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Duolingo is a real company that people actually invest in

TL;DR

– Earnings March 3rd

– More than 70% of revenue comes from paid subscriptions

– Have you used the app before? If so, do you still use it?

– Duolingo is not sticky enough for long-term subscription growth

– Passive-aggressive owl

– Puts go brrrrrrr

Positions:

– 18MAR22 80P x 5

I’ll start by saying this is nothing against Duolingo’s software, which I actually really like. It’s about Duolingo’s prospects as a long-term high-growth investment. Here are 5 reasons I think Duolingo is a solid bearish earnings play:

  1. Stickiness: Duolingo has more than 500 million downloads, which means at least some of you degenerates must have downloaded it at some point. For those who did, do you still use it? Didn’t think so.
  2. Subscription model: >70% of Duolingo’s income comes from subscriptions. My first reaction to this was, who the hell is paying for Duolingo when the free version works just fine? But more objectively, there are two possible outcomes for a Duolingo subscriber: either they give up trying to learn the language and cancel their subscription, or they successfully learn the language and cancel their subscription. Unlike for example a paid subscription streaming service, there is no reason to pay for Duolingo indefinitely.
  3. Guidance: I expect this earnings report will have FY2022 guidance. Their Q3 results blew past the Q3 guidance they had just given in Q2. I’d bet Q4 results also surpass the Q4 guidance from Q3. But what this means is that they’ll need to be reasonably conservative in their FY2022 guidance so that the actual numbers have a decent chance of surpassing it, particularly if my guess is right that they have fairly high attrition. Tepid guidance has been destroying growth companies this earnings season.
  4. Share price: Yes the shares, at $93 closing price today, are well off their high of $205. But they are only <10% off their IPO price from last summer of $102. And they’ve traded largely sideways for the last two months while many other tech stocks have tanked. There is still room to fall.
  5. Passive-aggressive owl: Seriously, fuck that guy.

And just to preemptively address a couple of counterpoints:

“Nice of you to make this argument when stock is already down >50% ATH”. So are plenty of tech stocks. What’s the point of this argument, that it can’t go down any further? It, and any other stock, can still drop 100% from the current price.

“With global travel reopening, people will be looking to learn a new language for an upcoming trip/move”. Maybe? But if anything, Duolingo had a big surge in monthly users when covid started. The ‘self-improvement’ drive has really worn off since then (or maybe that’s just me?). Plus people who travel will have no incentive to keep up the language training after their trip, and people who move will learn the language a lot more from being immersed in it than they will from an app, and will eventually stop using the app entirely.

“Not enough graphs/lines/crayons”. Got me there.

“I’m actually learning Estonian right now to impress my wife’s boyfriend”. Fair enough, but let’s be honest – if you had $12.99, you wouldn’t be spending it on a monthly Duolingo subscription.

This is just my take and is not financial advice.

Submitted February 18, 2022 at 05:15AM by allmyquatloos
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