Dear, Ladies, gentleman and degenerate market regards
I’ve been doing a deep dive into one particular public company called Duolingo. You might be saying “wtf the language learning app?”. Yes correct, that app with the green owl. A company can be selling dog food for all I care, but if the numbers and the narrative are good, I'm buying. That being said, Duolingo ($DUOL) is slowly presenting an amazing opportunity as the stock price continues to fall. Opportunities like this is how life changing wealth is made. When everyone is betting on the downfall, you take the other side of that trade and bet against them all. The risk to reward ratio on this is too good to ignore.
Would also like to mention, if you’re an ape who has been buying into the hype of palantir with a disgusting 600 PE ratio, so high that you might as well buy your local pizza shop thats makes 100k a year for 50 million, then duolingo should not be a problem for you to take a chance on.
**The Narrative**
The bubble has officially popped on Duolingo due to rising fears of competitors entering the market. The two main competitors as of right now are OPENAI, and the tech giant GOOGLE. People are discovering through OpenAi that you can create your own language learning game and are rumoring that people will no longer need duolingo. Google had also announced that they will be entering the language learning app space with google translator utilizing ai for live language conversion. Duolingo did also damage their PR by announcing they would be utilizing AI as well, which the public did not take lightly as they misunderstood it for replacing their employees with AI. Users also had reason to believe that AI will create poor quality content in comparison to having humans manually make the courses which may be true; however, if other companies are in the race utilizing AI for language learning, then Duolingo must compete. Those 3 narratives were enough to pop the bubble of duolingo as it has fallen from $542 to $282 as of today. Can the stock fall further? Yes it can, but it's one of those scenarios where you want it to.
The P/E ratio of Duolingo was over 300 at its peak on May 15th 2025. Yes the company was way overvalued at the time for a growth company, (a fair valuation for growth companies range between (40-80) however the company is consistently beating earnings expectations and their free cash flow continues to rise higher and higher. Today that P/E ratio has dropped to 122 and its price to sales ratio has dropped to 15:1. Yes those numbers still do seem high, but
as their free cash flow continues to rise, that P/E ratio will drop into fair valuations. Understand that this company is growing on average 40% year over year. For those who don't understand, markets are always forward looking. The institutions and retail investors who are buying into this company are betting on the fact that the over valuation numbers will drop as they consistently report good earnings, revenue and forward guidance.
**The Bull Thesis**
So before being able to predict the future, you first need to look into the past where history doesn't always repeat itself, but it sure does rhyme. Take a look at the success of Netflix. Even when Amazon, Apple, Disney and Google (youtube) entered the space of video streaming, people thought Netflix would be in serious trouble. In 2011, Amazon announced that they would offer Amazon prime video for free with their subscription; while at the same time Netflix decided to increase their prices by 60%.
Customers were furious and Netflix lost over 800 000 subscribers in 1 quarter. This resulted in their Free cash flow dropping from 59 million in quarter 2 of 2011, to 15 million in quarter 3 of 2011. Eventually their free cash flow did fall into the negatives and recovered in 2013 (you can see how the stock follows that on the charts).
**The Moat**
There is no moat. Just branding. “How is this bullish?” Well lets think, what’s Spotify's moat? What about Netflix? Literally just branding is the moat, so people who think duolingo’s demise is due to a lack of a business moat are delusional. It’s like saying in the year 2000, “why would anyone buy into amazon when anyone can make a website and sell books?” fucking regards.
**User Experience**
When you look at music streaming services, spotify ($SPOT) was the first to the game publicly. Eventually, Apple, Google (youtube), Amazon and about 20 other music streaming platforms nobody gives a fuck about had entered the game. Yet to this day, spotify is what’s most popular among them all taking 36% of the music streaming market. Why? User experience is the answer. The spotify platform itself is what carries them and separates them from the rest for both artists and customers.
**The Brand**
The infamous green owl logo is famous across the world. Duolingo is a world wide icon for language learning. When people hear that “ding\* sound completing a duolingo game, everyone knows instantly that it's duolingo. When people ask about learning another language, they instantly point people in the direction of duolingo. It's literally the rank #13 app on the app store for apple and on the front page of “essential apps.”
When people talk to each other about music they ask “what's you’re spotify?” Nobody asks whats your “apple music, amazon music or youtube music”
When your wife’s boyfriend is asking her to come over and watch a movie, he says “netflix and chill” NOT “amazon prime, disney, or apple tv and chill?” the fuck?
I'm listing these examples, because they all have a subscription business model just like duolingo. That being said, duolingo’s subscription model is actually better than theirs.
**Business Model**
Ad revenue and subscriptions, that's it. People pay a yearly subscription for their ability to learn new languages which has been proven to be more effective and enjoyable than any other method through gamification. You got kids who are using this damn app in school, recommended by their teachers and you have parents buying it for their kids. Lets not forget that this company is now going to expand out of just language learning as they have included learning subjects like music, math and chess.
Wait? Chess? Wtf?
Yes that's exactly what I'm thinking, but if you look beyond that, Duolingo is expanding to hit the whole education market. Why pay for chess lessons from elsewhere when you can get it on duolingo with 100+ additional learning courses. Ideally, duolingo is expanding into a whole education platform, more directed towards the youth for everything. I wouldn't be surprised if they included courses like science, finance, health etc…
They have utilized AI in addition to help the teachers/course makers create new courses at a very accelerated pace. Their first 100 courses took them 12 years. Now with AI, they are generating 153 new courses in 1 year.
There is NO FRICTION.
* No governments/regulations trying to stop this
* No maintenance on their assets (courses)
* No real competition in user experience
All they have to do is create a great product (a course), add it into their catalog of other courses that comes with the subscription. The more they add, the more incentive there is to go with duolingo instead of buying learning programs elsewhere.
**The Bear Thesis**
Go fuck yourself?
On a serious note, looking at Google live translation app which they offer for free; it does seem to be very reliable, but strictly for translating. They claim to be offering language learning practice tools on their google translate app which would be free. Not to mention, there are already over 1 billion downloads of google translate. Comparing it to Duolingo, yes both of them are free, however; google has not announced whether they would put a pay wall behind learning/using their practice tool. However what google is missing in comparison to Duolingo secret formula of success would be gamification.
If the companies continues to show slower growth, or continues to show a decline in active user for the few quarters; well then, we’re fucked. But as of right now, the decline in free cash flow from last quarter to this isn’t "catastrophic," but rather a typical overreaction to the narrative.
**External Risks**
Rising interest rates. Lets be real, trump is calling for lower interest rates but obviously Jerome Powell doesn't want to follow through with it. In the long term event that they can’t afford to lower rates but rather might increase rates; the broad market does face the risk of a downturn just like in 2022-2023, which of course would most likely add more downward pressure to the stock and market as a whole.
Another external risk that may present itself is a massive bull market in gold, and extreme volatility in government bond markets, more specifically the 10 year yield bonds. For those who don't understand, a massive bull market in gold has always signaled warning signs that something is about to break in the financial system, because gold has always been considered the safe haven asset. Extreme volatility in bond markets signal panic when the yields spread too far apart from the benchmark rate of the federal reserve, which stands at 4.25 as of right now.
Cash from Operations
2025(Q2) 2025(Q1) 2024(Q4) 2024(Q3) (2024)Q2 2024(Q1) 2023(Q4)
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|90.675M|105.631M|83.344M|56.267M|62.388M|83.514M|49.214M||
Capital expenditures
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|\-4.351M|\-2.619M|\-2.44M|\-5.023M|\-8.656M|\-5.021M|\-4.184M|
Free cash flow = cash from operations - capital expenditures.
Notice how their free cash flow keeps on rising? Notice how free cash flow has dropped in Q2 compared to Q1 of 2025? That small decline in free cash flow, paired with the narrative of the company's demise in the future has resulted in a crash from $542 to $282. Let me tell you right now, if this company reports an increase in free cash flow in the next few earnings calls; Not only can the narrative change from negative to positive, this stock can very well turn around and go bullish very fast.
**The Numbers (QUARTER OVER QUARTER) (2024/2025)**
**Shares outstanding**: 45.6 million (Plenty of room for future stock splits)
**Beta(TTM)**: 1.7 (over the past trailing twelve months, the company moves 1.7x more volatile than the Nasdaq)
**Revenue growth QoQ**: 41%
**Subscription growth QoQ**: 46%
**Free Cash flow growth QoQ**: 61%
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|**(in millions)**|**Q2 2024**|**Q2 2025**|**YoY**|
|**User Metrics**||||
|Monthly active users (MAUs)|103.6|128.3|**24%**|
|Daily active users (DAUs)|34.1|47.7|**40%**|
|Paid subscribers (period end)|8.0|10.9|**37%**|
|**Operating Metrics**||||
|Subscription bookings|$156.5|$227.3|**45%**|
|Total bookings|$190.1|$268.0|41%|
|**GAAP Financial Measures**||||
|Revenues|$178.3|$252.3|**41%**|
|Subscription revenues|$143.9|$210.7|**46%**|
|Gross profit|$131.0|$182.6|39%|
|Gross margin (%)|73.4%|72.4%|\~(1) pts|
|Net income|$24.4|$44.8|84%|
|Net cash from operating activities|$62.4|$90.7|45%|
|**Non-GAAP Financial Measures**||||
|Adjusted EBITDA|$48.1|$78.7|64%|
|Adjusted EBITDA margin|27.0%|31.2%|\~4 pts|
|Free cash flow|$53.7|$86.3|**61%**|
|Free cash flow margin|30.1%|34.2%|\~4 pts|
The stock price of Duolingo hovering at $270 is basically assuming the company’s growth over the next 5 years would only be at about 25%. If you take a look at the numbers above, the only thing that's under 25% are the monthly active users. The Company is projecting on its forward guidance about 35% YoY growth; which means the stock price is falling towards undervalued territory. The company has been growing at about 45% annually over the past 5 years, so yes a 35% growth on forward guidance does signal a decline in growth. But if you want to take the contrarian approach to the company, believing that AI will accelerate the growth of the company and Google means fuck all; this would be an amazing buying opportunity.
P.S -This is not financial advice, I'm not a financial advisor. This is just my opinion on my projections of this company's stock price. If you buy high, panic, then sell low, too bad, sucks for you. Would recommend buying and holding the stock as we don't know how long this negative narrative will play out. (maybe **WRITING** covered calls OTM for a passive income) If you're a regard and you choose to gamble your life savings **Buying** OTM call options, good luck.
https://preview.redd.it/8jy1qbkig5qf1.png?width=1148&format=png&auto=webp&s=fa02e88ce375e98ba727a56a9753288d18a20ce0