The slowdown is to reflect management comments that they do not see accelerating growth forever. GAAP EBIT margin also showed significant operating leverage, expanding from -21% to -3.4%.īased on my view of the business, DUOL should continue to grow at 40% for FY24, followed by a slowdown in growth rate to 35%. Importantly, margin performance was spectacular, with gross margin increasing 100bps to 73.7% and adj EBIT margin expanding 12.1 percentage points to 16.5%. Other aspects of the business, Duolingo English Test, also performed very strongly, growing 29.5% to $10.6 million. Strong subscription revenue was driven by strong paid user growth, although ARPU was a minor headwind. Total revenues grew at a staggering pace of 43.3% y/y, mainly driven by Subscription revenue growth of 46.7% to $105.8 million. I think there is no debate that DUOL continues to execute at a very high level, as it reported another strong quarter (3Q23). Most importantly, I expect DUOL to turn GAAP EBIT positive in FY24, which should trigger valuations to rerate upwards. At a high level, I am reiterating my buy rating for DUOL as I see DUOL continuing its strong growth momentum over the next 2 years. Below, I discuss my updated view on DUOL. My previous target price was $208, and the share price today has surpassed that. My previous rating was a buy, as I believed Duolingo ( NASDAQ: DUOL) execution was on point, and once DUOL starts generating positive GAAP EBIT, the stock valuation should re-rate higher. Readers may find my previous coverage via this link.
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