EdTech revolutionizes classrooms through technology integration, fostering personalized learning and efficient education. AI innovations, such as generative AI and NLP, backed by investments in EdTech, are reshaping education for future employability. This sector is primed for growth and offers long-term investment opportunities.
Consequently, businesses are using the Internet's expanded digital channels in this connected era, and online learning is flourishing thanks to its flexibility, cost-effectiveness, and advanced tools, making it a favored choice for learners and educators. Similarly, online language learning is rapidly growing as individuals and businesses seek multilingual skills through the Internet.
The growing EdTech market, driven by AI and cloud platforms, transforms education with enhanced accessibility and efficiency. As a result, the global EdTech market is projected to grow significantly, reaching $108.25 billion in 2024 and $411.57 billion by 2034, with a CAGR of 14.3%.
Furthermore, despite competition from free MOOCs, technological advancements and personalized experiences bolster the market, making it a significant segment in EdTech. The global online language learning market is projected to grow by $42.10 billion from 2024 to 2028, with a CAGR of 19.73%.
Given this backdrop, let’s compare EdTech stocks Chegg, Inc. (CHGG) and Duolingo, Inc. (DUOL) to understand why CHGG is a better buy.
The Case for Chegg, Inc. Stock
Chegg, Inc. (CHGG) operates a direct-to-student learning platform that helps learners build essential life and job skills to accelerate their path from learning programs internationally. Its subscription services include Chegg Study, Tinger Gold, DashPash Student services, Chegg Writing, Chegg Math, Chegg Study Pack, and Busuu.
CHGG’s stock has declined 17.9% over the past month to close the last trading session at $3.03.
CHGG’s revenue grew at a CAGR of 15.5% over the past three years.
In terms of forward non-GAAP P/E, CHGG is trading at 2.97x, 81% lower than the industry average of 15.63x. Similarly, its forward EV/EBITDA is trading at 3.06x, 68.1% lower than the 9.62x industry average.
In terms of the trailing-12-month gross profit margin, CHGG 73.68% is 99.3% higher than the 36.97% industry average. Its 18.44% trailing-12-month levered FCF margin is 238.5% higher than the 5.45% industry average. Moreover, CHGG’s 13.36% trailing-12-month Capex / Sales is 340.5% higher than the 3.03% industry average.
CHGG’s net revenues for the fiscal first quarter that ended March 31, 2024, amounted to $174.35 million. The company’s non-GAAP gross profit stood at $131.51 million. Its non-GAAP net income and net income per share came in at $29.59 million and $0.26, respectively. Moreover, as of March 31, 2024, the company’s total liabilities stood at $769.17 million, compared to $782.62 million as of December 31, 2023.
Analysts expect CHGG’s for fiscal 2025 to increase 6.3% year-over-year to $1.09. It surpassed the Street revenue estimates in each of the trailing four quarters.
CHGG’s POWR Ratings reflect its bright prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Value and a B for Growth and Quality. Within the B-rated Internet industry, it is ranked #18 out of 51 stocks. Beyond what we stated above, we also have given CHGG grades for Momentum, Stability, and Sentiment. Get all the CHGG ratings here.
The Case for Duolingo, Inc. Stock
Duolingo, Inc. (DUOL) operates as a mobile learning platform internationally. The company offers courses in 40 different languages, including Spanish, English, French, German, Italian, Portuguese, Japanese, and Chinese through its Duolingo app. It also provides a digital English language proficiency assessment exam.
DUOL’s stock has gained 47.3% over the past year to close the last trading session at $206.25. On the other hand, the stock has declined 11.1% over the past three months.
DUOL’s revenue grew at a CAGR of 45.6% over the past three years. Its levered FCF grew at a CAGR of 80% over the past three years.
In terms of forward EV/EBIT, DUOL is trading at 153.18x, considerably higher than the industry average of 13.92x. In addition, the stock’s forward EV/Sales of 11.02x is 819.3% higher than the industry average of 1.20x.
In terms of the trailing-12-month net income margin, DUOL’s 7.82% is 61.1% higher than the 4.86% industry average. However, its 3.32% trailing-12-month EBITDA margin is 70.5% lower than the 11.25% industry average. Also, the stock’s 2.05% trailing-12-month EBIT margin is 73.7% lower than the 7.76% industry average.
DUOL’s total revenues for the fiscal first quarter that ended March 31, 2024, increased 44.9% year-over-year to $167.55 million. Its adjusted EBITDA and non-GAAP free cash flow rose 191.2% and 176.5% year-over-year to $44 million and $79.62 million, respectively.
The company’s net income stood at $26.96 million, compared to a net loss of $2.58 million in the year-ago quarter. DUOL’s total bookings for the same period was $197.45 million, up 41% year-over-year. Furthermore, its paid subscribers at period end rose 54.1% from the year-ago value to $7.40 million.
Street expects DUOL’s EPS for the quarter ending June 30, 2024, to increase 280.9% year-over-year to $0.30. Its revenue for the same quarter is expected to increase 39.6% year-over-year to $177.08 million. It surpassed the consensus revenue estimates in each of the trailing quarters.
DUOL’s mixed fundamentals are reflected in its POWR Ratings. It has an overall rating of C, equating to a Neutral in our proprietary rating system.
It has a C grade for Momentum and Sentiment. Within the Software – Application industry, DUOL is ranked #76 out of 134 stocks. To see the additional grades of DUOL for Growth, Value, Stability, Stability, and Quality, click here.
CHGG vs DUOL: Which EdTech Stock Is Primed for Growth?
The internet has made all sorts of online education accessible and in demand, from language learning to core subjects to diplomas. This seamless access, enhanced by business innovation, advanced technologies, software automation, and fast connectivity, has revolutionized the EdTech market by offering unparalleled convenience, efficiency, and personalized experiences.
Market leaders like CHGG and DUOL stand to gain from the growing demand for EdTech solutions and the transformative impact of high-speed internet on how we interact with learning platforms.
Considering DUOL's mixed prospects, CHGG emerges as a better investment choice due to its strong fundamentals, attractive valuation, and superior profitability.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Internet industry here. In addition, click here to access all the top-rated stocks in the Software – Application industry.
What To Do Next?
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DUOL shares were trading at $205.15 per share on Tuesday afternoon, down $0.14 (-0.07%). Year-to-date, DUOL has declined -9.57%, versus a 14.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
Chegg or Duolingo: Which EdTech Stock Is Primed for Growth? StockNews.com
