Duolingo, How this highflying stock fell 20% in one day

Duolingo has been a public company since August ‘21, when it managed to just pick the top of the covid-bubble. Trading initially started at about $140 and whilst the share price ticked up initially, it dropped to a low of about $60 in 2022 as the markets were coming back to reality. Why am I saying this? Two days before this earnings report, the stock peaked at $250 making the business worth over $10 billion. With that being said, let’s dive straight into the earnings release and conference call.

I will post the table with earnings increases below as this makes it easier to comment on, but the share of Monthly Active Users, also being Daily Active users increased year over year by about 420bps to 32.17%, from 27.96% as paid subscriber penetration also increased slightly

The financial metrics also show a very much improved picture over last year as the adjusted EBITDA margin increased from 13.1%, to 26.3%. Paid subscribers totaled 7.4 million for the quarter, an increase of 54% from the prior-year-quarter.
Cashflows from operations increased by 282% as they were $83.5 million for Q1’24, compared to $29.6 million during Q1’23.
In that same order, Free Cash Flow came to $79.6 million, up from $28.8 million.

Duolingo managed to beat the expected numbers for Q1’24 as they came in with $0.57 of EPS vs $0.27 expected, and $167.55 million in revenue vs $165.60 expected. The company also raised its bookings, and revenue guidance for FY’24. They now expect bookings growth of 31% and revenue growth of 38%.

As for the earningscall this was on the classical Zoom conference call. They also started the earningscall with an advertisement for Duolingo on ice, a variant of holiday on ice but with the Duolingo bird. Furthermore, the call itself was a typical Zoom call, which is quite untypical for a earningscall, but it was fun to see.

It can only be said that Duolingo was victim to its high valuation. After the stock rose 90% in the last year, growing to a 10 billion dollar market cap, even beating on both revenue, EPS, and raising guidance couldn’t safe it from falling.

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