duolingo's potential over the next 12 months.
In other recent news, language learning platform Duolingo Inc. has seen several significant developments. The company's third-quarter results for 2024 are expected to be robust, reflecting its excellence in execution and management. Notably, JMP Securities has downgraded Duolingo's stock from 'Market Outperform' to 'Market Perform', attributing the adjustment to the company's current valuation, despite its potential to surpass consensus estimates.
In contrast, other firms like Evercore ISI, Needham, and JPMorgan have raised their price targets for Duolingo, citing strong growth prospects and the unveiling of AI-driven features. The company's recent product enhancements, including Video Calls and Adventures, are expected to improve user experience and engagement.
However, the future growth of Duolingo is likely to depend more on retaining existing users and re-engaging former ones. The company's new product, Max, currently available in five courses across 27 countries, is expected to have a full financial impact by 2025. JPMorgan projects significant growth in Duolingo's Max paid subscriptions, estimating revenues of $44.3 million in 2024 and $134.2 million in 2025.
InvestingPro Insights
Duolingo's strong market performance, as highlighted in the article, is further supported by recent InvestingPro data. The company's stock has shown impressive returns, with a 50.1% increase over the last three months and an 80.05% gain over the past year. This aligns with the Goldman Sachs analyst's observations on Duolingo's outperformance compared to the S&P 500.
InvestingPro Tips reveal that Duolingo's net income is expected to grow this year, and analysts anticipate sales growth in the current year. This positive outlook is consistent with the upward adjustments in user estimates and ARPU expectations mentioned in the article. The company's impressive gross profit margins, currently at 73.31%, underscore its strong monetization strategy, which includes the shift towards family plans and the introduction of Duolingo Max.
However, investors should note that Duolingo is trading at a high P/E ratio of 183.75, which may reflect the high growth expectations already priced into the stock. This valuation metric aligns with the Goldman Sachs analyst's decision to maintain a Neutral rating despite raising the price target.
For readers interested in a more comprehensive analysis, InvestingPro offers 20 additional tips for Duolingo, providing a deeper understanding of the company's financial health and market position.
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