The Intrinsic Value Podcast 对 $DUOL 的判断变化

Maybe we just go ahead with the next company that's I would say a bet that has also performed quite well since the pitch. Um Dualingo. >> I think Dolingu has I don't know I think it's pretty similar in terms of the risks um a lot of people what I don't get maybe give me your opinion on that in the chat also people say that you can just learn languages with AI or like CHP generally now I don't see that um like if you use Dualingo once and then you compare that to CHP it's a totally different thing

like language learning is one of those things where you you have in your mind hey I want to learn Spanish right but then to actually get to it every single day or at least I don't know three or four times a week it's so tough and it. You only do it if it's at least a bit of fun. Then if you go to JPD and basically ask it to have, I don't know, a plan for learning Spanish, it just sucks. I think it's not a great experience at all.

Um, so if you ask me, we talked about distribution last time. Distribution of AI in the language learning space. Um, I think Dualingo has a huge advantage. What I don't like so much is the fact that they now go into like math and chess and all that stuff. I think there you have other platforms that have an advantage.

So I think it's good at learning languages. I don't think it's uh this huge I mean I think the the narrative is basically that you have this learning platform that will expand into so many different verticals. I don't believe that will be the case at least not that successful.

>> Yeah I mean I I don't think it can rank above Adobe. That would be that would be sort of insane. So, we either need to move Adobe up or um Dolingo maybe goes in like the D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D to E range.

I have used uh you know I've used Dualingo on and off for a long long time, well over a decade. Um and at one point I was paying for it. I think you're right. It's not that no one is going on to chat GBT to learn a language. uh and I'm not sure that somebody can um vibe code a language learning app that is going to be uh you know anywhere like the experience of of Duolingo, right?

Obviously that is uh you know they're they're sort of the master of gamified language learning. Uh there's something to be said of the fact of can you actually learn a language through Dolingo? I don't think I know anybody who like meaningfully attributes their their uh fluency in a lang in a language [clears throat] to to Duallingingo.

It's I know a lot of people who did Dolingo and then uh basically burned out on it [laughter] and they felt a lot of pressure. The streaks are very effective.

Um, if I were to be bearish on, you know, let's call it the language learning industry, um, long term, the only thing I would say is that, um, you know, with AI, uh, you could could frame it that way. um translation tools might become so good that it gets to a point where um you it just becomes uh people are less inclined to to do the work to learn a language.

Uh, but language translation seems like an incredibly solvable problem. Uh, and then you lose a lot of the casual language learners like myself, you know, I kind of feel like, yeah, you know, I could spend some time learning Spanish, unless but like if I'm going to Colombia, um, most people are probably going to I don't a good a decent number of people are going to be able to speak English. Uh, and then I can get by with translation tools.

>> But that's actually, sorry, but that's my counter argument. I I know we had the same argument in our podcast episode, but I'm like, if you just want to, you know, communicate to people today, like most people speak at least enough English so that you can sort of communicate what you want to do. People still want to learn languages. Actually, more people want to learn language than ever before. So, I feel like there's somewhat of a I'm romanticizing it. I'm I'm well aware of that. But there's something to say about, you know, going to another country and trying to commun communicate with people in their own language. Um, I think there's just something about it.

I I also know it's inconsistent because I see myself arguing saying, "Okay, well, but how many people are there?" Like, is it 10% of people who would still actually do that? And I think in our um I think it was Meta or Google research, I think it was Google. Um we discussed their new glasses. Um and that's a whole different thing. I think we all think that, you know, smartphones will be the dominate um or dominating hardware in the future. But I do believe that as you said like you would just have these Google or meta glasses on and they in real time translate what the other person is saying.

Um so when it comes to that and it's probably just a matter of time there won't be that many people still learning languages. Um probably at least if you compare that to today. Um so I would agree. Um and also as you know this comment is mentioning and that's what I found in my research. It's very hard to find a real mode with Dolingo. Like it basically comes down to execution and saying you know most people think of Dualingo when they think about I want to learn a language so where do I go dualingo then they have a great you know experience in terms of gamifying it but I don't know as you said like probably over the long term and that's like my long-term thesis we will have fewer people who learn languages but the people who do are more serious about it and then you have to question would those people actually go to Dualingo and I think you know the answer is no

Um >> and put Dualingo and D like thinking okay maybe they actually expand into other verticals. Um,

>> can I just say how ominous it becomes when you move the back the eyes turn black when you move it over? [laughter] >> I like we have that with a couple of these because is not happy with us for making it >> D. You also turn from white to black. So if you remove the background which sometimes you have to do it turns into that >> but it's the eyes. It's the eyes with the Dolingo owl.

>> Yeah, that's true. It's even more scary. Like good question. How popular is Dolingo in Germany? Um, if you want to learn learn a language, you go to Dualingo. Um, I would say it's probably as um as popular as it is in the US, I would say.

Um, how is Dolingo not EOF? To be completely honest, guys, probably after going through all of the companies, at some point we have to adjust. Like just as we pushed up to Doby um up right now, maybe we have to adjust Dual Lingo into into lower than D right now. Um, I think that's fair.

But I don't know. I mean, currently they don't have anyone competing with them on the same level. And it's not like the company has just you know um existed for two years even I think I have a chart here um because the stock went up again and this is basically just comparing their monthly active users and the daily active users compared to the multiple that the company has been given.

So basically what you see here um relatively high correlation between the multiple went down when the numbers of or basically the growth of users went down as well.

Um and now we have seen I think again like a 60% um rise in the stock and this has primarily been because of this little bump right um and that's only and that's funny because user growth accelerated slightly but um and that's a funny part of the thing people now expect 27% user growth for the next quarter and that's because I leaked the slide from a PowerPoint um where they basically had 27% growth for the next quarter. Obviously they said that's not the guidance but the market is now thinking that's what we will see next quarter.

Um, so I think that's quite interesting, but obviously short-term. Um, okay, we we got to be quicker. Let's say Dualingo D2E value today it's it's worse than Wix like it can be.

>> Somebody Yeah, somebody pointed out that the forward earnings are uh pretty bad and and that's true. It looks like fiscal AI is saying 55 times forward earnings. >> Yeah, but I think that's not the best metric to look at. I mean, this is um forward price to free cash flow. Um I think that's a better metric to look at for Dualingo.

>> Um otherwise the earnings look quite high. That's true. Um but it's always dependent on which metric you use. Um and how that's uh that's >> why. Do you know do you know why? I mean why is the trailing 17 times earnings for

>> I would actually have to go into the details. I mean let's quickly see if we can just pull it up here. It's been a while since I covered it. Um let's see where we actually going. It could obviously be stockbased compensation which then would lean towards looking at the PE. Um because I think stockbased comp is quite high. Um,

let's see if we have it here. Stockbased comp. Um, you can see that's quite high. I mean, if you just compare it to net income rate. >> So, I'm looking I'm looking at the estimates. Um, >> they're saying trailing 12-month revenue is 410 million, but or sorry, in net income is 410 million. Um, but it's supposed to fall to 130 million next year, 165 million. Uh, >> yeah, I think they >> falling. >> So, the projection is that they basically massively overearned in 25 into this year.

>> I think that's not really the case. I think it's more that they now invest heavily. Um, I think they now wanted to get a lot more user growth again. Um, which didn't end up happening that quickly in in the past quarters. But honestly, I could be wrong. I would need to look at it in more detail again um to see what exactly changed.

That's a downside. If you look at so many companies and you covered a company like a couple of months ago um you're not that up to date in terms of in terms of how it looks. But I would say that probably if anything changes Dolingo to D2E, right?

>> If anything is more expensive um than it should pretty low. I would put it pretty low. Uh, somebody somebody in the comments said that the Dolingo Al is going to beat us up. [laughter]

>> No, Dualingo had a big one time gap adjustment. Do you know when that happened? >> Oh, they they probably better informed than us just right on the spot with every of these stocks. So, um, that would be helpful if you just um could tell us what happened there. Um, so that distorts earnings. Okay, we got even in Q3. Okay, that makes sense. Yeah. Okay. So then Chad, you got to tell us um Dualingo value today D2E fair or should we should we get lower there?

>> So the operating I'm looking at the operating income and that's yeah that's much more stable. Um I'm not sure >> not sure what the massive adjustment uh it must be like a tax some sort of tax windfall probably that's uh showing up on the net income.

Um but the operating profit has gone gone from 62 million 135 million 157 million. Um but it's still projected to fall off the next uh the next two years.

but not too dramatic, right? I think that should not too not too dramatically. Let's see what is it on an EV to EBID. It's uh 36 times operating profit.

I don't know that's not I mean I think 30 basically 36 times operating profit for uh flat to modestly declining operating profit growth projections over the next three years um for a company with probably what we feel like is no moat and real terminal value risk doesn't

I I want to put Duolingo an F. I think it's I don't feel good about it.

The one thing um I think we also discussed it in the podcast. Um they have a pretty strong It's also not that positive. They have a pretty strong um balance they have to hit between doing more advertising or basically the conversion rate or going for more um for more user growth.

So, I think that's what they're kind of tilting in terms of, okay, instead of saying, well, you could sign up for the premium version, they now just want to get more daily active users, which is what's showing up in the numbers, which is why the stock is going up.

I think it's it's not that easy to just say how profitable is it right now and then how are how's the profit going. It's more like the trade-off between how many users do you grow and then what's the profit doing and there's always a trade-off that you hit.

So, why is the market liking the current numbers although the growth is looking worse because daily active users is going up again quite significantly. So that's like whenever you're on Dualingo for example, right? You go on the app and then they either show you after you have an finished the session, they will either show you a button that converts you to the premium product or they will just, you know, give you more diamonds or whatever so you stay on as a daily user and that shows up in the numbers quite significantly, which again you could argue it's a negative thing because you cannot have both or at least not to the same extent. You cannot have user growth and then also the profit uh profits are growing.

Um, but that's something that if you look at it in like a couple of quarters and it looks more attractive from a, you know, valuation lens, I wouldn't be too surprised. Um, just based on that, um, based on that idea. In 2028, they will do $4 VPS on a current value of 140. That's a forward 35 times be non-GAAP. Very expensive. If they only do $4 UPS in 2028, that's very expensive. That's right.

So um you know especially relative uh to Adobe and Duolingo and Wix u may maybe we should just put it in the S tier because uh you know it in 10 years

Now, we'll get Dualingo shareholders telling us, how can we put companies that are going to have free cash flow in the negatives in the S tier? Well, you know, Dualingo is printing cash. No, jokes aside, um, I think it makes sense.