What Happened:
Shares of language-learning app Duolingo (NASDAQ:DUOL) jumped 5.8% in the morning session after JP Morgan analyst initiated coverage on the stock with an Overweight (Buy) rating and a $270 price target. The target price represents a 25% premium to where shares traded when the research coverage was initiated. The analyst added, "While Google and other large companies with significant resources and strong balance sheets could ultimately increase competition within the language learning space, Duolingo's gamification/socialization capabilities, personalization, and deep data moat, proven teaching efficacy, and strong brand are key differentiating factors." After the initial pop the shares cooled down to $222.98, up 4.4% from previous close.
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What is the market telling us:
Duolingo's shares are somewhat volatile and over the last year have had 25 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 11 days ago, when the stock gained 23.3% on the news that the company reported fourth-quarter results and delivered robust user and revenue growth, leading to a nice beat on bookings. DAU growth accelerated for the 10th quarter in a row to 65% year on year in Q4, while the ratio of DAUs to MAUs improved to 30%, which highlights that engagement is improving. The top line also benefitted from strengths in the company's family plan offering and better-than-expected performance in New Year promotions.
Bottom line metrics also came in strong, with adjusted EBITDA, free cash flow, and EPS exceeding expectations, demonstrating the company's ability to balance growth and profitability. Lastly, guidance for the next quarter and the full year were ahead of expectations for both revenue and adjusted EBITDA. Zooming out, this was a great quarter that shareholders will appreciate.
Duolingo is up 4% since the beginning of the year, and at $222.98 per share it is trading close to its 52-week high of $241.21 from December 2023. Investors who bought $1,000 worth of Duolingo's shares at the IPO in July 2021 would now be looking at an investment worth $1,604.
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