Duolingo (DUOL 7.28%) stock has been a safe place for investors in 2022, at least compared to the broader market. It has declined by 6% this year, which is far less than the 19% drop in the Nasdaq-100 technology index. 

The outperformance is due to Duolingo's resilient business, which has performed well even in the face of soaring inflation and rising interest rates. The company has grown to become the largest digital language education provider in the world with more than 500 million downloads across its mobile applications. 

Duolingo just reported its financial results for the second quarter of 2022 on Aug. 4, and its rapid growth continued -- so much so that the company raised its guidance for the full year. Here's why it's not too late for investors to get involved.

A person smiling while holding flags from three different countries, with an open laptop computer in the background.

Image source: Getty Images.

Language learners love Duolingo

One of the keys to Duolingo's success is its gamified platform. The company has made the learning experience fun, interactive, and social, which makes users far more likely to remain consistently engaged. And since Duolingo is a mobile-first application, it's accessible from absolutely anywhere -- no classroom required. 

Almost 50 million learners used Duolingo on a monthly basis during the second quarter of 2022, which was a 31% jump compared to the same quarter last year. While the platform is free to use, there are paid subscription options that unlock additional features. The number of users paying a subscription jumped by 71% in the second quarter to 3.3 million, and they now represent 7.2% of the monthly active user base -- a figure that has consistently grown in every quarter over the last two years.

Duolingo is now the highest-grossing education app in both Apple's App Store and Alphabet's Google Play Store, and it's thanks to users' rapidly increasing willingness to pay for the service. Duolingo only introduced paid subscriptions in 2018, so its rise to the top has been swift.

But the company still has a sizable opportunity ahead because it estimates that over 1.8 billion people are learning foreign languages worldwide. 

Duolingo's revenue is growing rapidly

In the second quarter of 2022, Duolingo generated $88.4 million in revenue, an increase of 50% year over year. Total bookings also kept pace, growing by 51% to $97.5 million. Bookings are important to track because they often reflect goods and services that have been paid for but won't necessarily be delivered to the customer or recognized as revenue until some point in the future. As such, they're a good indicator of Duolingo's future revenue growth. 

The strong results led the company to revise its total bookings guidance higher for the 2022 full year; it now expects to deliver up to $410 million compared to $397 million previously. Similarly, Duolingo now expects to generate up to $367 million in revenue for the year -- powerful growth of 46%, and up from $358 million previously.

Duolingo isn't a profitable company at the bottom line just yet because it's still investing heavily in attracting new users and improving its platform to generate growth. But it does anticipate positive earnings before interest, tax, depreciation, and amortization (EBITDA) in 2022 of as much as $7 million, which would be an improvement from a loss of $1.1 million in 2021. 

Why Duolingo stock is a buy during this downturn

The Duolingo platform could be on the cusp of a growth surge as it taps into new, emerging markets. During the second quarter, its app was reinstated in China after that country blanket-banned several foreign technology applications last year. China only accounts for about 2% of Duolingo's user base, but the number of daily active users in China has nearly doubled already since downloads resumed. 

The company has also been growing in India, which, like China, is a market with over 1 billion people. Duolingo expects that between 2017 and the end of 2022, over 500 million Indian citizens will have accessed the internet for the very first time thanks to affordable mobile data plans. During 2020, Duolingo saw a 400% increase in users in that country alone, and India remained a priority market for the company in 2021 as well. 

Duolingo stock might be outperforming the Nasdaq-100 this year, but it's still down 51% from its all-time high. History suggests that the broader market always bounces back over the long term, and so given the quality of Duolingo's business combined with the opportunities ahead, now might be the opportune time to build a position in the company.