The tech-centric Nasdaq-100 index might be in the throes of a bear market right now after falling 28% from its all-time high, but there are plenty of individual stocks in the technology sector delivering stellar performances from an operational perspective.
It's a reminder of an important lesson: stock prices aren't everything. A stock that has fallen significantly doesn't mean it represents value, but a business that exceeds expectations combined with a discounted stock price can be a game-changer for most portfolios over the long term.
Digital language-education company Duolingo (DUOL 2.71%) definitely fits in the latter category, at least when you look at its first-quarter 2022 results, which revealed soaring growth, among other positive surprises. Here are the details and why this stock is a buy after its earnings release.
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Duolingo is breaking records
Duolingo estimates that 1.8 billion people worldwide are learning a foreign language, and by 2025, its opportunity in educating them digitally could exceed $47 billion annually. The company is already leading the charge with the highest-grossing mobile app in the education category across both the Apple App Store and Alphabet's Google Play Store.
In the first quarter of 2022, Duolingo's monthly active users (MAU) climbed 23% year over year to 49.2 million, but the number of users paying a subscription to unlock additional features is soaring far more quickly.
Of Duolingo's MAUs, 6.8% now pay to enhance their educational experience, which is an all-time high. Since the rate at which existing users are paying is growing faster than the rate at which Duolingo is adding new users, it suggests the company could see a rapid acceleration in revenue growth going forward.
It's starting to show already with sales jumping 47% to $81 million in the quarter, and bookings growing an even faster 55% to $102 million -- both of these results are record highs for the company. Bookings are a key metric to watch because they can be indicative of revenue Duolingo plans to recognize at a point in the future.
A promising story is unfolding
Duolingo stock soared 12% in after-hours trading when it announced its stellar earnings results. Part of the reason was a surprise positive adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization), which shows profit after deducting costs like interest, taxes, and stock-based compensation. While this isn't true profitability by definition, it marks significant progress on Duolingo's path to positive earnings.
This result, along with the company's strong user growth and revenue, prompted the company to increase its guidance for the 2022 full year. This is a huge positive in a shaky broader market where many other technology companies are reducing their outlooks in light of more difficult economic circumstances.
Duolingo now expects to generate up to $358 million in revenue this year, representing 43% growth compared to 2021, and it also anticipates positive adjusted EBITDA of up to $3 million. This is an increase from $342 million in revenue and adjusted EBITDA of negative $5 million in the company's previous round of guidance.
The company is purpose-driven
Beyond all the facts and figures, the Duolingo app provides a valuable service in many parts of the world, and therefore the company is very purpose-driven.
The war in Ukraine has driven a 513% increase in the number of Duolingo users learning Ukrainian globally, many of them from European countries like Poland that are regularly welcoming Ukrainian refugees.
In line with Duolingo's mission to make the best language education universally available, the company elected to donate all advertising revenue generated from students studying Ukrainian to Ukraine relief, and it's waiving all test fees for Ukrainian users who want to earn an English language accreditation.
While this unique circumstance might not be the sole reason to buy the stock, it's clear the Duolingo app serves a much higher purpose than many app-based technologies, and it could underpin the company's longevity far into the future.
