Duolingo stock price is collapsing. It initially jumped to $540 earlier this year and closed at $260 on Wednesday, a 52% plunge. This crash gained steam in the extended hours as it plunged by over 20% to $205. As a result, the market cap has plunged from a record high of $24.6 billion to below $10 billion today.
Why Duolingo stock price is crashing
Duolingo is a top company in the edtech industry, where it offers language learning to millions of users every day. Its application is popular among users because of its freemium model and the fact that it makes learning fun through gamification.
Duolingo’s business has been on an upward trajectory over the years as more customers have joined its network. The most recent results showed that its daily active users rose to 50.5 million in the third quarter of year from the previous 37.2 million.
Its monthly active users also jumped to 135 million from the previous 113.1 million. This is a sign that it continues to gain traction among users from around the world.
Most importantly, the company is converting more of these customers into paid ones. Its paid subscribers rose by 24% in the third quarter to 11.5 million.
Consequently, this conversion led to a significant increase in its revenue, which jumped by 41% to $271 million. A 41% revenue jump is a major thing for a company that was started in 2011.
Duolingo is also becoming a highly profitable company, with its net income rising to $292 million from the previous $23.4 million. This surge was driven by a one-time income-tax benefit during the quarter.
Without the tax benefit, its profit would have been $65 million, which is an equally good number. The company’s adjusted EBITDA rose from $47.5 million to $80 million.
Is DUOL being punished unfairly?
Therefore, the Duolingo stock price crashed as the company issued weaker-than-expected forward guidance as it shifted its focus to long-term initiatives. It is now prioritizing user growth over monetization.
The company’s guidance is that its bookings for the fourth quarter will be between $329.5 million and $335 million, while its full-year figure will be between $1.[5 billion and $1.15 billion.
Duolingo also expects that the fourth-quarter revenue will be between $273 and $277 million, bringing its full-year figure to between $1.02 billion and $1.03 billion. The full-year revenue, which the company will likely beat, will represent a 37% annual growth rate.
As such, there are signs that the company is being punished unfairly as its growth momentum is accelerating. It has also become a bargain, especially when considering the rule-of-40 metric.
In this case, the company’s forward revenue growth rate will be 38%, while its profit margin is about 13%, giving it a rule-of-40 multiple of 51%.
DUOL stock price technical analysis
The daily timeframe chart shows that the Duolingo stock price has crashed in the past few months, and its indicative opening price is $205, its lowest level since September 6 this year.
Technically, this crash happened after the company formed the highly bearish head-and-shoulders pattern. It also formed a death cross pattern.
Therefore, the most likely scenario is where the stock remains under pressure amid panic selling among retail traders and then it will bounce back as investors go bargain hunting.
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