I boosted my Duolingo stake by 12% this morning and significantly raised my average cost base. This is my first purchase of shares since I trimmed through May and into early June. The quarter was very good despite all of the mid-quarter drama. As a reminder, founder/CEO Luis von Ahn took to social media to announce their AI-first pivot. That was not well received, as, according to von Ahn, he did a bad job wording the announcement and made people think they would be firing all of their employees. That is not the case. Duolingo’s social media sentiment turned aggressively negative and it missed its 42.5% DAU growth target with (still excellent) 40% growth despite some anecdotal user “boycotts.”

Since then, social media sentiment has fully recovered and their DAU trends have stabilized. That’s before re-opening the edgy, constantly viral social media content that has made Duolingo famous. It’s the sarcastic, borderline rude and hilarious Green Owl moments that drive waves of user growth for this firm. It pivoted to more of a “nice” social personality when sentiment needed to improve… and now it has. In the coming weeks, they expect the social media engine to be rocking once more, and I expect that to be very positive for user trends.

Following their Q2 results, we’re left with a 40% grower that is quickly expanding margins and delivering elite financial results in what was supposed to be its most challenging period since the IPO. It trades for a mid-30s FCF multiple with 40% FCF compounding expected and a massive runway to take advantage of. I am still a bit anxious about smart glasses becoming ubiquitous over the coming years, but that will not be immediate and also will not challenge its main value proposition that blends learning with fun and entertainment. Furthermore, the multiple contraction has made risk/reward compelling enough for me to again accumulate more shares.

Overall Performance:

Year-to-Date Performance:

The two charts below are identical. The primary source is just difficult to read.