If you want to see how far Duolingo (DUOL 3.64%) has embedded itself into the mainstream, join the bazillion people that have helped turn Barbie into a $1 billion global box office sensation this summer. The language-learning platform makes a surprising cameo in the film, when a character is trying to brush up on his Spanish. The app is never mentioned by name, but everybody in the multiplex knows the program he's using the moment that the character is rewarded with the signature Duolingo chime.
Duolingo had no problem hopping on Barbie's hot-pink coattails last month. It sent its bright green owl mascot in full-on Barbie regalia to the movie premiere, showcasing it in a TikTok video that has amassed nearly 3 million likes and countless more views. Its in-house marketing team was also quick to turn around a video ad showcasing the in-movie lesson.
If you want to see how far Duolingo has come financially, you won't have to wait much longer. The fast-growing company reports fresh financial results this week. The stock has nearly doubled this year, climbing 93%. It will clearly be on the move -- one way or another -- after its second-quarter numbers roll out shortly after Tuesday's market close.
Lost in translation
There were 72.6 million active Duolingo users at the end of March, a stunning 47% jump over the past year. With the economy starting to open up and international travel increasing, it's not a surprise to see folks flocking to the leading language-learning app.
Duolingo is obviously not the only way to work on your reading and conversational skills with a new language. Babbel and the once publicly traded Rosetta Stone offer full-featured training solutions. Duolingo stands out with its less formal approach, offering shorter lessons and gamification elements as you compete against fellow learners.
Unlike Babbel and Rosetta Stone that may offer short trial periods before hitting a paywall, Duolingo is all in on the freemium approach. It's entirely free to use, but more active users find themselves paying up for premium subscriptions to strip away ad breaks and experience enhanced features.
Image source: Getty Images.
Engagement is working at Duolingo. A 47% bump over the past year in active users is great, but a 62% leap in daily active users is even better. The number of paid subscribers on the platform soared 63% in its latest quarterly report back in May. Revenue rose a better-than-expected 42% in the first quarter, and that was with weakness in the overall ad market getting in the way of effectively monetizing its free users.
The news was even better on the bottom line. Duolingo posted a much narrower quarterly loss than analysts were expecting. It has trounced profit targets -- by a double-digit percentage margin -- in each of the past four quarters. Analysts see revenue rising 40% in this week's update, with its deficit cut in half. A beat on both ends of the income statement shouldn't surprise anyone.
The last major analyst to offer a financial update was Zach Morrissey at Wolfe Research back in late June. It wasn't kind. He called the shares "priced for perfection" in initiating coverage with a neutral peer perform rating.
The stock has fallen nearly 10% since the analyst note, so today's pricing is kinder. It also bears noting that some of the best growth stocks get tagged with that "priced for perfection" and continue to head higher. With Duolingo's strong track record of exceeding recent expectations, it's better to bet on it than against it at this point.
There won't be a Barbie bump for the second quarter itself. The hit movie came out weeks after the reporting period came to a close in June. However, any positive impact of the brief but memorable movie tie-in should be reflected in the guidance that Duolingo provides. The stock has a lot to prove after nearly doubling in 2023, but it continues to be one of the fastest-growing education stocks in the market.
