Technology is revolutionizing the education industry. Smartphones have placed valuable learning opportunities at our fingertips, and Duolingo (DUOL -0.71%) has developed a market-leading mobile app to teach foreign languages to millions of users worldwide.
The company has a soaring market opportunity worth billions of dollars, and it has only captured a fraction of it so far, leaving room for significant growth in the future. With Duolingo stock down 56% from its all-time high amid the broader tech sell-off, now might be the time to jump in while it continues to scale its business.
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Duolingo's journey to the top spot
Duolingo was launched in 2012, but it only introduced paid subscription options on its app in 2018. They make up 72% of the company's total revenue, with advertising and one-off purchases contributing the rest. It's therefore incredibly impressive that Duolingo has so quickly become the highest-grossing mobile app in the education category across both Apple's App Store and Alphabet's Google Play Store.
In 2019, 900,000 Duolingo users opted to unlock additional features by becoming paid subscribers, representing 3% of the platform's monthly active users. By 2021, that number soared by 177% to 2.5 million subscribers, or 6% of Duolingo's monthly active users.
Duolingo says that 90% of its user growth in 2021 was entirely organic, through word of mouth. That's in stark contrast to most technology companies, which spend big on marketing to acquire new users. And to retain paying subscribers, Duolingo has rolled out initiatives like its family plan, designed to encourage use of the app by multiple people in the same household.
The future is even brighter
Over 500 million users have downloaded the Duolingo app, but that's just a fraction of its addressable market. The company estimates that over 1.8 billion people are currently learning a foreign language across the globe, and emerging markets like India could be a rich source of growth. In 2020 Duolingo experienced 400% growth in that country alone, thanks to the ongoing decline in the cost of internet access.
The company placed the value of its annual market opportunity at $19 billion in 2021, and as this chart suggests, it has only captured a tiny portion of that with its $250 million in revenue.
The addressable market for digital language learning is growing at 25.4% each year, which will place Duolingo's annual opportunity at $47 billion by 2025. That growth rate is more than twice as fast as the 11% rate the overall language learning market is expanding at, emphasizing the rapid shift to digital education.
Duolingo has grown its revenue at a compound annual rate of 88% since 2019, and since that's significantly faster than 25.4%, it suggests the company is capturing an increased share of the digital language education market over time.
The Duolingo app could experience accelerated popularity in the coming years as it introduces new offerings like Japanese and Korean, which are among the fastest-growing languages to learn. Additionally, it's building artificial intelligence into the platform to provide more personalized feedback when a user makes mistakes, which should improve engagement and speed up results.
On the whole, Duolingo is making all the right moves to maintain its reign of dominance in this innovative industry, setting up a major long-term growth opportunity.
