Duolingo (NASDAQ:DUOL) Inc shares on Thursday witnessed a significant surge, closing up 7% in contrast to the relatively flat performance of the S&P 500.
Analysts at JP Morgan on Friday reiterated an Overweight (OW) rating on the stock, maintaining a price target (PT) of $400. The stock's climb is attributed to the expansion of its Video Call feature to Android devices and the addition of five new languages, now offering eight languages on iOS and six on Android, with Japanese and Korean expected to join Android soon.
The Video Call update also includes new animations, transcripts, and the capacity for the AI character Lily to initiate calls with learners.
JP Morgan analysts express optimism about the updated Video Call feature, believing it will enhance user experience, engagement, and teaching effectiveness.
They expect Duolingo to leverage generative AI and large language models to meet its goal of teaching as effectively as a human tutor.
The analysts project a significant increase in paid subscribers for Duolingo's Max product, estimating 450,000 in 2024, accounting for 5% of total subscribers, and reaching 1.37 million in 2025, which would represent 11% of total subscribers.
This growth is expected to translate to $45.8 million in revenue in 2024 and $153.0 million in 2025, making up a significant portion of subscription revenue.
Additionally, Duolingo's recent growth in U.S.-based Chinese learners, which spiked by 216% year-over-year, is partly linked to the adoption of RedNote ahead of a potential U.S. TikTok ban.
Estimates suggest that there could be between 2 million to 3 million U.S.-based Duolingo Chinese learners, making up a substantial share of the company's monthly active users in the U.S.
JP Morgan also notes that while a U.S. TikTok ban could lead to an engagement shift across social media platforms, benefiting Duolingo, the emergence of RedNote is not considered a significant driver of user growth.
However, the firm remains bullish on Duolingo's daily active user (DAU) growth, supported by product optimizations, revived user growth, strong marketing campaigns, and the expanding opportunity for English learning.
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