30 Stocks That Should Double in 3 Years

19. Duolingo Inc. (NASDAQ:DUOL)

Number of Hedge Fund Holders: 52

Duolingo Inc. (NASDAQ:DUOL) operates as a mobile learning platform. It offers courses in 40 different languages, which include Spanish, English, French, German, Italian, Portuguese, Japanese, and Chinese through its Duolingo app. It also provides a digital English language proficiency assessment exam. The Duolingo Max subscription segment performed particularly well in Q4 2024.

Duolingo Max incorporates the GenAI-powered Video Call conversation feature, which has led to growth in user engagement. While currently representing about 5% of total subscribers, Duolingo believes there is room for further monetization of Max, as it is now available to the majority of the company’s 40 million daily active users. This number grew by 51% year-over-year in Q4.

The company plans to use GenAI to further enhance the Video Call experience within Max. Although Max incurs marginal AI costs, its higher pricing more than compensates for these expenses. On April 1, JPMorgan analyst Bryan Smilek maintained an Overweight rating on the stock with a $410 stock price target after conducting field checks to understand trends across acquisition, engagement, teaching efficacy, and the company’s GenAI features.

Baron Opportunity Fund recently initiated a position in the company and stated the following regarding Duolingo, Inc. (NASDAQ:DUOL) in its Q3 2024 investor letter:

“Duolingo, Inc. (NASDAQ:DUOL) is the world’s leading language learning app with over 100 million monthly active users, known for its effective gamification and high engagement. After monitoring the company over the past year and a half, we developed conviction to buy the stock for a few reasons. The company has maintained premium levels of user growth (daily average user growth of over 50%) and revenue growth (40%-plus), executed well against their product roadmap, gained early traction with new functionality, and maintained impressive 40%-plus incremental margins. We view the founder-led management team as best in class, technically capable (CEO and CTO both earned PhDs in machine learning from Carnegie Mellon University), and product focused. We initiated a position in the quarter as the share price fell to what we deemed attractive levels from a long-term valuation perspective, coupled with material catalysts on the horizon, particularly the broader launch of AI functionality (branded “Max”) that enables users to have real-time conversations with AI based characters and a substantial improvement of the company’s Advanced English offering. We believe that these two initiatives take Duolingo from more of a hobby app to a company that can address the broader market of 1.8 billion people learning English today. As these products roll-out in the coming quarters, we believe their adoption should drive the realization of higher pricing, faster revenue growth, lower churn, and continued margin improvement. We also believe there is additional optionality in newer products such as math and music, which are earlier in their product evolution.”