UBS Highlights Artificial Intelligence and Higher Pricing as Growth Drivers for Duolingo
Language education platform Duolingo has the potential to find further growth drivers through artificial intelligence (AI) technology and higher pricing for its subscriptions, according to financial services company UBS. The bank recently initiated coverage of Duolingo’s stock, giving it a buy rating and setting a price target of $195 per share. This target implies a significant 26% upside from the stock’s closing price of $154.24 on Wednesday.
UBS analyst Chris Kuntarich believes that Duolingo, already recognized as a “best-in-class brand,” still has room to expand its user base before reaching its full potential. Kuntarich suggests that leveraging AI-driven content creation could accelerate engagement and increase payer penetration, leading to a projected compound annual growth rate (CAGR) of 29% for subscribers over the next two years.
Furthermore, UBS is optimistic about Duolingo’s monetization potential through its family plan and the introduction of a new subscription tier named “Max.” The family plan, which was launched in August 2021 and currently accounts for 12% of subscribers, along with the high-priced Max tier, could potentially make up a considerable portion of net subscribers in the coming years.
The bank also sees opportunities for Duolingo to raise prices within its Family Plan and Duolingo English Test offerings. UBS argues that the Family Plan, in particular, is currently underpriced by an estimated 8-38% when compared to other consumer internet subscriptions.
Duolingo’s stock performance has been impressive this year, with a staggering increase of nearly 117%. Having gone public in July 2021, the company’s shares have surged by over 50% since its initial listing. This indicates strong investor confidence in Duolingo’s business model and growth prospects.
While UBS’s analysis and optimistic outlook on Duolingo’s growth drivers provide a bullish sentiment, it remains to be seen how effectively the company can capitalize on these opportunities. With the combination of AI-driven content, new subscription tiers, and potential price increases, Duolingo aims to continue its upward trajectory in the language education market.