1. Duolingo (DUOL) – Duocon 2023
Duolingo leadership took to the stage to share all of the upgrades and tweaks the company has been making in 2023. Here were the highlights:
Music & Math Apps:
Duolingo app users with iPhones can now request early access to the Duolingo Music App. The app teaches learners through a keyboard/piano. With it, users can learn how to locate notes on the keyboard or on a musical staff as well. At the end of a lesson, students can even play popular songs with the skills they’ve just acquired. Like Duolingo’s other apps, it teaches users via doing to make the content more engaging, entertaining and valuable. Learners master concepts through action and mistakes to sharpen focus and efficacy.
In Duolingo’s quest to teach learners everything, music is another great step. Not only do learners master a new, attractive skill but studies also show that doing so sharpens reading, arithmetic and verbal skills while “delaying cognitive decline associated with aging.”
Speaking of its ultimate goal to make ALL areas of education universally accessible, ubiquitous, fun and effective, its math app is ramping nicely. This app is for both children and adults and provides tools like tip calculation and general brain training. There will be many, many more Duolingo apps debuted in the future.
Animation:
Duolingo took us through its “Rive” product. This is in-house animation software to scale animated lessons with far greater ease and capacity. Manual animating is quite time consuming… Rive helps resolve that bottleneck.
The software allows Duolingo to use its finite animation talent and packages to “mix and match” existing work. This capability creates a “nearly unlimited number of combinations.” That makes subtle signs of repetition within the app less frequent and noticeable without requiring more manual work for Duolingo. Endless animation capabilities pave the way for fun, new use cases like DuoRadio. This offers lessons via animated TV shows with real-world context and education.
With Rive and Duolingo’s AI models, it significantly upgraded character lip-syncing capabilities. Perfecting mouth movements per sound for 40+ languages and hundreds of courses is just not manually feasible. This software can actually match sounds and movements with near perfection. That enhancement makes the app feel more realistic and offers “visual reinforcement of learning.”
AI & OpenAI:
As a reminder, Duolingo and OpenAI have been partners for years. Duolingo is now using the GPT 4 model from OpenAI and its own models for tools like Roleplay and Explain my Answer. Roleplay allows for “free flowing conversation” to drive more advanced, speaking-based learning. Duolingo had struggled there in the past and this addresses that issue. Explain My Answer offers granular explanations for student blunders.
Its Birdbrain model predicts correct answer probabilities to ensure difficulty levels are perfect on a per-learner basis. This algorithm is seasoned with 9 billion weekly exercises from learners to glean personalized patterns for precise lessons. The upgraded Birdbrain model can now make predictions within lessons in real-time vs. by lesson in the past.
Teach More Advanced English:
One of the key headwinds to even more rapid Duolingo growth is its ability to teach more advanced English to students. This is the most popular language on the app and is key to education and economic mobility for countless users around the globe.
Duolingo’s English proficiency framework is based on the Common European Framework of Reference for Languages (CEFR). CEFR is split into categories ranked by how advanced a learner is.
Duolingo in the past has taught up to A2. Now it teaches up to B2. Its upgraded lessons for this higher level drive learners closer to fluency and even offer specialized professional topics to teach students jargon for majors or jobs that they’re pursuing. The company doesn’t need any growth boosts, but this could surely prove to be one. Again… English learning is a not-so-secret weapon for economic mobility for global learners. That is the reality. Duolingo is doing its part to level the playing field.
It also now teaches English in a no translation manner with only minor native tongue support for the most advanced students. This expands use cases for the app but also mightily consolidates its English learning data pool. This pool is no longer dozens of disparate patches split by native language, but one overarching system of record to accelerate Duolingo’s split testing and product perfection. This may not seem significant, but it is for a company that relies on product superiority to drive word-of-mouth growth.
Asian Language Learning:
Over the last 3 years, Japanese and Korean language learners on Duolingo have risen by 120% and 195% respectively while learners of Mandarin are approaching 7 million. Asian language learning is Duolingo’s fastest-growing category. Seeing this play out, Duolingo upgraded its course material for these students. Since learning symbols is the toughest piece, it debuted a tool that accompanies these symbols with Latin lettering to depict sound.
Conclusion:
The event gave me everything I wanted just like the team and quarterly earnings reports consistently have as well. The company is rapidly expanding into new categories while uplifting how advanced a learner can become on the app. It’s ensuring organic virality can continue powering its wonderfully efficient growth with the continued, singular focus on creating the best, most accessible product. This is no external marketing machine… it’s a free attention machine through its award-winning apps and social media engine. That’s how you get featured on the Barbie movie for free. That’s how you briskly grow without rapidly increasing sales & marketing costs. That’s how you win.
2. Sell-Side Analysts (Includes ABNB; UBER; META; AMZN; SHOP)
There are many, many talented sell-side analysts. They frequently post original research that helps all of us understand trends and business models. Still, they’re not perfect like none of us are perfect.
When companies embark on large overhauls of their operational philosophy, estimate trends are usually slow to follow suit. Airbnb in 2021 shut off all product marketing and saw a free cash flow explosion. Uber in 2022 shifted from a growth at all costs mentality to one that prioritized incremental margins to see its own free cash flow explosion. Meta also tweaked its own approach to cost incurrence and is enjoying its own free cash flow explosion beyond what the analyst community has modeled.
These companies existed for years in a zero-interest rate world where money was free and investors demanded maximum revenue first and foremost. So? That’s what the firms sought to deliver. Preferences obviously changed on a dime, but adjusting takes longer for massive enterprises.
For several quarters (and several years with Airbnb and Uber), the firms mentioned prioritized demand and thought of profit growth in a secondary manner. This was especially true for Airbnb and Uber, but it was still the case for Meta as it raced full speed ahead on its cash burning Metaverse vision. The coinciding underwhelming profit growth led many to assume the profit potential in these models was just miniscule. That was not the case.
The firms have since pivoted all with a similar asset recipe. They all had large revenue bases, they all had unique competitive differentiators driving user stickiness and they all had several easy opportunities to get more efficient. The firms embarked on cost-cutting initiatives which didn’t really translate into any material revenue hits. That’s the luxury of the aforementioned competitive moats, strong word-of-mouth growth and loyal customers.
Net income and free cash flow proceeded to explode higher as margins soared. That process has largely played out for Airbnb and is in the process of doing so for both Uber and Meta. While one may find it frustrating that analysts are so slow to adjust forward estimates, that frustration should be excitement. The delays foster inefficiency and opportunity for stock pickers to thrive if they pay close enough attention to the fundamental investment cases. To those of us tracking the bull cases, the profit explosions were not a shock, but an obvious byproduct of the changes implemented.
While this is interesting, Monday morning quarterbacking is not super helpful. So let’s look ahead to who could potentially be next to offer large profit upside potential. Which companies have massive revenue bases, loyal user bases, clear product differentiation and obvious opportunity to cut redundant and/or unnecessary costs?