Duolingo’s (NASDAQ:DUOL) freemium strategy will serve as a “natural conversion funnel” to its paid subscription service and elevate the company’s scale, strong brand reputation, and ability to deliver “sustainable” 20%+ bookings/revenue growth. As such, J.P. Morgan initiates coverage of the language-learning platform with an Overweight rating, and $270 price target, a 26% premium to Friday’s closing price.
Shares were gaining more than 5.5% Monday on the new rating.
J.P. Morgan’s bull these for Duolingo (DUOL) is derived from several strategies the company employs to drive multi-year adjusted EBITDA margin expansion and 30% revenue growth. The platform uses gamification to enhance the learning experience and product innovations (including the use of generative AI) to drive user and paid subscriber growth as well as deeper engagement and better retention.
To illustrate the company’s effective tools in teaching a foreign language, a study of Spanish and French Duolingo (DUOL) users who completed half of B1 content performed comparably to U.S. university students at the end of their 5th semester.
“While Google and other large companies with significant resources and strong balance sheets could ultimately increase competition within the language learning space, Duolingo’s gamification/socialization capabilities, personalization, and deep data moat, proven teaching efficacy, and strong brand are key differentiating factors,” J.P. Morgan analysts Bryan Smilek and Doug Anmuth said in Monday’s research report.