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- Learning To Buy The Owl Without Getting Schooled
Learning To Buy The Owl Without Getting Schooled
Noah Zelvis
October 15, 2025
In partnership with
If a pushy cartoon owl has ever shamed you into doing one more lesson, you already understand this business.
This company sells habit, not homework, and Wall Street loves a habit that scales.
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What Just Happened, Without the Wonk
Duolingo Inc (NASDAQ: DUOL) sits around $330, well off its $545 high but safely above its $257 low.
It’s a ~$15 billion company trading at about 136 times last year’s profits.
That’s expensive, which is fine if the growth keeps coming.
Recent results said they’re still cooking.
Last quarter, sales grew ~41% to about $252M, and profits beat expectations.
For this year, many analysts still expect sales up roughly one-third and profits rising faster as the company gets better at turning free users into paying customers and at nudging those paying customers to pricier plans.
The not-so-hot part is that daily users (people who open the app each day) likely grew in the 30% range year over year last quarter, which is still excellent, just slower than the turbo pace earlier this year.
That’s why you’re seeing some mixed reactions, as the big long-term price targets (think $460–$500) alongside short-term caution about user momentum.
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The Business
This isn’t language school. It’s a freemium game about tiny streaks that add up. Most people start free, see ads, and dabble.
A slice pays for subscriptions that remove ads, add features, or unlock the top-shelf Max tier.
There’s also a web checkout option (buy on the website, not in the app store) that keeps more money in Duolingo’s pocket.
Key idea: once the content exists and the software runs, each extra learner is cheap to serve.
That’s why the gross margin sits around the low-70s%, elite for a consumer app.
As long as Duolingo keeps people practicing and nudges a few more to pay (or pay a little more), profits can scale faster than users.
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Why Bulls Still Cheer
Monetization keeps improving. Prices inch up. The Max plan gets new goodies. Web checkout trims app-store fees. Even if user growth slows a touch, money per user can still rise.
Habit is a moat. Streaks, notifications, and social nudges turn I should learn Spanish into I don’t want to break my 87-day streak. That’s sticky and addictive.
Runway beyond the core. English-learning is a much bigger market than hobby languages, and international growth (including a potential China boost) is not fully tapped. Add test-prep and new learning formats, and there’s plenty of room.
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Why Bears Keep Their Helmets On
The price is perfection-friendly. At ~136× earnings, expectations do a lot of the lifting. If daily users or money per user slow together, the stock can fall fast, no scandal required.
Big Tech encroachment. Apple, Google, and others keep sprinkling translation and quick-learn features into their worlds. These don’t replace a full course, but they can siphon casual attention.
Social wind shifts. TikTok and friends can be rocket fuel for downloads, that’s until the algorithm changes. Relying on viral reach is great, until it isn’t.
Subscription reality. Consumer apps churn. You have to keep shipping value so that price increases don’t backfire.
What To Watch (jargon translated)
Daily users: Are people still opening the app every day? Growth in the ~30% range or better?
Money per user: Are subscribers paying a bit more each quarter (thanks to Max and price steps), and is ad revenue per free user steady?
Prepaid demand (“bookings”): This is the cash value of subscriptions sold now, even if revenue shows up later. If bookings keep growing mid- to high-20s%, the engine is healthy.
Web checkout mix: More web purchases mean better margins (fewer app-store fees).
New markets: Any progress updates on English-learning regions and China are upside levers.
How I’d Think About Position Size
Treat Duolingo like high-quality, high-beta growth. Great business, bumpy road.
Starter position: 1–2% of a portfolio on pullbacks into the low-$300s (or better).
Earn your add: Bump toward 3–4% only if two quarters show:
Daily user growth holding ~30%+, and
Bookings rising mid-20s%+, with
Profitability (even a simple operating profit line) trending ahead of guidance.
Brake lights: If daily users slip into the 20s% and bookings cool at the same time, trim or tighten. That combo usually invites a lower valuation.
What Could Go Right
Conversion surprise. Max keeps getting better, paywalls get smarter, and more free learners become paying subscribers without heavy discounts.
Web wins. Checkout continues moving to the web, raising take rates and boosting profits faster than expected.
International lift. A couple of English-learning markets inflect, or China contributes earlier than modeled.
New format breaks out. A test-prep or proficiency product adds a fresh, steady revenue stream.
What Could Go Wrong
Engagement air pocket. A few meh product sprints (or a viral competitor trend) hit daily users and streaks.
Algorithm change. If short-form platforms cool on education content, organic installs fall and ad budgets must fill the gap.
Price pushback. Raising rates without enough new value tilts more users back to free (or out the door).
Feature creep from giants. More built-in translation/learning in operating systems chips away at the casual use case.
Valuation, Without The Headache
Think of the stock price as a confidence score in two things happening at the same time:
People keep showing up (daily users keep growing nicely), and
Duolingo earns more per person (subscriptions, Max, smarter ads, more web checkout).
If both stay true, you don’t need a higher multiple for the stock to work, as profits can do the lifting.
If either fades, the market usually cuts the confidence score, and the shares can fall quickly. That’s the bargain you strike with any premium growth name.
The Bottom Line
Duolingo is a habit machine with elite margins and a brand that lives in your notifications.
Growth is normalizing from rocket to fast plane, but the cash math still works if the company keeps nudging more learners up the value ladder.
Respect the price tag, buy dips with a small spoon, and let executiondecide whether you size up.
Action Recap
✅ Start small (1–2%) on weakness, ideally low-$300s
✅ Add only on proof: two quarters of ~30%+ daily user growth and mid-20s%+ bookings with improving profits
⚠️ Tighten/trim if daily users and bookings cool together
👀 Watch: web checkout mix, Max adoption, English-learning traction, and any shift in short-form reach
That's our coverage for today; thanks for reading! Reply to this email with feedback or any tech stocks you want me to check out.
Best Regards,
—Noah Zelvis
Tech Stock Insider