Duolingo Inc (NASDAQ: DUOL) just delivered another masterclass in keeping learners hooked, and Wall Street is taking notes. Shares surged as much as 7% on Thursday, and JPMorgan's Bryan M. Smilek sees plenty of upside, reiterating an Overweight rating and a $400 price target.
Enter Lily: Video Calls & AI = A Winning Formula
So, what's driving the rally? Enter Lily, Duolingo's AI sidekick, which can now initiate video calls-not just on iOS (NASDAQ: AAPL) but also on Android (NASDAQ: GOOG) (NASDAQ: GOOGL) and five new languages. With Japanese and Korean set to join the mix, Duolingo is tapping deeper into a Google Play-powered revenue stream that accounted for 19% of bookings last quarter. The broader video call rollout, complete with transcripts and expressive animations, isn't just a novelty-it's a calculated move to boost engagement and monetization.
Duolingo Max, the company's GenAI-driven premium tier, is also gaining traction. Smilek estimates Max subscriptions will jump from 450,00 in 2024 to 1.37 million in 2025, generating $153 million this year-nearly one-fifth of subscription revenue. A well-timed New Year's campaign offering 20% off Max has further sweetened the deal for language learners looking to level up.
US-Based Chinese Learners Surge - But Why?
Adding another twist to the story is an unexpected surge in U.S.-based Chinese learners, up 216% year-over-year. Speculation swirls around RedNote, a Chinese learning app some see as a TikTok alternative amid potential U.S. bans.
However, Smilek isn't buying RedNote as a game-changer for Duolingo. Instead, he points to seasonal trends-New Year's resolutions and the upcoming Chinese New Year on Jan. 29 - along with Duolingo's own marketing firepower, which has seen impressions rise 80% over the past year.
A Strong Growth Trajectory
With daily active users projected to grow 37% in 2025, Duolingo is proving that when it comes to language learning, engagement is the real currency.
And with AI-driven tutoring gaining steam, Duolingo's $400 price target might just be another milestone in its upward trajectory.
Price Check: Shares of DUOL finished 6.8% higher at $341.80 on Thursday.