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Education technology companies became sought after properties during the pandemic amid mass school closures. Online learning platforms Coursera, Udemy and Nerdy were among those that rode the wave of investor interest to make their public market debut in 2021.
Since then, edtech has gone the way of other pandemic darlings like Peloton, with most companies in the sector trading at well below their 2021 peaks.
Language learning app Duolingo has managed to buck the trend. The stock is up about 60 per cent this year to give the company a $15bn market valuation, and has more than tripled from its IPO price of $102 three years ago.
The secret to its success? With its bright graphics and points, badges and trophies, Duolingo unabashedly gamifies language learning. The bite-sized lessons offer an easy way to pick up vocabulary and basic grammar while the freemium business model means anyone can use it. Then there is Duo, the company’s zany lime-green owl mascot that encourages users — through playful guilt-tripping or exaggerated threats — to do their daily lessons and keep their streak alive.
Accessibility, convenience and humour help explain why Duolingo has seen its popularity grow in leaps and bounds. In its last results, the company reported 113.1mn monthly active users at the end of September. Of these, 8.6mn were paid subscribers. That compares with the 27.3mn monthly active users and 900,000 paid subscribers it recorded at the end of 2019. For the quarter revenue was up 40 per cent at $193mn in revenue. Net income jumped from $2.8mn to $23.4mn during the period.
At 129 times forward earnings, Duolingo shares are no bargain. But it sees big growth opportunities ahead. English learners remain an underserved market. Generative AI is enabling faster content creation and driving subscriber growth through premium learning features such as live video calls and chats with AI-generated characters and scenarios.
Still, AI can also be a double-edged sword. It has the potential to make it easier to pick up a new language. Yet its advance can help eliminate the need to do so in the first place. The Google Translate app is now widely used by travellers. Its Word Lens function allows users to train their device’s camera on some foreign text, such as a street sign, and get an instant translation on-screen. The interpreter mode provides live translation between two people speaking different languages. AI could eventually remove any practical requirement for people to learn foreign languages. That day is some way off and there will always be people who want to learn languages as a way to connect with another culture. Still it is something for investors to ponder as Duolingo looks to continue its stunning growth streak.
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