Why Duolingo shares soared 28.4% in September

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What happened

Language app shares Duolingo (NASDAQ: DUOL) rose 28.4% in September, according to data from S&P Global Market Intelligence. The stock opened at $ 130 a share on September 1 and closed at $ 166.36 on September 30. reflected by declines for the month in the Dow Jones Industrial Average (DJINDICES: DJI), S&P 500 (SNPINDEX: GSPC), and Nasdaq Composite (NASDAQ INDEX: IXIC).

So what

The reason Duolingo managed to swim against the market last month is because it had a successful initial public offering (IPO) on July 28, followed by a promising second quarter report. end of August. The biggest news from the report was that Duolingo is still seeing growth, even compared to the same quarter last year, when COVID-related lockdowns left many people at home with time to learn a new language.

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The company, in the second quarter, reported revenue of $ 58.8 million, up 47% year-on-year, gross profit of $ 42.7 million, a 51% increase from the same period in 2020 and adjusted EBITDA of $ 3.7 million, compared to $ 1.4 million, year after year.

Another thing that may have helped Duolingo is that competitor Babbel’s IPO was pulled because the company cited unfavorable market conditions.

Now what

There is still a lot of growth in language learning, with Duolingo citing research that places the compound annual growth rate for online language learning at 25.4% between 2019 and 2025. The company has set targets. financial objectives to have revenues for the year 2021 between 236 and 242 million dollars, which would represent a growth of 46 to 50% compared to the previous year.

However, Duolingo’s goal will be to add more paying subscribers and grow its business beyond language learning. The biggest concern is that Duolingo has yet to show that it has the ability to expand into subjects other than languages ​​and that its game-like learning approach will work for teaching math or math. other subjects.

There are also concerns that the Duolingo share price will become too fast. The company’s price-to-sales ratio is 29.04, which seems a bit high considering the growth of Duolingo.

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Jim Halley has no position in the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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