Talking about "corona winners" today sounds surreal, of course. But even if the time seems to be long gone, it has produced successful companies. One of them is Duolingo. The pandemic ensured that the online course provider went public almost exactly three years ago. The newcomer gained almost 40% on its debut and achieved a market capitalization of well over USD 5 billion, which was around 20 times its annual revenue at the time. No wonder that this ambitious valuation of the start-up, which was still loss-making at the time, necessitated a period of consolidation, which even caused the share price to dip below the IPO price.
At the end of 2023, however, the share picked up speed again. The reason for this was relatively simple: the management seemed to be aware of how the stock market works. The capital market is not just looking for growth, it is profitable growth that excites investors. Thanks to a high level of cost discipline, Duolingo made it into the black earlier than many analysts had expected. The company reported a profit of USD 0.35 per share, following a loss of USD 1.51 in the previous year. The breakeven was also accompanied by rapid revenue growth. From the first quarter of 2022 to the start of 2024, revenue more than doubled, which corresponds to an average growth rate of almost a tenth compared to the previous quarter. The company has been making profits since the second financial period of 2023, which have increased exponentially since then.
When looking for the founder of such a successful internet company, the first thing you think of is the many tech luminaries from Silicon Valley. But far from it, it was a Swiss man. The local computer scientist Severin Hacker founded the language learning app in 2011 with his then university professor Luis von Ahn and launched it on the market the following year. The company now has an enormous range of around 40 different languages. From the world's most widely spoken languages such as Spanish, French and Italian to endangered languages such as Hawaiian, Navajo and Scottish Gaelic, interested parties have a wide choice.
The number of inquisitive users is also growing: in the first quarter of 2024, Duolingo already had 97.6 million monthly users, which corresponds to an increase of 35%. On a daily basis, there was even an increase of 54% to 31.4 million. "Our growth in daily active users compared to the previous year was driven by a record number of net user accesses per day," explains CEO Luis von Ahn. These are users who are also prepared to spend money. The number of paid subscribers increased by more than half to 7.4 million as at 31 March. "We believe that we are still in the early stages of our monetization journey and are discovering several opportunities to improve bookings," says von Ahn, looking confidently to the future. Among other things, the 45-year-old sees potential in the broad introduction of Duolingo Max, a higher-priced subscription level.
As mentioned at the beginning, the share's long consolidation phase after its brisk stock market debut was followed by a renewed upward trend in recent months. It rose from USD 121 in August 2023 to USD 251 in May of this year. After this double, the stock, which was included in the S&P MidCap 400 selection index in April, dipped again and has been fluctuating around the USD 200 mark ever since. From an analyst perspective, Duolingo still appears to have potential. 71% of the research reports analyzed on CNN Business end with a "buy" rating. Overall, the average target price is USD 255, an increase of 35% compared to the current price.
In view of the recent high fluctuations, with historical volatility at 52% over a 3-month period, a direct investment does not appear to be for the faint-hearted. However, a double-digit percentage return is also possible with conditional partial protection. The new Softcallable Barrier Reverse Convertibles on Duolingo take advantage of the high volatility and convert it into attractive conditions. The product, which is denominated in Swiss francs, offers the prospect of a coupon of 12.00% p.a. with a maximum term of one year. An even higher yield is possible with the USD variant. This BRC offers an interest rate of 16.00% p.a. The barriers for both securities are 55% of the starting values, which in turn equates to a risk buffer of 45%. Due to the soft callable function, the maximum term can be reduced from 12 months to a maximum of 6 months.
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