This development inventory down 50% jogs my memory of Netflix in 2009

Many development shares have completed rather well in my portfolio in 2025, together with Rolls-Royce, Uber, Cloudflare, Roblox, and Crowdstrike.

Nonetheless, essentially the most disappointing by far has been Duolingo (NASDAQ:DUOL). Since I invested, my complete paper loss is now round 50%. Ouch!

Sticky platforms

At any time when a inventory collapses like this, it’s vital to revisit the unique funding thesis. If that is damaged, it’s higher to resist actuality as a result of the inventory could maintain falling and by no means get better.

After I first explored Duolingo, I used to be sceptical the language studying app had any sturdy aggressive benefit (moat). But it shortly jogged my memory of Netflix (NASDAQ:NFLX). Each are scalable, world shopper platforms monetised by subscriptions (primarily) and adverts.

As with Duolingo at the moment, it wasn’t apparent again in 2009 that Netflix had a sturdy moat. Its streaming mannequin might simply be replicated, and certainly has been since by the likes of Amazon, Apple, Disney, Paramount, and ITV. Ever extra competitors is a danger to development.

But Netflix has endured due to its model energy, standard exhibits, and complicated AI/algorithms used to advocate content material.

Likewise, Duolingo has a robust model, extremely engaged consumer base, and powerful AI credentials. Its Birdbrain AI system processes over 1.25bn every day workouts, serving to feed machine-learning fashions that personalise customers’ studying experiences.

Crucially, each even have distinct company cultures targeted on long-term worth creation over short-term income.

Our long-term targets stay unchanged: To be an excellent Web film service…and to develop subscribers and earnings yearly whereas
persevering with to put money into streaming.

Netflix CEO Reed Hastings, 2009 annual report.

Considered one of our 5 working ideas is ‘take the lengthy view’. The chance forward of us is to show billions of individuals, and whereas we’ve made unbelievable progress, we all know we’re early in our journey.

Duolingo CEO Luis von Ahn, 2025.

Damaged thesis?

Taking a look at Duolingo’s Q3 outcomes, I see no proof the expansion story’s unravelling. Every day energetic customers hit a file 50.5m whereas month-to-month customers topped 135m.

Income jumped 41% 12 months on 12 months to $271.7m and adjusted EBITDA surged 68% to $80m.

Wanting forward although, administration will shift focus from growing paid subscribers (monetisation) to bettering instructing high quality to drive long-term consumer development. And this dangers some margin strain and, probably, lower-than-expected bookings.

Being lifelike

Now to be clear, I’m not saying Duolingo will turn out to be a worldwide juggernaut price $480bn like Netflix. The streaming chief’s shares are up roughly 14,000% since 2009, and such returns are exceptionally uncommon. Therefore why I mentioned it solely jogs my memory of a younger Netflix.

Additionally, I don’t wish to downplay AI threats or reside translation from Google and Meta glasses. Though it’s price remembering that folks use Duolingo often to study a second language, not translate conversations.

In the meantime, ChatGPT has no structured curriculum and/or gamified options like streaks to maintain customers engaged.

Of Duolingo’s 135m customers, solely 9% (11.5m) at the moment are paid subscribers. Contemplating there are 1.5bn individuals studying a international language, the market alternative stays huge, particularly in Asia. And this excludes maths, music, chess and different future topics.

With the inventory buying and selling at a far cheaper valuation than six months in the past, I believe it’s price assessing. I believe the crashing share worth doesn’t replicate the precise power of the underlying enterprise.