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Duolingo’s (DUOL) green owl mascot Duo may have risen from the dead, but DUOL stock took a nosedive following the company’s recent earnings report. The language learning app’s shares plummeted after its Q4 2024 earnings release, and investors weren’t saying “hoot hoot hooray” to the results.
Is the stock following its mascot to the grave, or could it also rise from the dead?
What Has Been Happening With Duolingo?
Duolingo is the most popular app for language learning. The company’s mascot is a green owl called Duo, and the mascot has a reputation for consistently pestering the app’s users to complete their daily lessons. Duolingo announced the death of its mascot on Feb. 11 with a full social media campaign.
Active Android users jumped 25% year-over-year, and global downloads on Android increased 38% the day after the campaign.
The stock has been on a rally since August 2024, which continued even after a video of Duo’s passing made rounds online. That didn’t last long, as the stock corrected with the broader market, and the recent earnings miss sent it even lower. It is now down 33% from its 52-week high.
Duolingo’s Q4 2024 Earnings
Duolingo’s earnings report for Q4 2024 seems to have gotten (partially) lost in translation. Net income grew just 15% year-over-year to $13.9 million, or $0.31 per share. This missed the consensus analyst estimate of $0.50 per share.
Also disappointing investors is news that the company projects a 170-basis-points gross margin hit from AI costs and has signaled slower revenue growth in its guidance numbers for this year. That’s mainly why so many investors fled the nest last week.
Regardless, the broader report was quite good if you ignore the bottom-line metrics. Daily active users surged 51% to 40 million, and The Family Plan now makes up 23% of subscribers. Bookings grew 42% year-over-year and are on track to surpass $1 billion this year.
Is Duolingo Undervalued Now?
DUOL’s stock being knocked down has reduced the froth, but you’re still paying 123 times forward 2025 earnings and 14 times sales. The revenue growth is expected to be at around 25%-30% this year, and while EPS is expected to grow 61.2%, Duolingo’s recent performance has stripped away investor confidence.
The growth still shows that Duolingo is alive and kicking. This is a profitable growth stock in the software industry, and you can’t deny that the company has a good marketing team. But at the same time, it’s hard to call it undervalued while paying so much for the stock. DUOL stock would have to decline a lot more to be considered undervalued.
What Wall Street Analysts Think
Wall Street analysts have been split on DUOL stock well before earnings came in.
There are currently eight “Buy” ratings against nine “Hold” ratings. Most of the concern is linked to Duolingo’s valuation and its recent earnings miss.
The highest price target for DUOL is at $425, whereas the lowest is at $275. The mean target of $363.64 implies roughly 20% upside potential.
Should You Buy DUOL Stock?
While the owl has returned from the dead, you’ll have to wait for the stock to recover.
Now that Duo is back, perhaps it should haunt its management with nightly lessons on hitting EPS targets of around $0.68 in Q1.
In the meantime, a “Hold” rating fits DUOL stock well. Buying the dip doesn’t seem very appealing here.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
