This growth stock’s 50% drop reminds us of Netflix in 2009

Quite a lot of development shares did very effectively in my portfolio in 2025. rolls royce, Uber, cloudflare, robloxand cloud strike.

However essentially the most disappointing factor thus far is Duolingo (NASDAQ:DUOL). Since investing, my whole paper loss has been about 50%. ah!

sticky platform

When inventory costs plummet like this, it is very important rethink your unique funding concept. If this breaks down, it is higher to face actuality as a result of inventory costs will proceed to fall and should by no means get better.

Once I first explored Duolingo, I used to be skeptical that language studying apps had a long-lasting aggressive benefit (moat). Nonetheless, I instantly remembered that Netflix (NASDAQ:NFLX). Each are scalable international client platforms that generate income (primarily) by means of subscriptions and promoting.

Like Duolingo now, again in 2009 it wasn’t clear that Netflix had a sturdy moat. That streaming mannequin is straightforward to duplicate, and certainly has since been replicated by individuals resembling: Amazon, apple, disney, paramountand ITV. Additional competitors poses a danger to development.

Nonetheless, Netflix has held up due to its model energy, fashionable reveals, and complex AI/algorithms used to advocate content material.

Equally, Duolingo has a robust model, loyal consumer base, and powerful AI credentials. The corporate’s Birdbrain AI system processes greater than 1.25 billion workouts every single day and helps feed machine studying fashions that personalize customers’ studying experiences.

Importantly, each corporations have distinct company cultures that target long-term worth creation over short-term earnings.

Our long-term targets stay the identical. It is about being the premier Web film service…and rising subscribers and income yearly.
Proceed to spend money on streaming.

Netflix CEO Reed Hastings, 2009 Annual Report.

Certainly one of our 5 enterprise ideas is “Wanting on the Lengthy Time period”. The chance earlier than us is to show billions of individuals. Though we now have made unimaginable progress, we acknowledge that we’re nonetheless early in our journey..

Duolingo CEO Louis von Ahn, 2025.

Damaged paper?

Duolingo’s third quarter outcomes, we do not see any proof that the expansion story is unraveling. Every day energetic customers reached 50.5 million and month-to-month customers exceeded 135 million.

Revenues elevated 41% yr over yr to $271.7 million, and adjusted EBITDA elevated 68% to $80 million.

Wanting forward, nonetheless, administration will seemingly shift their focus from growing paying memberships (monetization) to bettering the standard of training to drive long-term consumer development. And this could squeeze margins and lead to lower-than-expected bookings.

be sensible

To be clear, I am not saying Duolingo will turn out to be a world behemoth price $480 billion like Netflix. The streaming chief’s inventory has risen about 14,000% since 2009, making returns like this extraordinarily uncommon. That is why I mentioned it simply jogs my memory of Netflix from my youth.

We additionally do not need to low cost the specter of AI or Google’s stay translation. meta glasses. Nonetheless, it is price remembering that individuals use Duolingo regularly. be taught Quite than translating the dialog, it’s a second language.

ChatGPT, however, would not have a structured curriculum or gamified options like streaks to maintain customers .

Solely 9% (11.5 million) of Duolingo’s 135 million customers are at the moment paid members. Provided that there are 1.5 billion individuals studying a overseas language, there stays an enormous market alternative, particularly in Asia. And this doesn’t embrace arithmetic, music, chess and different future topics.

I feel it is price evaluating as a result of it is buying and selling at a a lot decrease valuation than it was six months in the past. I do not suppose the inventory value crash displays the precise energy of the underlying enterprise.