By Sam Boughedda
BofA analysts lifted the firm's price target on Duolingo (NASDAQ:DUOL) to $160 from $105, maintaining a Buy rating on the stock in a note to clients on Thursday.
The analysts told investors that gamification and AI are a winning combination for Duolingo, while the company's user metrics in the first quarter remain strong.
BofA believes that much of the recent rally in DUOL shares over the last few months is fueled by its strong above-Street 4Q results, driven by growth in subscription revenue (up 53% y/y) and an increase in paid users (up 68% y/y).
"Users are continuing to shift towards annual and family plan subscriptions (over 91% of total subscribers in 4Q22 vs 90% in 3Q22), increasing revenue per subscriber and bookings growth," the analysts wrote. "For 1Q23, Sensor Tower estimates suggest continued strength in global DAU y/y growth averaging 53% vs. 4Q22 reported at 61%."
Meanwhile, analysts see Duolingo Max, a higher-priced subscription tier that lets subscribers access all the benefits of Super Duolingo, as well as two new AI features, "will help create better monetization potential and could also help reduce content generation costs over time."
"Despite the elevated stock valuation, we remain bullish on Duolingo given category leadership, differentiated (gamified) offering, strong execution, and sticky and rapidly growing user base (attracting younger users with strong social media presence)," they concluded.