Duolingo (Nasdaq: DUOL) filed to go public later this month. Based on its last fundraising round, the company has a valuation of $2.4 billion. The company is expected to be priced between $85 and $95 per share with the company selling about 3.7 million shares. This would give it an estimated valuation between $3.1 billion and $3.5 billion.
Duolingo's IPO could also make the first of many EdTech companies that could be going public in coming years as this category has experienced massive growth during the pandemic. Additionally, the category's fundamentals and market size continue to improve with increasing rates of homeschooling and the increasing cost of accredited education.
Company Profile
Duolingo was founded in 2011 by Luis von Ahn and Severen Hacker who met at Carnegie Mellon University where von Ahn was a professor and Hacker a graduate student. Von Ahn is also known for being the inventor of Captchas. Captchas are tests that a human can pass but computer cannot. They also serve an important function. Earlier versions of Captcha was used to transcribe texts from books that couldn't be recognized by scanners. Now, they are helping train computers in image recognition.
A similar innovative spirit inhabits Duolingo which is attempting to teach people languages through gamification and bite-sized lessons. Currently, Duolingo has 40 million monthly users and offers 40 different languages. It has been downloaded more than 500 million times. It's also the leading education app on the Apple (NASDAQ: AAPL) app store and Google (NASDAQ: GOOGL) Play store. In Q1 of this year, the company reported more than a doubling in revenue to $162 million with 72% from subscriptions and 17% from advertising.
Stock Price Outlook
Like nearly every tech stocks going public over the last year, the valuation is immense given its estimated $4 billion pre-IPO price and less than $200 million in revenue. Skeptics would point out that the company is going to find it difficult to grow into this valuation especially given that nearly everyone interested in learning a language has heard of the app.
However, there's a contrarian bullish case to be made especially as the business is capital-light which means there will be higher margins. Further, it's quite possible that Duolingo could offer additional educational offerings especially with the proceeds from its IPO. Therefore, investors shouldn't rush to buy but keep the stock on their radar as it does have considerable potential.