Many development shares have finished very well in my portfolio in 2025, together with Rolls-Royce, Uber, Cloudflare, Roblox, and Crowdstrike.
Nevertheless, probably the most disappointing by far has been Duolingo (NASDAQ:DUOL). Since I invested, my whole paper loss is now round 50%. Ouch!
Sticky platforms
Each time a inventory collapses like this, it’s essential to revisit the unique funding thesis. If that is damaged, it’s higher to withstand actuality as a result of the inventory could preserve falling and by no means recuperate.
Once I first explored Duolingo, I used to be sceptical the language studying app had any sturdy aggressive benefit (moat). But it shortly jogged my memory of Netflix (NASDAQ:NFLX). Each are scalable, international client platforms monetised by subscriptions (primarily) and adverts.
As with Duolingo in the present day, it wasn’t apparent again in 2009 that Netflix had a sturdy moat. Its streaming mannequin might simply be replicated, and certainly has been since by the likes of Amazon, Apple, Disney, Paramount, and ITV. Ever extra competitors is a danger to development.
But Netflix has endured due to its model energy, standard reveals, and complex AI/algorithms used to advocate content material.
Likewise, Duolingo has a powerful model, extremely engaged person base, and powerful AI credentials. Its Birdbrain AI system processes over 1.25bn day by day workouts, serving to feed machine-learning fashions that personalise customers’ studying experiences.
Crucially, each even have distinct company cultures centered on long-term worth creation over short-term income.
Our long-term targets stay unchanged: To be an ideal Web film service…and to develop subscribers and earnings yearly whereas
persevering with to put money into streaming.
Netflix CEO Reed Hastings, 2009 annual report.
One in all our 5 working rules is ‘take the long view’. The chance forward of us is to show billions of individuals, and whereas we’ve made unbelievable progress, we all know we’re early in our journey.
Duolingo CEO Luis von Ahn, 2025.
Damaged thesis?
Duolingo’s Q3 outcomes, I see no proof the expansion story’s unravelling. Day by day energetic customers hit a report 50.5m whereas month-to-month customers topped 135m.
Income jumped 41% 12 months on 12 months to $271.7m and adjusted EBITDA surged 68% to $80m.
Supply: Duolingo (Word: web revenue was inflated by a one-off tax profit).
Wanting forward although, administration will shift focus from growing paid subscribers (monetisation) to enhancing instructing high quality to drive long-term person development. And this dangers some margin stress and, probably, lower-than-expected bookings.
Netflix in 2009Duolingo in 2025Market-cap$3.1bn$8.9bnRevenue $1.7bn$1bn (forecast)Web revenue $116m$245m (forecast, normalised)Whole subscribers 12.3m11.5m (as of Q3)
Being life like
Now to be clear, I’m not saying Duolingo will grow to be a worldwide juggernaut price $480bn like Netflix. The streaming chief’s shares are up roughly 14,000% since 2009, and such returns are exceptionally uncommon. Therefore why I mentioned it solely jogs my memory of a younger Netflix.
Additionally, I don’t need to downplay AI threats or stay translation from Google and Meta glasses. Though it’s price remembering that individuals use Duolingo frequently to study a second language, not translate conversations.
In the meantime, ChatGPT has no structured curriculum and/or gamified options like streaks to maintain customers engaged.
Of Duolingo’s 135m customers, solely 9% (11.5m) in the present day are paid subscribers. Contemplating there are 1.5bn folks studying a international language, the market alternative stays huge, particularly in Asia. And this excludes maths, music, chess and different future topics.
With the inventory buying and selling at a far cheaper valuation than six months in the past, I believe it’s price assessing. I believe the crashing share value doesn’t replicate the precise energy of the underlying enterprise.
