At the time of that tweet on May 10th — Duolingo was up 6X since we profiled the stock in April of 2022. By the way, you can read the 2022 piece here — now removed from paywall.
Earlier in January of the same year I wrote a twitter thread to address investor bias against recent IPOs like Duolingo and value-investor misconceptions surrounding platform companies.
In the tweet screenshot above I highlighted two lines:
Even optionality lies on a spectrum.
Optionality is NOT binary. Optionality has a price.
We will touch on the optionality angle and what it could be worth in the case of Duolingo, in the piece.
—> If you want to learn more about valuing platform type companies and assessing optionality — join us at Philo’s Academy.
Since the tweet, Duolingo dropped by 30% with JP Morgan later lowering its target price to $500 (from $580) due to “user growth concerns” — the share price is now at $360.
Year End 2021
Year end 2021 Sales stood at $294mln and an 11X EV to Sales.
Value-oriented investors seldom like high multiples, but I argued that one needs to see beyond the multiples (i.e. the shadows) — and rather focus on the engine behind those multiples:
i.e. The business and the business model.
Since the piece, DUOL stock added >$12bln in value on the back of increased sales powered by a higher user count and an expanding product base.
This across-the-board expansion was part of our thesis back in early 2022.
Critics scoffed at the valuation and the lack of “profitability” but we saw deep product moats, strong retention dynamics, and platform leverage that would unfold over time.
Our 2022 Duolingo piece is a case study in explaining these dynamics with simple language. As I said, you can access it here.
Now let’s look into Duolingo’s business progress since then and assess its prospects relative to its current valuation. We will look into the angle of optionality that the company pulled to achieve this performance — and note an interesting lever that the company is just now starting to pull.
This last one could be the secret for the company unlocking much more value down the line.
Where do we go from here?
Note that Philoinvestor pieces always have a conclusion in the end for maximum time efficiency.