QS Research · Michael Burry's Scion Capital analyst template · 2006
Duolingo, Inc. (DUOL)
As of 2026-11-11 · 12/15 boxes filled from SEC filings and market data
Report price $156.67 (close 2026-11-10)
Conclusion: SHORT
Conviction medium · base case -62% · downside -68% · upside +16%
The market is not missing Duolingo's quality - 72.8% gross margin, $407.0M TTM FCF, $1.24B net cash and 32.5% ROIC vs 9.9% WACC - it is overpaying for it at $156.67, which is 53.7x GAAP P/E, 70.2x operating P/E, 40.5x EV/EBITDA and 5.57x EV/Sales (N27, N33, N24, N23, N16, N17, N40, N41). The code's independent base at the 20.25x peer-median P/E is $59.08, -62% vs $156.67 (N51); my downside assumes TTM net income falls 50% and the P/E compresses to 37.0x, halfway from 53.7x to 20.25x, giving about $54, -66%, while my upside uses today's 53.7x on +16.2% next-year Zacks EPS, about $182, +16% (N27, S55). The dated catalysts are Q3 2026's 2026-11-03 DAU +29% release, the 2026-11-09 Zacks -68.3% current-FY earnings estimate, and the 2026-12-07 class-action lead-plaintiff deadline (S97, S55, S8); none changes the fact that SBC is 38% of FCF and Apple/Google are 60%/23% of revenue (N39, N47). A short is warranted because base (-62%) and downside (-66%) are far below the price and the upside (+16%) is capped at today's multiple. The key risk is a squeeze: short interest is 17.9% of float and 8.8 days to cover (N44, N32).
Key numbers
- Share price: $156.67
- Market cap: $7.82B
- Latest financial period: TTM to Sep 30, 2026
- Revenue (TTM): $1.18B
- EV / EBITDA (TTM): 40.5x
- P/E (TTM): 53.7x
- FCF yield: 5.2%
- Price / book: 5.28x
- P/E, operating (tax-normalized) (TTM): 70.2x
- EV / FCF (TTM): 16.2x
- Revenue growth (latest fiscal year): +38.7%
- ROIC (TTM): 32.5%
- WACC: 9.9%
- Economic profit spread: +22.6 pts
The 15 boxes
- ✓ 1. Long-form business notes
Duolingo monetizes a free, mobile-first learning app through paid subscriptions (Super Duolingo and, since 2023, the higher-priced Duolingo Max) plus advertising shown to free users, alongside the separate Duolingo English Test assessment business; roughly 9% of MAUs were paid subscribers as of December 31, 2025 versus about 6% as of December 31, 2021. Revenue compounded from $161.7M in FY2020 to $1.04B in FY2025 and $1.18B on a TTM basis to September 30, 2026, while operating income swung from -$16.0M (FY2020) to $135.6M (FY2025) and $146.1M TTM. The business is now strongly cash generative (operating cash flow $387.8M FY2025, $435.8M TTM) on minimal capex, and the platform has broadened from 40+ languages for ~42M MAUs (Dec 31, 2021) to over 250 language courses for more than 130M MAUs (Dec 31, 2025) plus Math, Music and Chess courses.
- ✓ 2. Competitive advantage
Duolingo's 10-K claims a leading position by downloads, active users and brand awareness, with a freemium model and a small IP portfolio; that is a brand/scale advantage, not a switching-cost moat. The same filing stresses low switching costs, thousands of free apps, low barriers to entry and larger or platform competitors. Financials show gross profit, operating income and operating cash flow scaling from FY2020 through FY2025 and TTM to 2026-09-30, but FY2025 net income is inflated by a deferred-tax valuation-allowance release, so operating income is the cleaner measure.
- ✓ 3. 10-Q takeaways
Q3 2026 revenue grew 14% to $309.0M, total bookings grew 12% to $316.1M, DAUs grew 29% to 64.9M, and gross margin rose to 72.9%; nine-month revenue was up 19% to $899.4M. Adjusted EBITDA was roughly flat at $78.7M in Q3 2026 versus $80.0M, while net income fell to $27.2M from $292.2M because Q3 2025 had a $222.7M one-time tax benefit. Cash was $1,239.6M plus $134.3M short-term investments at Sep 30, 2026, and the company repurchased $76.7M of stock in the nine months to Sep 2026. The 10-Q reports no material risk-factor changes from the 10-K and gives no numeric guidance; the earnings release outlook is qualitative.
- ✓ 4. Corporate governance
Filled; members read this box.
- ✓ 5. Overview of the prior 3 years of 8-K filings
Filled; members read this box.
- ✓ 6. Other significant filings
Filled; members read this box.
- ✓ 7. Chronology of significant news and events
Filled; members read this box.
- ✓ 8. Comparables valuation interpretation
Filled; members read this box.
- ✓ 9. Insider trading interpretation
Filled; members read this box.
- ○ 10. Earnings-call notes
- ○ 11. Impression of the shareholder letter
- ○ 12. Scuttlebutt overview
- ✓ 13. Valuation and risk/reward summary
Filled; members read this box.
- ✓ 14. Current price suppression and potential catalysts
Filled; members read this box.
- ✓ 15. Conclusions
The call above.
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