Trading at a price-to-sales valuation of over 8, which I consider pricey, I need a high level of confidence in Duolingo's ability to grow revenue for many years in order to invest. Even if a person is interested in paying today - let's say in preparation for a trip next year - that willingness goes away once the need for learning a language passes. However, I believe there's a ceiling on how many people will be willing to pay to learn a language during a given time period. But 75% of revenue in the third quarter of 2022 came from subscriptions. And there were only 3.7 million paying Duolingo subscribers at the end of Q3, compared with 56.5 million monthly active users.ĭuolingo's paying subscribers were up 68% year over year in Q3, which is sensational growth. The company generates revenue in multiple ways. Why Duolingo's recent moves matterĪ tiny percentage of Duolingo users account for the majority of the company's revenue. And that's hugely relevant to an investment thesis. If early download data is any indication, I was wrong about Duolingo Math and Duolingo does have a broader opportunity than just language learning.
After all, the very name implies something linguistic. However, from my point of view, Duolingo's brand recognition wouldn't extend beyond language learning and into other categories. In its filings with the Securities and Exchange Commission (SEC) to go public, Duolingo said, "In 2020, approximately 90% of our growth came from organic sources such as word-of-mouth." Therefore, it clearly has brand recognition. However, I had my doubts regarding the feasibility of those ambitions. From its start as a public company in 2021, management discussed become a broader education-technology company. Duolingo's foray into math isn't a surprise.
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