Tuesday - Wolfe Research has initiated coverage on language-learning platform Duolingo Inc. (NASDAQ:DUOL) stock with a Peerperform rating. The firm cites a limited potential for near-term multiple expansion or significant upward revisions of estimates, set against high investor expectations.
Despite this cautious stance, Wolfe Research acknowledges Duolingo's promising long-term prospects, its leadership position in the industry, and opportunities for further market share gains.
The firm points out that while they are optimistic about Duolingo's future, they recommend waiting for a more attractive entry point before investing. Wolfe Research's fair value (FV) range for Duolingo is set between $140 and $230.
This valuation is based on projected fiscal year 2025 enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiples of 25 to 40 times. These multiples are higher than the median of Duolingo's comparable group but are considered reasonable by the firm due to Duolingo's superior revenue growth profile.
For reference, Duolingo shares are presently trading at 34.6 times the projected 2025 EBITDA and at 70.5 times the projected 2025 earnings per share (EPS). This is in comparison to the historical median multiples of 68.4 and 92.8 times, respectively.
The current trading multiples suggest a more modest valuation relative to historical figures, which may reflect the market's tempered expectations for the company's financial performance.
Wolfe Research's initiation of Duolingo with a Peerperform rating reflects a neutral outlook, balancing the company's strong growth prospects with the current market valuation and investor sentiment.
The firm's analysis suggests that while Duolingo is well-positioned for growth, the timing for investment should be considered carefully, with an eye towards future valuation opportunities.
In other recent news, Duolingo has made significant strides in its business operations. The company has acquired Hobbes, a Detroit-based animation and motion design studio, marking its second acquisition following the purchase of Gunner in 2022. This move aims to bolster Duolingo's design capabilities, particularly in motion design, and contributes to the company's user experience strategy.
Duolingo's first-quarter earnings surpassed expectations, with robust growth in revenue, bookings, and daily active users. The company also raised its full-year guidance for both bookings and revenue growth, indicating a positive financial outlook.
Analysts have shown confidence in Duolingo's growth potential. DA Davidson initiated coverage on Duolingo with a Buy rating and a price target of $250. Similarly, JMP Securities upgraded Duolingo to Market Outperform with a price target of $260. Needham, another financial services firm, increased its price target on Duolingo to $267 from the previous $241, following the company's strong first-quarter earnings.
These recent developments underscore Duolingo's ongoing growth and potential in the digital education industry. The company is making strategic investments in new areas such as math and music and is expanding its offerings for English learners. These developments are part of Duolingo's strategy to enhance its educational offerings and reach a broader audience.
InvestingPro Insights
As Wolfe Research weighs in on Duolingo's (NASDAQ:DUOL) current valuation and future prospects, real-time data from InvestingPro provides additional context for investors considering the language-learning platform. Duolingo's impressive gross profit margin stands at 73.28% over the last twelve months as of Q1 2024, underscoring its ability to efficiently monetize its user base. Furthermore, the company's revenue growth remains robust, with a 44.33% increase over the same period. This aligns with Wolfe Research's recognition of Duolingo's superior revenue growth profile.
InvestingPro Tips also highlight that Duolingo holds more cash than debt on its balance sheet and that analysts have revised their earnings upwards for the upcoming period—factors that could influence investment decisions. Additionally, with a market cap of approximately $8.28 billion and a fair value estimate of $146.11 according to InvestingPro, Duolingo's financial health and growth trajectory are evident. For those looking to delve deeper into Duolingo's financials and future outlook, InvestingPro offers over 13 additional tips to guide investment strategies. Investors can use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, gaining access to these valuable insights.
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