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Duolingo - AI Stock Analysis

Analysis generated May 28, 2024

Duolingo, Inc. (NASDAQ: DUOL) is a leading edtech company that offers a language-learning platform with a mission to develop the best education worldwide and make it universally available. Since its inception, Duolingo has rapidly grown to accommodate millions of users globally, offering courses in numerous languages. Essentially, Duolingo revolutionized language learning by providing a gamified learning experience that is accessible to anyone with an internet connection. This commercial strategy has been remarkably effective, allowing the company to establish a strong foothold in the competitive world of educational technology.

Fundamental Analysis

Analyzing Duolingo’s financial performance reveals a strong growth trajectory:

• Revenue: In the last quarter, Duolingo recorded revenue of $168 million. This marks an increase of 10.97% compared to the preceding quarter and a remarkable 44.87% rise year-over-year. These numbers indicate strong growth and a robust demand for Duolingo’s products.
• Net Income: The net income for the last quarter was $27 million, which represents an impressive 122.46% increase compared to the previous quarter and a staggering 1,144.00% year-over-year growth. This surge reflects efficient cost management and enhanced profitability.
• EBITDA: The EBITDA for the last quarter was $19 million, which marks a 170.78% increase from the previous quarter and an extraordinary 373.98% increase year-over-year. This further emphasizes the company’s effectiveness in generating earnings from operations.
• PE Ratio: Duolingo’s current Price-to-Earnings (PE) ratio stands at 182.04. While a high PE ratio can suggest that the stock is overvalued, it also often reflects investors' high-growth expectations. However, this figure should be closely monitored as it can potentially indicate overvaluation and a bearish outlook.
• Insider Selling: The recent selling of shares by company insiders could be a bearish signal, indicating potential concerns about future stock performance from those closely associated with the company.

Technical Analysis

The technical indicators for Duolingo point towards caution:

• Current Stock Price: The current stock price of $178.40 reflects a 19.88% decline compared to a month ago but shows a 19.62% increase year-over-year. This dual nature signals short-term volatility but a generally positive long-term trend.
• Trend and Moving Average: The stock is currently in a bearish trend. The Simple Moving Average (SMA) for the last 10 days is 178.21, which is marginally lower than the previous SMA10 of 178.29. This slight decline suggests a continuation of the downward trend.
• RSI Indicator: The Relative Strength Index (RSI) is 60.3, indicating a neutral condition. An RSI near 50 usually suggests that the stock is neither overbought nor oversold, offering no clear buy or sell signal based on momentum.

Alternative Data Analysis

Alternative data offers a broader perspective on Duolingo's market behavior and future prospects:

• Job Postings and Employee Sentiment: Duolingo has 84 open positions, up by 29% in the last couple of months. This demonstrates the company’s intent to grow and expand further, which is usually a positive indicator of future performance. Employee sentiment remains neutral, suggesting a stable internal environment.
• Customer Acquisition: The estimated 84 million visitors to their webpage show a 14% decline in the last couple of months. Additionally, the decline of 12% in mobile app downloads (220,000 per day) is concerning as it may indicate a potential loss in customer interest or market saturation.
• Customer Engagement: On a more positive note, Duolingo has 2.9 million followers on Instagram and 860,000 followers on Twitter, with an increase of 22% and 4% respectively in the last couple of months. This growth in follower count suggests rising public interest and brand engagement.
• AI Score: According to AltIndex’s AI score, which incorporates fundamental, technical, and alternative data, Duolingo scores a 60. This is considered a "hold" signal, reflecting a balanced risk-reward profile.

Conclusion and Recommendation

Based on the comprehensive analysis of Duolingo’s fundamentals, technicals, and alternative data, the stock exhibits both strengths and vulnerabilities. The robust revenue growth, net income margins, and EBITDA are certainly positive indicators. However, the high PE ratio and recent insider selling suggest caution. The bearish trend in the stock price, declining web traffic, and app downloads are concerning in the short term.

Alternative indicators show a mixed bag with increasing social media engagement juxtaposed against declining customer acquisition metrics, suggesting that while the brand remains strong, customer growth may be facing challenges.

Given these factors, the "hold" recommendation from AltIndex’s AI score seems prudent. Investors should consider holding their positions and closely monitor future quarterly reports for indications of reversing the short-term declines, particularly in customer acquisition metrics.

Disclaimer: This AI stock analysis, generated by an experimental AI tool, is for informational purposes only and not financial advice. Information is based on publicly available data and may not always be accurate or current.