Every stock market sector is down in 2022 except one: the energy sector. But given the shift to green power, that outperformance is unlikely to persist in the long run. It highlights how difficult it has been to find returns in this difficult economic climate, with inflation soaring and interest rates on the rise.
The Nasdaq-100 index, which represents the technology sector, is firmly in a bear market, with a decline of 33% year to date. But there are some individual tech stocks doing far better right now. That doesn’t necessarily mean they’re positive for 2022, but rather they’re down less than the index, hinting that they could be among the best performers when the economy turns around.
Duolingo (DUOL) is one of them. Its stock price has lost just 6% this year, and it’s because Duolingo’s business is proving resilient to the economic downturn. Here’s why investors should consider adding it to their portfolio right now.
More users are paying to use Duolingo
Duolingo is a world-leading language education platform with a mobile-first approach. It has leveraged the intuitiveness of modern smartphones to turn the learning experience into a game, adding competition and even a social media aspect into the equation.
It has been downloaded over 500 million times, and as of the recent second quarter of 2022, there were 49.5 million users engaging with the platform every month. That’s 31% more monthly active users than at the same time last year, but the real story is the number of them paying to elevate their experience by unlocking extra features.
Duolingo now has 3.3 million paid subscribers, up 71% year over year and representing 7.2% of the total monthly active user base. As the chart below depicts, the proportion of paid users continues to grow rapidly, which is a great sign learners are finding value in the platform.
The company only began to monetize with subscriptions in 2018, but it has already become the highest-grossing mobile application in the education category across both the Apple (AAPL) App Store, and Alphabet’s (GOOG) Play Store.
Duolingo operates in an enormous market
Despite its success so far, Duolingo might have only scratched the surface of its total opportunity. The company estimates there are 1.8 billion people learning a foreign language around the world, and by 2025, the annual value of that market could top $47 billion. Digital language education is also becoming more popular than traditional methods — and growing at more than twice the rate — so Duolingo is perfectly positioned to reap the rewards of that shift.
Much of the growth could come from emerging markets like India, where the company has previously highlighted the rapidly decreasing cost of internet access. Between 2017 and the end of this year, Duolingo estimates 500 million people in that country will have accessed the internet for the very first time, opening the door for them to more easily learn global languages like English.
In the second quarter, Duolingo also noted its app was reinstated in China after being removed last year as part of a broad-based ban of foreign platforms. This is another huge market, and it already represents as much as 2% of the company’s monthly active users after only going live once again in May.
Here’s why that’s significant
Duolingo’s run of revenue growth so far has been impressive. The company generated just $70 million in 2019, and its guidance suggests that it could balloon to as much as $367 million this year, representing a compound annual increase of 73% if it hits the mark. But this might only be the beginning of Duolingo’s road to capturing its $47 billion opportunity in the next few years.
More importantly, in the nearer term, Duolingo has raised that 2022 forecast not once but twice. At the end of 2021, it guided for $342 million in 2022 revenue and then upped that figure to $358 million in the first quarter.
The point is, Duolingo’s increasingly optimistic outlook is in stark contrast to the rest of the technology sector, which has been slashing numbers since the beginning of the year. It’s a key reason Duolingo stock has lost just 6% in 2022 compared to the Nasdaq-100’s loss of 33%. That’s why investors might find comfort in buying in now, especially if the broader market begins to recover.
— Anthony DiPizio
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Source: The Motley Fool