The earnings season for the last quarter is coming to an end, but it seems that there are still some surprises left. Digital language learning platform Duolingo (Near 8.02%) reported its results on February 28, and not only did it blow away expectations financially, but investors were also pleased to learn about some of the new features coming. Why? Because they are powered by advanced artificial intelligence (AI).
OpenAI’s ChatGPT conversational language model has taken the tech world by storm and even attracted a multi-billion dollar investment from Microsoft. Now, Duolingo says it’s working closely with that company to change the way users learn languages.
This next revolutionary step suggests another reason for investors to consider buying Duolingo stock now. That is why.
Image source: Getty Images.
Duolingo bets on artificial intelligence
Duolingo is the most popular language learning app in the world. It has been downloaded more than half a billion times, and in the fourth quarter of 2022, it had 60.7 million monthly active users, which was 43% more than a year ago.
The platform owes its success to several things. First, its freemium business model allows most users to learn for free, while roughly 7.8% of the base pay a subscription to unlock additional features (and that number is growing rapidly). Second, its mobile-first, gamified approach takes learning out of the classroom and into the user’s pocket, providing an accessible, fun and engaging experience. But this experience is about to get even better.
Duolingo has been investing in artificial intelligence since 2013, but the company believes it is now at a stage where it can elevate the learning experience to a more personal level – almost like a teacher. Duolingo has worked with OpenAI to develop features for a new paid subscription tier called Max. These features are Explain My Answer, which will provide users with personalized feedback based on their mistakes in a given lesson, and Roleplay, which allows users to chat with Duolingo characters to practice skills their conversational.
The goal is to simulate a human teacher, which can accelerate a subscriber’s progress significantly compared to using the free version of the Duolingo app. And not to state the obvious, but this can be incredibly valuable financially for both the user and Duolingo.
Duolingo slashed its 2022 revenue guidance
Duolingo was one of a handful of companies that regularly raised its revenue guidance through 2022, even in the face of extremely difficult economic conditions. As it turns out, users valued language learning and prioritized maintaining their subscriptions.
The company initially told investors it expected to generate $342 million in revenue for the year, and that figure was revised to $367 million by the third quarter. But when the final results came in, Duolingo had brought in $369.5 million for 2022, representing a 47% increase over 2021.
Since its inception, the company has invested heavily in improving and expanding its platform, which it says is essential for user growth. As a result, the company has sacrificed profitability to continue development, but has made significant progress toward reducing its losses in 2022.
Its net loss came in at $59 million for the year, and while that was only a marginal improvement over its $60 million net loss in 2021, it represented 16% of revenue compared to 24%, so it’s heading in the right direction. right.
Why Duolingo stock is a buy now
Duolingo has an incredible platform. Not only is it the largest digital language education app on the planet, but management says 90% of its users are acquired organically without paid advertising.
It has also become the highest grossing mobile app in the education category in both Apple App Store and Alphabet‘s Play Store. This is even more impressive when you consider that Duolingo only started making money through subscriptions in 2018.
Given that more than 2 billion people are learning languages worldwide, Duolingo has a large addressable market to penetrate, and it continues to do so from a leadership position. By increasing the use of artificial intelligence, the platform will be able to serve those learners more effectively than ever before, while also opening the door to more monetization opportunities.
Despite a 10% gain on the back of its 2022 financial report, Duolingo’s stock is still trading down 51% from its all-time high. This could be an excellent entry point for investors, given the company’s long-term potential.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple and Microsoft. The Motley Fool recommends the following options: long March 2023 $120 Apple calls and short March 2023 $130 Apple calls. The Motley Fool has a disclosure policy.
