Duolingo IPO Shows Investors Think Edtech Is Still Growing
Duolingo officially goes public today, with the app-based language tool now has a valuation of outstanding shares at about $3.7 billion, making its total valuation more than $4.7 billion—which is a good moment to reflect on how mobile learning has entered classrooms and how the company has expanded from just an app.
In 2011, Pittsburgh-based Duolingo was founded by Luis von Ahn and Severin Hacker. Since then, the company has grown and now offers more than 90 courses in 40 languages, including Arabic, Chinese and English, and more regional-specific tongues such as Navajo, Hawaiian, Welsh and Irish Gaelic.
Since the beginning, the tool has focused on mobile delivery on a smartphone, and the company claims it is the leading mobile learning platform globally, with more than 500 million downloads between the Apple App Store and Google Play, and 40 million monthly active users.
“Duolingo has a few things going for itself. It’s got an effective mobile app that really changes the context in how people access language, a critical mass in consumer interest in learning applications and since the pandemic hit, it put edtech into the minds of investors as a real investable category,” says Trace Urdan, an edtech analyst and managing director at Tyton Partners.
As a string of online-education companies have gone public, including Chegg, Coursera, Kahoot and others, it seems that investors have decided that there’s enough public interest in digital learning, and they want in.
“Obviously this has been a big category for venture investors and increasingly important for private equity investors,” says Urdan, “but in the last six to twelve months, you've seen public markets take a lot of interest.”
And it turns out that online language learning is the fastest-growing market segment within the edtech industry.
Duolingo largely uses A/B testing to try to maximize engagement and improve its learning experience, using data from the platform's learning exercises to develop its AI models and drive both engagement and efficacy.
According to Urdan, language learning in the U.S. started as a publishing category, where people would pay small amounts of money for books or CDs to learn a language. But the real change came when Rosetta Stone’s computer-assisted language software became available for download as one of the first edtech products to become a household name within the U.S. market. And Urdan says Duolingo brought a mobile-first approach to the sector.
The system turns learning into a game, but competitors say that Duoloingo’s flaw is that it is a solitary system that fails to connect users with actual native speakers.
Yasuko Kanno, chair of Boston University’s Language and Literacy Education department, agrees. “Duolingo is really good for building a foundation in a language or for travel purposes, and learning different phrases before you go to another country. But if you want it to make a difference you have to be very consistent,” says Kanno, who has been learning Spanish on the app for about a year.
According to Kanno, the material provided on the platform is enough to learn the basics of a language. However, when it comes to language acquisition, users would have to seek out other ways to supplement it. “This is the fourth language I am learning, and I am now able to read in Spanish—for the most part. But if someone comes up to me and speaks, there’s no way that I can speak back just yet,” adds Kanno. “And so I think it’s important to understand the level of proficiency you want to obtain early on because you’d be very disappointed if you expected to be able to have a fluent conversation with native speakers.”
From the forms the company filed with the SEC last month, we learned the company conducted a study to evaluate Duolingo’s effectiveness versus traditional university language courses. It found that “Duolingo learners earned proficiency scores comparable to those of US university students at the end of their fourth semester of French or Spanish” and “were able to attain this level of proficiency in about half the time as the university students.”
But the company’s growth has been helped by another, more recent offering: an English test. With millions of English language learners in the world, its assessment is now commonly used for university admissions, work visas and job applications. As of June 2021, over 3,000 higher education programs around the world accept Duolingo English Test results as proof of English proficiency for international student admissions, which include Yale, Stanford, MIT, Duke and Columbia. By the end of 2020, about 344,000 individual Duolingo English Tests were purchased, mostly by prospective international students.
Between Duolingo's language learning material and English proficiency exam, the company reported in its S-1 that revenue: “was $28.1 million in the three months ended March 31, 2020 and $55.4 million in the three months ended March 31, 2021, representing 97% period-over-period growth. And in 2020 and the three months ended March 31, 2021, approximately 73% and 72%, respectively, of our revenue came from subscriptions to Duolingo Plus, approximately 17% came from advertising in both periods, and approximately 10% and 11%, respectively, came from the Duolingo English Test and other revenue.”
The company also noted that “in 2019 and 2020, we had net losses of $13.6 million and $15.8 million, respectively. In the three months ended March 31, 2020 and 2021, we had net losses of $2.2 million and $13.5 million, respectively.”
Now, the company is debuting on the NASDAQ stock exchange at between $85 and $95 per share.
“In some ways, [investors] are really lifting Duolingo up. By all accounts their valuation relative to revenue, and certainly for something that is losing double digit millions a year, is pretty extraordinary and that is all a reflection of how much enthusiasm there is among investors and the long term implications for edtech,” says Urdan.
One question now is if Americans are more interested in learning more languages than they were before the pandemic?
“The thing is people are just more interested in consuming education content online than they were before as a form of entertainment,” Urdan adds. “In order for Duolingo, to live up to their valuation and grow, they need to [increase] the enthusiasm for language learning in the U.S.”
Correction: This story originally misstated the valuation of Duolingo.