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Wells Fargo raised its rating on the stock to equal weight, which is their way of saying they now view it as a neutral hold rather than a sell. This change follows a week where the company reported strong user growth and raised its financial goals for the rest of the year.
While the upgrade is a vote of confidence in the company's recent performance, the firm's view is still more cautious than the current stock price suggests. The average analyst target across all firms sits at about $132, which is roughly 16 percent lower than where the stock is trading today.
Source: Wells Fargo
After Duolingo reported its November results, we updated our fair value and cut our quality score to 3.6. We changed our rating to Watch and lowered our projections for how much profit the business earns on its investments. We have added the discontinuation of the premium subscription tier and the costs of performance-based employee bonuses to the factors we track. We also lowered our expectations for paid subscriber growth after it slowed to 14% over the past three months.
The stock is jumping about 27 percent following a quarterly report that showed the business is growing faster than expected. The company also raised its financial targets for the rest of the year, which suggests management is confident that the current momentum in adding new users will continue.
This move is significant because it brings the stock price close to its all-time highs. For a long-term owner, the jump validates the company's ability to turn its massive free user base into paying subscribers while keeping costs under control.
Source: Schaeffers Research
Needham maintained its buy rating on the stock and set a price target of $165. This follows the company's recent earnings report and the subsequent jump in the stock price, which has now climbed above that $165 level. While the analyst remains positive on the company's direction, the target suggests they believe the stock is now fairly valued after its recent surge. The average target among all analysts who follow the company currently sits at about $132.
Source: Needham
Duolingo reported revenue of 309 million dollars for the quarter, which was higher than the 300 million dollars analysts expected. The most important number was the 29 percent jump in daily active users, which reached nearly 65 million. This shows that the app is becoming a daily habit for more people, a key part of the company's plan to turn free learners into paying customers.
While the company earned 54 cents per share, slightly less than the 57 cents expected, its cash generation remains healthy. It brought in about 75 million dollars in free cash flow, which is the actual cash left over after paying for its operations. Even with a minor earnings miss, the business is growing its user base and revenue at a pace that suggests its gamified approach to education is still winning over new learners.
See the full quarter, and how our tracked metrics did
Source: 8-K filing
Management has a history of setting conservative targets and clearing them, often beating analyst estimates by a wide margin. This pattern suggests the business is growing faster than even its own leaders expect.
| Expectation | |
|---|---|
| EPS | $0.61 |
| Revenue | $321M |