I decided to trim more of my Duolingo stake. The sale was worth 17% of the overall position. I’m sitting on 350%+ profits, while the firm trades for ~60x forward FCF and a growth multiple of 1.7x.

As I’ve said many times, I do not think real-time smartphone translators are competition for Duolingo. Folks who want to learn a language for a job or a spouse likely won’t see interviewing or chatting through a phone as a substitute. It isn’t. That’s why these translators have existed for years while Duolingo kept rapidly growing. Furthermore, Duolingo is an educational and competitive game made for entertainment. ChatGPT doesn’t solve for that in the least.

At the same time, I do think smart glasses paired with real-time translators can impact some level of its demand down the road. Not the folks using it for fun, but the smaller subsection using it to actually learn. Next-gan hardware will be far more capable of delivering natural, conversational experiences vs. putting our faces up to a screen. And glasses are coming for Meta, Alphabet and many others. Potentially affecting the smaller portion of its user demand could modestly slow the growth engine a bit over the coming years; that could lead to some multiple contraction. Considering all of that and its somewhat rich valuation at this point in time, risk/reward has modestly diminished in my opinion.

It’s important to emphasize that I think this elite team and business will out-innovate new entrants like they’ve done for years. If that weren’t the case, this trim would be much larger. My level of conviction in that opinion simply fell a tad as its niche evolves more quickly than it has since the IPO. I want to respect that reality with the trim — even if I deeply admire the company and remain excited for its future.

Secondly, I also trimmed 15% of my Zscaler stake. This is based purely on multiple expansion.

The firm has moved from 40x forward FCF to 60x in about 2 months. Its growth multiple is now approaching 3x following that move. I remain exceedingly upbeat on this name and its fundamental future. But? I will always trim thriving names into excess multiple expansion… just like how I will always add to these names amid excess multiple contraction. Running the playbook.

I am leaving the proceeds in cash for now.

The two charts below are identical. I include the Excel spreadsheet because the primary source is very hard to read.