Why I believe Duolingo is a value buy today!

I have been a Duolingo user for three years now (yes, I have a 1200 day streak). But I'm not here to debate whether or not someone can learn a language simply through Duolingo. While I could do that I just don't believe that's a relevant metric for this. My thesis stems more from what this company has managed to achieve over the course of its existence as a language learning app. Before Duolingo, the language learning market was largely dominated by institutions and products like Roseta Stone that were not necessarily targeting the part time learner or anyone who didn’t really need to learn a new language. There were institutions like Alliance Francais for French, Max Mueller Bhavan for German operating in the old school classroom model. As a 19 year old dweeb trying to learn French for three years I can assure you that I learnt nothing. Not to mention it wasn’t cheap.  All that to say that language learning then was a huge time and financial commitment and hence you’d have to be truly regarded to consider learning a new language unless you absolutely had to. And then came along Duolingo which didn’t just grow the existing market but it drew in people who were not previously in the market for language learning. Mind you, not just a handful but millions. That alone is a staggering achievement.  The idea that one could learn a new language for cultural reasons was either dismissed as a waste of time and money or as something reserved for the super wealthy. Today, I know people who want to travel to Mexico because they’ve been learning Spanish on Duolingo. I hear someone casually say that they’re learning Norwegian and it doesn’t even get a reaction. That’s how mundane the idea of learning a new language has become, thanks to Duolingo.  Now, that’s the story that gets me excited. This is a company that understands teaching. They understand the long game. They understand that they are in a unique position, especially after the AI boom, to become the Amazon of education. I don’t mean a market place but in scale. If they can do it with languages, they can do it with other subjects too.  The biggest bear case is that AI can teach any language for free. Or that live translate or google translate is so good these days that you don’t need to learn the language. The latter is easily refuted. As someone that can speak 5 languages with varying fluency, I don’t think the majority of language learners do it because they want to be able to order food or haggle with the salesperson. There’s a certain satisfaction in connecting with people of a different culture in their native language and knowing that you’ve worked to get there. It’s the same kind of joy you get from learning to play an instrument or learning Muay Thai. Nobody said if guns are made legal(I live in Canada), MMA gyms will be out of business.  As for the “ChatGPT could teach Spanish” argument, true, you could potentially learn a language from scratch using chatgpt or gemini. The question is why haven’t you? Or anyone for that matter? I tried the voice chat with chat gpt and it was great as long as I’m able to help it teach me. While it’s doable, It’s not easy and I bet that not a lot of people have the patience for it. Whereas Duolingo has a curriculum and knows exactly what your level is, keeps track of your progress and importantly keeps you engaged while you learn which is the hardest part. It’s easy for Spotify or Netflix or Instagram to grow its user base because their products are inherently ‘fun’ and people are naturally drawn to them. Learning on the other hand is boring. The brain hates it and yet Duo has over 100 M Monthly active users and over 50 mil daily active users. That’s insane.  I’m not saying that AI won’t play a role in the future of learning. Quite the opposite actually. AI is going to disrupt learning. There will be a time when learning a language won’t be as arbitrary and disorganized as it’s right now on chatgpt. But I see it happening more through Duolingo than through ChatGPT or Gemini.  The management was quick to realize the potential of AI as evident from their AI first declaration last year. I understand people were mad. But hey, progress comes at a price. Video Call with Lily is a great example. But I think it's just the beginning, I won't be surprised if they test a flurry of features i the near future.  This is a great company run by great people and I see them becoming a household name in 5 years. Not just languages, you’d be able to learn pretty much anything from any level and you will have a great time doing it.  So that's my spiel. I thought I’ll get into the numbers but I’m tired. But long story short, their fundamentals are great. The market was willing to pay about the same price ($175) when they were not profitable and making a fraction of today’s revenue.  Today they’re profitable with a great balance sheet, great FCF and a good chunk of cash in hand.  Not financial advice.  I recently started a position at around $187, a little over 100 shares.  The title could have easily been "Why I hope Duolingo is a value buy today". Cheers!!!