Re: DUOL
I saw this mentioned on a YouTube channel where the host provided a subscription to his 8 year old son. The son really liked it especially the game aspect.
I need to do a deeper dive as it seems expensive to me.
Perplexity AI provided this over view for DUOL. It seems like Perplexity is learning my value proposition metrics (I guess on all of my company searches), which is a bit scary. It says this company fit "My" valuation standards.
Duolingo (DUOL) screens as a high-growth, asset-light “compounder” where the AI-driven product and free tier explain why the market is willing to pay more than a typical value name, but current valuation is actually not extreme versus growth and cash generation.
Core valuation metrics- Market cap and multiples
- Market cap around 5.4B USD.?
- Trailing P/E ~14x, forward P/E ~29x.?
- PEG ratio ~1.56 (i.e., P/E versus expected earnings growth).?
- Price/sales ~5.5x, EV/sales ~4.5x.?
- Free cash flow and yields
- P/FCF ~15x implies an FCF yield ˜ 6.7% (1 ÷ 15).?
- EV/FCF ~12.25x implies an FCF yield on enterprise value of ˜ 8.2%.?
- FCF margin reported around 36.8%, unusually high for consumer apps/edtech.?
- Balance sheet and quality
- Debt/equity ~0.07, current ratio ~2.8; essentially net-cash, low financial risk.?
- ROE ~36% and ROIC ~86%, indicating a very high-quality, high-return capital-light model.?
Growth profile and PEG context- Operating growth
- Q3 2025 revenue was 271.7M, up ˜41% YoY.
- Daily active users (DAUs) grew 36% YoY to 50.5M; MAUs reached 135.3M.
- For 2025, management guided bookings to nearly 1.2B, ˜33% YoY growth, with adjusted EBITDA margin ~29%.?
- Forward expectations
- One source cites a 5-year revenue growth forecast of ˜24% per year.?
- With forward P/E ~29x and mid-20s % growth, PEG ~1.5 is not “deep value” but is reasonable for a dominant vertical SaaS/consumer app with this growth and FCF profile.?
Interpretation for value: You are getting mid-30s type topline/DAU growth, very high ROIC, and mid-to-high-single-digit FCF yield today; on a PEG basis, this is more like a GARP name than a bubble multiple.
AI and free tier as part of the moat- AI in content creation and product
- Duolingo used AI to dramatically speed course creation, adding about 148 new courses in a single year, versus 12 years for the first hundred courses; this widens the content moat and lowers unit content costs.
- AI is integrated into the Duolingo English Test (DET) for item generation and scoring, improving throughput and cost structure.?
- The “Max” subscription uses generative AI to provide an AI tutor (real-time feedback, simulated conversation, adaptive paths).
- Free AI-enhanced product and monetization
- Core value prop: learn languages (and increasingly math/music) for free, with ads or optional subscription.
- Huge free user base ? economies of scale: fixed R&D and AI costs are spread over ~135M MAUs, while incremental learners cost very little, driving operating leverage and high FCF margins.
- AI helps keep the free product “good enough” to attract and retain users, while the Max tier monetizes heavy users with premium AI features (higher ARPU without sacrificing reach).
Strategic angle: The fact that the app is free at the point of use, yet still throws off a mid-to-high-single-digit FCF yield with 30%+ growth, is exactly the kind of AI-enabled scale economics you want; AI is lowering content and support costs while improving conversion, not just a buzzword.
Other arguments for/against the value propositionPositives- Strong unit economics and margins
- Gross margin ~72%, operating margin ~11.6%, EBITDA margin ~13%, FCF margin ~36.8%.?
- Adjusted EBITDA margin already near 29% and guided there for 2025, suggesting more operating leverage as AI & automation scale.?
- Network, behavior, and engagement moat
- Gamification (streaks, rewards) creates “habit” and switching costs; users are reluctant to abandon long streaks.?
- Large global user base and brand recognition make it harder for new AI-only apps to displace them, even if the raw model is similar.
- External fair-value indications
- One framework (GF Value) pegs intrinsic value around 360 USD per share vs. price ˜117 USD, implying a price-to-GF-value of ~0.32 (i.e., screens as undervalued on that model).?
Key risks / bear points- Big Tech AI competition
- It is technically easy to build a basic AI chatbot tutor; if a free general-purpose AI with good curriculum emerges, Duolingo could face pricing pressure or slower user growth.?
- The company’s counter is that AI alone is not enough: users still want structured courses, gamification, and habit-forming design, which Duolingo already has.
- Valuation and cyclicality
- PEG of ~1.5 assumes that high-20s growth persists; if growth decelerates faster than expected, that PEG jumps quickly.?
- DAU/MAU growth and paid subscriber conversion must remain strong to justify both P/E and P/FCF multiples.
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How this might fit your framework (Here is the part Perplexity says it fits my 'value' standards)
Given your preference for PEG = 1 and solid FCF yields, DUOL is not a deep value play but looks like a GARP/compounder with:
- FCF yield in the high-single digits on EV,
- 30%+ bookings and DAU growth,
- AI-driven cost leverage and product differentiation, and
- A massive free funnel that keeps the user acquisition engine cheap
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