One of the great problems of tech, specifically Software as a Service (SaaS) tech, is it has absoluyely no moat but time.
Whatever your grand idea for a hitherto unseen technology, the moment you put it out there to the world, the clock is ticking on it being copied.
And then improved upon. And then dragged down by mediocrity.
Consider mobile gaming, once the domain of billion dollar IP like Farmville and Angry Birds, and now just a mess of attention-arbitrage apps, all copying one another until users cant distinguish between one game and the next.
“Idle Weed Tycoon Farm Manager II, download it now!”
Duolingo has had a hell of a run. The language-learning app with the friendly green owl and gamified lessons has become one of the most recognizable education tech brands in the world. Its stock reflects that: DUOL is trading at earnings multiples usually reserved for high-growth, high-barrier software names.
Except Duolingo isn’t that.
The Valuation Disconnect
Duolingo currently trades at a forward P/E north of 120. That’s not a typo. For comparison: Microsoft sits around 35. Even NVIDIA, with AI dreams baked into every pixel, is lower on a relative basis. So what’s Duolingo selling to earn that kind of premium?
Turns out: mostly hope. And subscriptions.
Revenue is growing, yes, but not at a pace to justify its multiple without some serious long-term dominance baked in. That dominance, however, is far from secure.
The Moat Problem
What is Duolingo’s moat? It’s not exclusive content—you can learn Spanish or French from a hundred other apps. It’s not tech—there’s nothing proprietary about gamifying education at this point. AI integration? Every edtech startup and their dog is doing it.
And while the brand is strong, it’s not Coca-Cola strong. Users churn. Competitors abound. Barriers to entry are low.
In short: Duolingo is well-loved, well-designed, was first to market, but is now completely copyable.
And the longer earnings continue to grow, the more competitors will do exactly that.
Remember Groupon? It was once the darling of the tech VC world, growing in leaps and bounds, entering the parlance, showing up in late night tv monologues while providing discounts on massages and coffee. But then the competitors came and the market divided and Groupon struggled to differentiate, and then it all just went away.
A few years later, and Groupon is all but gone. When’s the last time you used one?
This happens to every SaaS eventually, if the first mover can’t keep innovating quickly enough to outrun the pack.
It happened to Netflix, when that company’s soaring valuation led to an avalanche of streamers, all woith their own untenable valuations.
Now that business is a rough one for all involved, and Netflix has to keep squeezing users and creating new content to stay above the fray.
The Predator Problem
Which brings us to the other issue: predators are circling. Citron Research, known for targeting overheated stocks, recently took aim at Duolingo, calling its valuation “detached from reality” and suggesting it’s overdue for a fall. They’re not alone. Short interest is rising, and the sentiment is shifting.
The longer DUOL floats at triple-digit earnings multiples, the more it invites scrutiny from both competitors and short sellers. And with margins thin and free cash flow still fragile, it doesn’t take much pressure to start cracking the story.
So What’s the Play?
If you’re in it for the long term, you’re betting on Duolingo turning its brand into something sticky, something global, something moat-worthy. Maybe it becomes the Netflix of education. Maybe it pivots into corporate language licensing. Maybe AI gives it an edge.
But right now? It’s priced like it’s already won.
And the market, sooner or later, tends to correct that kind of confidence.
— Chris Parry
FULL DISCLOSURE: No dog in the fight.
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