Duolingo Soars 18% on Strong Earnings and Outlook, Raymond James Upgrades Rating

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Shares of Duolingo (NASDAQ:DUOL) are up almost 18% in premarket trading Friday after the company issued a stronger-than-expected FY revenue guidance.

Duolingo reported a Q1 loss per share of 31c, while analysts were looking for a loss per share of 52c. Revenue came in at $81.2 million, topping the consensus estimates of $77.5 million.

The company reported 49.2 million monthly active users (MAUs) and 12.5 million daily active users (DAUs) in the period. The number of paid subscribers in the quarter stood at 2.9 million.

Looking forward, Duolingo expects Q2 revenue in the range of $84 million to $87 million, ahead of the analyst consensus of $81.4 million. The company forecasts an adjusted EBITDA loss in the range of $1 million to $4 million in the second quarter, while analysts were projecting a $49,000 profit.

Duolingo expects FY revenue in the range of $349 million to $358 million, down from the previous forecast range of $372 million to $382 million, and compared to the analyst consensus of $338.8 million.

The company anticipates FY adjusted EBITDA of $0 to $3 million, compared to the previously expected EBITDA loss of $1 million to $5 million, while analysts were expecting an estimated loss of $2.73 million.

"Thanks to our strong results this quarter, we are increasing our guidance for bookings, revenue, and adjusted EBITDA for the full-year 2022,” the company added.

Raymond James analyst Aaron Kessler upgraded DUOL stock to Outperform from Market Perform with a $98.00 per share price target. The analyst is more confident in the DUOL story amid an acceleration in user metrics.

“The company continues to demonstrate strong momentum, and we believe the valuation is attractive at ~6x 2023 EV/revenues given ~25% LT growth and 30%+ LT EBITDA margins… Our positive view of Duolingo is based on: 1) large learning and language TAM that is increasingly shifting to digital; 2)Duolingo’s market leadership and product and tech-driven culture; 3) freemium model drives strong user growth and cost-effective marketing; and 4) we expect 25%+ long-term revenue growth and 30-35% EBITDA margins,” Kessler said in a client note.

Goldman Sachs analyst Eric Sheridan reiterated a Neutral rating but noted a “strong start” to 2022 from the company. A new price target is $106.00 per share, down from $120.00.

“Longer term, we remain constructive on DUOL’s business model as a leader in the global language learning market with users, engagement, and monetization well above that of its direct competitors. The company's freemium model, which generates revenue primarily from paid subscriptions and ads served to free users, is disrupting the $61bn language learning market, only 20% of which is currently online and a substantially lower percentage currently on mobile. Over the next few quarters, we see the short term debates focused on forward user growth, payer conversion potential, and whether the growth opportunities are priced in at current levels.”

By Senad Karaahmetovic