r/stockmarket
Love it or not, it is impossible to argue Duolingo(DUOL) hasn't been massively oversold
DUOL is oversold due to exaggerated AI fears; strong fundamentals and gamified stickiness prove its enduring value.
- Strong fundamentals with growing revenue, profit, and new users, generating over a billion dollars annually.
- High user stickiness driven by gamification and streaks, which basic LLMs fail to replicate effectively.
- Incumbent software companies like Duolingo can also integrate AI to enhance their products, mitigating the replacement threat.
Hear me out. Duolingo has fallen about 80% from ATHs from just one year ago. The fall is almost completely attributed to the idea that AI will make it obsolete. It has been a common example of how AI will crush incumbent software companies, many podcast hosts have made comments about how just asking AI to teach you another language will be far more effective and tailored to an individual than any existing language product. At first I agreed with this narrative and thought it made a lot of sense. But here we are a year later and Duolingo's revenue, profit and new users continue to grow. A quick look at the fundamentals of the company tell the story of a healthy and profitable company that is doing north of a Billion a year.
I understand that that doesnt necessarily mean that trend will last the next 5 years, but my own experience has reinforced my now belief that this company was massively oversold. I personally have a 3xx day streak on duolingo, I have tried multiple times to use chatgpt or gemini for practice but they always fall flat. Every time I try to do it, they just begin speaking in spanish and move way too fast beyond my knowledge level. It is frustrating and does nothing to draw me back. Duolingo on the other hand with it's streaks and gamification has made it so I almost feel guilty if I miss a day and has become a constant in my routine in a way that I can't see a basic LLM doing. Not to mention it is made in a way that you can share streaks and the experience with friends. The effectiveness of the education could be debated, but Duolingo has done an incredible job at creating a product that is very hard to get away from once started. And in software, that stickiness is one of the most valuable assets you can have.
It is also important to remember that incumbent software companies like Duolingo are allowed to use AI too! The conversation is often structured as Software companies vs AI, as if these large software companies with hundreds or thousands of talented engineers aren't going to utilize AI themselves to improve the product and stay ahead of solo individuals vibe coding new products from scratch.
The ultimate conclusion I've come to is even if Duolingo loses market share and new products pop up over the next few years, that still wouldn't come close to justifying the massive 80% market sell off. If you buy now and the stock returns to just half of its ATH, that would be a crisp 100% return from todays stock price( $125).