What happened

Shares of Duolingo (NASDAQ:DUOL) stock -- the language education app with the green owl mascot -- surged 6% through 3:03 p.m. EST on Thursday after announcing what one analyst called a "clean beat & raise" quarter.  

Except ... it wasn't, exactly.

Simple green arrow going up.

Image source: Getty Images.

So what

On the one hand, yes, analysts had forecast that Duolingo would book only $60.5 million in revenue in its fiscal third quarter, and Duolingo actually took in $63.6 million. Likewise, bookings were up 57%, monthly active users totaled 41.7 million -- an all-time high -- and paid subscribers jumped 49% to 2.2 million.  

But on the most important metric of all -- profit -- Duolingo didn't actually "beat" but missed, reporting a net loss of $0.98 per share, which was nearly four times as bad as the $0.25 per share it lost a year ago, and worse than the $0.95 per-share loss that Wall Street analysts had predicted.

Nevertheless, Evercore ISI upgraded Duolingo stock to "outperform" on yesterday's news and raised its price target to $195 per share -- even higher than the $160 per-share-price target that Barclays assigned the stock this morning, as reported by TheFly.com.

Now what

Are the analysts right to be so optimistic about Duolingo?

On the one hand, they might be. For a growth stock like this one, growing the user base 57% and growing paying users by 49% are certainly impressive signs. Also impressive is the company's 40% revenue growth year over year. It's worth pointing out that gross profit margins at Duolingo inched up about 40 basis points to 71.5%, wringing more gross profit, at least, out of each revenue dollar.

Nevertheless, operating costs at Duolingo more than doubled year over year (up 110%), rising significantly faster than revenues improved.

Sure, it was nice to see Duolingo promise even more revenue growth in Q4, raising sales guidance to about $68 million versus Wall Street's $65.6 million estimate. But until Duolingo gets its costs under control, profitability at this stock will prove elusive.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.