The Motley Fool on $DUOL (Nov 4, 2026)

We will get to AMD's results which uh kind of tie into what we're talking about with the semiconductor trade, but I do want to talk about the big mover for the day, Dualingo. Do you own share?

I know we've talked about Dualingo before. Do you own shares of Duolingo?

So, I used to own shares. I don't own shares, but like I told you before we went live, I have a 421 day streak going on. Uh look at this move. just just crazy. This isn't even fully updated, I don't think, but 25% over the past week.

Uh the move today is 31% right now. It's been as high as 3435.

Um interesting report. By the way, if you don't listen to if you haven't listened to Dualingo conference calls, I always find Luis Fonan to be one of the most interesting uh CEOs to listen to.

So, um it it's just it's it's always an informative conference call. seems to have a really clear grasp on what that business is, what they're going to do in the future. And so if you go back two or three quarters, look at the results this quarter, they have told you exactly what's going to happen, uh what they're going to focus on, what the result is going to be, and then what the markers are.

So the interesting thing here is if you look at the revenue numbers, these are just quarterly numbers. You don't see a lot of there's not an inflection in growth here. So that's not what the market is reacting to.

It's actually not reacting to the third quarter financial results per se. So, $3109 million in revenue. Operating income actually declined. A couple of reasons for that. Uh, their AI spending was up because they started to move some of their AI conversation stuff to the free tier and actually I think even gave more usage to the paid tier.

So, you're having a little bit lower margins there. you know they think over time I mean they've g given some crazy stats about uh the cost reductions over the past year it's like you know 99.7% or something like that so I think that makes their probably makes their product more compelling uh but it's hurting their financials they also gave bonuses to people for meeting some of their goals their biggest goal and the the number that hopefully people are kind of gravitating towards this this quarter this is the monthly active users so the interesting Same thing here is it was pretty consistent growth until about a year a little over a year ago and then they added more monthly active users this quarter nearly what is that 12 and a.5 million than they did in the previous five quarters combined.

So they added about 10 million between March 2025 and June 2026 and then 12 a.5 million in this most this last quarter. So what they're what they have said in the last couple of conference calls is we've been focusing on monetizing.

So that's why their their revenue was going up but then their basically their top of funnel was not growing at the same pace. So they said hey we got to focus on getting more people in more people using the platform.

The other metric to look at this is a huge inflection is daily active users now at almost 65 million. So that's a huge jump from we you know that didn't that flatlined a little bit uh growth rates you know kind of picked up a little bit in the past couple of quarters but this is a big indication that people are using Dualingo more.

The other thing is you're not quite seeing that yet in the paid number because what you're going to have is people coming in that top of the funnel starting to use the platform.

They don't start paying for Dualingo the first time they use it. they maybe use it for a month or three months or six months or whatever and they start to get more and more value from it.

Uh and then you know you start so so what you want to have is a bigger top of funnel and that's what they've shown that they've done this quarter and that is exactly what the market is reacting to.

It's not reacting to you know these numbers were phenomenal. It's actually reacting to we actually think this sets them up pretty well for future growth in 2027 and beyond.

Yeah. So the the the crash in stock price is the reason why the stock is up today because when they initially initially pivoted, it was sending a message to we're now focused more on growing the user base and less on monetizing the user base and market clearly didn't like it.

Stock went down and then I think for the next couple of quarters, two, three quarters or so, we've seen that that happening. We we seen the monetization go down but the user base not really growing as expected and so the market was free for oh now you're monetizing less and you're not even growing as quickly and yesterday that that flipped.

So yesterday they did manage to grow quite a lot which I'm still quite pleasantly shocked by by the amount of growth that they managed to to find from the user base. I don't know if they had some special promotions or or events or anything like it.

But now step two comes into play is keep the users and monetize them over over time. I think the the conversion of monthly to to daily is also increasing a bit. I think it went from 41 to 42%.

Uh paid subscriber penetration did drop a bit, but like you said, that's normal when you want to increase first the free one and then you're only going to think about monetization.

So as of right now seems like plan the plan A is working and they're now stepping up to part part number two. This is what you were talking about is the market was reacting to the revenue growth number starting to slow and the first indication here is going to be that your daily active users and monthly active users funnel is is not growing as quickly as it once was.

But what the market hates seeing is deceleration of growth. Uh so and it's going to be a leading indicator most more more likely than not. So the the stock starts falling before the growth rate actually uh uh starts to show that indication that it's it's starting to decelerate.

And that's why it went from was it what was it almost 600 down to under 100? I think it was 90 something in April. Um and then the the idea here hopefully uh you know if things kind of go according to plan and according to what we're we're talking about is you would start to see an acceleration in that rate of growth.

So now you go from a 13.7% growth rate in the second quarter or in the third quarter to you know potentially up to back towards that 30% growth rate in maybe let's say by the end of 2027.

I think that was some of the um I don't remember I don't I got through most of the conference call yesterday, but I I know a couple of quarters ago they talked about that the numbers exiting 2027 is what they were kind of they were shooting for.

I forget what it was like three billion dollars in in revenue run rate and like 700 million in adjusted Ibita run rate. That'd be a pretty solid position to be in and would show that acceleration um then that uh that we're talking about.

So I don't know. I thought things were pretty good. The Here's here's my disappointment. I actually just put up a video about this, but management didn't buy back stock, bought back barely any stock in this most recent quarter.

They did, I think it was two quarters ago, did a $400 million authorization and then did nothing with it. They got $1.4 billion worth of cash just sitting on the balance sheet doing absolutely nothing.

If you think that your business is going to turn around in the stock is extremely cheap and even like where are we at today? We're at price earnings multiple is 55. So you know and price of free cash flow is 19.

So you know six months ago it was trading for what 12 times free cash flow. If you think you're going to reacelerate growth just like dump that $400 million into the market and just buy back a whole bunch of stock.

I don't that's the one part I don't get. I I think they've done a really good job operating the business, but they never went to free cash flow negative. So, there was never a there was it was going to be are you going to have $1.4 billion in cash on the balance sheet and growing or are you going to like actually use that to do something and reduce your share count and just drop it down to a billion dollars.

You don't need a billion dollars on the balance sheet to run Dualingo. It's so it's a it's a weird decision to me. I understand keeping B cash balance because there is um unearned revenue on the balance sheet.

You don't want to be in a position where you have $500 million worth of unearned revenue and you only have you know $50 million in cash on the balance sheet. But I don't know that was my one disappoint.

Yeah. No, fair point. I think it could have been quite quite good if they managed to time the bottom but I don't think they can uh they can time the bottom. But yeah, the stock was at 100 or just under it and now now it's up 80 80% 70% since.

So could have used that cash uh quite well especially when if you authorize uh a new buyback program.

um there's a comment here about uh utilization and uh durable paid utilization is is different. They've diversified in so many products. uh seems like a pattern of users increase but paid uh and durable users is still in question.

I think the idea here is that what I like about adding more products, you know, math and chess would be kind of the two big ones is you want to have a bigger bundle. So you you actually want to be cable cable TV, right?

where you pay 10 bucks a month or $20 a month, whatever, you know, Dualingo costs. And sure, you only use one language or maybe, you know, one of these other lessons or, you know, maybe only one of your kids uses it, you know, that kind of thing.

But you have so many things available that for the company, it's so much more valuable to have all of the the products under one bundle. So that's the way that bundle economics work.

That's why this is a a good idea. Um, the other thing that they they talked about that I've actually seen with my my daughter is the the AI usage in the in the free mode. So, I just I walked downstairs and she was talking to her iPad and I was like, "What the heck are you doing?"

And she was on Duolingo. Um, so it's I think this is a really interesting example of is AI going to be disruptive or is it going to make Duolingo more valuable? I tend to lean towards the ladder because they can do things like optimize.

They can, you know, you have a targeted market. Like I'm not going to build an app for her to learn, you know, how to read. She's six, so she's like learning words and stuff. Uh, but if Dualingo does it like great, that's a great use of AI for her to be able to talk and converse with the, you know, the little characters and stuff.

So, it's one of those CA cases where I think there that I think AI is going to be a big tailwind for them. It's also making their development easier and all that kind of stuff.

Uh, but we'll see, you know, if that narrative changes over the next year, this is one of those stocks that I think could be could be absolutely tremendous.