1 Growth Stock, Down 54%, to Buy for the Long Term

If you've been watching the stock market lately, you know that the technology sector is in the midst of a persistent sell-off that began in November 2021. Many individual high-growth stocks have plunged by 50% or more, which by definition places them in bear market territory.

History suggests market declines like these often present buying opportunities, mostly for select quality stocks with sound underlying businesses and expanding addressable markets. Perhaps more crucial, though, is to purchase with a focus on the long term so as to ensure the best results. 

Language education-technology company Duolingo (DUOL 4.18%) is on the cusp of a major growth opportunity, and with its stock price down 54% from its all-time high of $205 a share, now might be the time to get involved.

Image source: Getty Images.

Duolingo is a global leader in language education

Duolingo is new to the public markets, having been listed in July 2021. But the company was established in 2012, and it has grown to become the global leader in mobile language education. Its success is attributable to its unique smartphone app, which makes users feel less like they're studying and more like they're playing a game, which appeals to their competitive streak and even features a global leaderboard. 

The Duolingo app has amassed over 500 million downloads since its inception, and although the company only added paid subscriptions in 2018, it has quickly become the highest-grossing app in the education category in both the Apple App Store and Alphabet's Google Play store. 

The company estimates 1.8 billion people are currently learning languages around the world, so it has captured less than a third of its total addressable market thus far. But Duolingo is well placed because the market for digital language learning is expected to grow by 25% each year until 2025, compared to just 11% for all language learning. That could wind up being a $47 billion opportunity for the company.

Duolingo has posted impressive financial growth

Duolingo monetizes its app in three ways: Paid subscriptions account for 73% of total revenue, advertising plus in-app purchases make up 17% combined, and assessments (like Duolingo's English proficiency test) make up the remainder.

Its monthly active user growth is strong, but the growth in its paid subscriber base is even more impressive. Even as new users flock to the app, the percentage of them who end up as paid subscribers is accelerating. 

Data source: Duolingo. CAGR = compound annual growth rate.

As a result, the company's revenue is soaring.

Data source: Duolingo, Yahoo! Finance. CAGR = Compound Annual Growth Rate.

Duolingo is expected to report its fourth-quarter 2021 results in late February or early March, which should crystallize the above revenue estimate. Early analyst projections for 2022 suggest the company could deliver $322 million in revenue this year, adding another 30% in growth compared to 2021.

The best is yet to come

Duolingo has recognized an explosive opportunity in developing nations, which could be a source of unprecedented growth for the company, unlike anything it has seen to date.

During 2020, the Duolingo app grew by 400% in India. The driver is simple: Between 2017 and 2022, over 500 million people will have accessed the internet for the first time in that country, opening the door to educational tools like Duolingo. As smartphones and data continue to become cheaper, demand for digital education will grow, especially among those in developing nations wanting to learn mainstream languages like English.

Duolingo isn't a profitable company just yet, but it's still finding its feet as a revenue-generating one. It has built incredible scale, and earnings should eventually follow. So the recent 54% dip in its share price is a great buying opportunity for investors with a long-term focus.