AI And New Subjects Will Amplify Global Digital Learning

Key Takeaways

• Expansion into multi-subject learning and enterprise markets could dramatically widen Duolingo's reach, fueling sustained growth in both users and recurring revenue.
  
• Accelerating product innovation and untapped marketing potential may drive faster margin expansion and position Duolingo well ahead of competitors in digital education.
  
• Growing AI competition, regulatory hurdles, and macroeconomic pressures threaten Duolingo's user growth, subscription revenue, and ability to expand successfully into new global markets.

Catalysts

Operates as a mobile learning platform in the United States, the United Kingdom, and internationally.

• Analyst consensus sees Chess, Math, and Music as enhancing user growth and engagement, but these new subjects could be the cornerstone of Duolingo's evolution into a dominant global multi-subject learning platform, unlocking an even larger total addressable market and driving a multi-year acceleration in both subscriber growth and long-term revenue expansion far beyond language learners.
  
• While analyst consensus credits AI for lowering content costs and enabling operational efficiencies, the accelerating AI-driven pace of product innovation-such as rapidly improving Max features, native model fine-tuning, and real-time personalized learning-may result in much faster net margin expansion and consistently rising ARPU as Duolingo adapts its tier structure to capture demand at all price points, keeping it far ahead of competitors.
  
• Duolingo's viral marketing and minimal U.S. ad spend point to a massive yet untapped profitability lever; the beginning of even modest paid marketing in the U.S., if modeled after recent successes in Mexico and China, could unlock a new growth curve for daily active users and premium conversions, materially boosting both top-line and bottom-line results over several years.
  
• As affordable mobile devices and widespread internet adoption continue to accelerate in emerging markets, Duolingo's scalable, asset-light business model makes it uniquely positioned to exponentially grow its user base and long-term recurring subscription revenue across rapidly expanding populations seeking accessible upskilling and English proficiency.
  
• Duolingo is in the early stages of capitalizing on the global shift toward digital lifelong learning and micro-credentials, positioning itself to become the platform of choice not only for individual learners but also for enterprise, schools, and families, which could transform its business mix toward high-visibility annual recurring revenue and drive sustained earnings growth as digital education further displaces traditional methods.

Duolingo Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Duolingo compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Duolingo's revenue will grow by 27.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 13.2% today to 22.3% in 3 years time.
• The bullish analysts expect earnings to reach $413.4 million (and earnings per share of $11.56) by about August 2028, up from $117.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 94.5x on those 2028 earnings, down from 129.0x today. This future PE is greater than the current PE for the US Consumer Services industry at 17.7x.
• Analysts expect the number of shares outstanding to grow by 5.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.1%, as per the Simply Wall St company report.

Duolingo Future Earnings Per Share Growth

Risks

• The growing capabilities of generative AI and language translation tools may reduce the incentive for consumers to pay for formal language learning, which could shrink Duolingo's total addressable market and limit long-term user and revenue growth.
  
• Persistently rising customer acquisition costs, due to increased digital marketing competition and stricter privacy regulations, threaten to compress Duolingo's net margins and may make it more expensive to sustain top-line growth.
  
• Accelerating competition from new AI-driven and immersive (AR/VR) language-learning platforms casts doubt on Duolingo's ability to maintain market share and pricing power, which could pressure subscription growth and reduce future revenue potential.
  
• As Duolingo expands internationally, especially into markets like China, the company faces significant regulatory uncertainty and localization challenges, as evidenced by delayed product rollouts such as Max, which may hinder global scaling and limit incremental revenue.
  
• Duolingo's continued reliance on subscription-based revenue faces risks from macroeconomic headwinds, such as global economic uncertainties and income inequality, especially in emerging markets where discretionary spending on paid subscriptions may stagnate or decline, impacting growth in bookings and overall earnings.

Valuation

• The assumed bullish price target for Duolingo is $600.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Duolingo's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $600.0, and the most bearish reporting a price target of just $390.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $1.9 billion, earnings will come to $413.4 million, and it would be trading on a PE ratio of 94.5x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of $329.88, the bullish analyst price target of $600.0 is 45.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.