Long Duolingo Inc (DUOL)

Growth at an Awesome Price

Substack: Herald of the Hudson

Twitter: @HeraldHudson

INTRODUCTION

Duolingo Inc is a digital education company with a mission to develop the best education in the world and make it universally available. Today its primary product is a language learning app which delivers a gamified, adaptive learning experience via internet connected mobile devices.

Circle of competence

Duolingo’s core business is a language learning app (pictured above). Most customers are:

• English learners trying to improve their job opportunities or socioeconomic mobility.

• Native English speakers learning a new language for fun.

Customers will continue to learn languages because:

• Everyone must learn at least one language.

• Learning English delivers a lot of value to individuals in non English speaking emerging markets. In many countries around the world an individual can make 30-100% more if they learn English.

• Schools require learning a second language in their curriculums. They will continue to do so because learning, or practicing, a second language delivers mental benefits and exposes students to new cultures and ways of life.

• Universities require language proficiency from international students in order to ensure they will perform successfully.

• Employers require language proficiency from multinational employees in order to ensure they will perform successfully.

• Wanderlust, a strong desire to travel and explore, is a part of human psychology.

• Computer translation is not effective enough to create efficient students & employees. In addition, it will not work in all situations and will always have a socially awkward lag.

Customers will continue to use Duolingo because (elaboration will be provided in the moat section of this write up):

• Alternatives are bad

  • The typical learning experience (in person with large class sizes) is ineffective and subject to cheating. Personally, I have four semesters worth of college credits for Spanish language and literature. I cannot speak Spanish.

  • Other digital learning apps replicate the in person experience of boring activities such as studying grammar theory. Duolingo pioneered a learn by doing, gamified, fun, effective, one on one, private experience.

• Duolingo delivers its experience at the lowest price (free) and cost. This cost advantage will improve over time.

• Duolingo has a strong brand. This moat has prospects for improvement over time.

• Duolingo has strong barriers to entry and management has positioned the company to continue strengthening this moat.

• Duolingo has strong barriers to exit (commonly referred to in the value investing community as “stickiness”) and management has positioned the company to strengthen this moat. 

• The company is moving fast to improve on all fronts.

• The company is positioned for antifragility.

Economics