Is Duolingo's IPO Worth Investing In?

Duolingo's IPO was not the public debut we asked for in 2021 -- *ahem* Stripe -- but it could be the one we need. 

The no-nonsense nature of its S-1 filing, as well as a to-the-point letter to potential investors from CEO and co-founder Luis von Ahn, highlight this company's intentions. It is a language learning app -- no more, no less. No "elevating consciousness" or "changing the world", as we've seen from many puffed-up filings in recent years. 

Its IPO on July 28 also went off without a hitch. Having originally planned to go public in the $85 to $95 per share target range, the firm eventually settled on 3.7 million shares at $102 apiece. It ended its first trading day on the Nasdaq at $139.01 per share -- up more than 36%. It also raised $521 million to give itself an implied valuation of $3.7 billion. 

However, does that make investing in this IPO a good idea? 

What does Duolingo do? 

If you've never been passive-aggressively assaulted by the Duolingo owl before, then you likely don't know what the company does. 

In its own words: Duolingo is a language-learning website and mobile app, as well as a digital language proficiency assessment exam. You can read more about this and when exactly Duolingo is going public here.

How many users does Duolingo have? 

The company has an estimated 500 million downloads and around 40 million monthly active users. Year-over-year (YoY) user growth between Q1 2020 and Q1 2021 amounted to 101%. 

Is Duolingo profitable? 

No, Duolingo is not yet profitable, despite its revenue increasing from $70.8 million in 2019 to $161.7 million in 2020, a 129% jump. In Q1, the company also doubled its year-over-year revenue, from $28.1 million to $55.4 million. 

However, net losses are also on the rise as the company scales up its growth. In Q1 of this year, Duolingo had net losses of $13.5 million, significantly higher than the $2.2 million loss it generated in the same period last year. Meanwhile, from 2019 to 2020, the company's GAAP net losses expanded from $13.6 million to $15.8 million as it began spending more on innovation and marketing.

How much did Duolingo shares cost?

Duolingo debuted at $102 per share and closed out its first day of trading at $139.01 per share.

But is Duolingo worth investing? 

Here at MyWallSt, we have a policy that we never invest in a company until it has released at least two quarterly earnings reports as a public company. This is because we wish to avoid the general volatility that surrounds a stock following its going public, as well as giving us a good look into its financial performance and spotting any trends. 

However, it is certainly a company to keep an eye on, as we recently discussed in an episode of the Stock Club podcast. With just 400 employees and low production costs synonymous with software companies, net margins have been improving as revenue more than doubles and losses rise minimally in unison. 

With an already massive and still growing brand, little competition in the space, and improving margins, it's definitely worth considering for a shortlist. 

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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.