Duolingo: focus on entertainment over education will keep subscription rates high

Language education app Duolingo has chosen animation studio Gunner for its first acquisition. Steering clear of edtech sectors such as massive open online courses, aka Moocs, is a good idea. Animations help Duolingo convince users that learning a new language — a daunting proposition — can be fun.

The free-to-use app is fixated on growth. Monthly subscriptions cost $6.99 — lower than the rate introduced five years ago. A recent redesign has been unpopular with some long-term users but chief executive and co-founder Luis Von Ahn says the goal is “decreasing confusion”. Such strategies are proving effective. Super Duolingo, the company’s subscription plan, has 3.3mn users — up 71 per cent on last year. It is growing more than twice as fast as monthly active users.

For now, less than 7 per cent of monthly users pay subscriptions. Animations and other game features are designed to lure more of them in. If it can make learning into a habit — recording streaks of daily lessons for example — it should be able to avoid cancellations from users worried about inflation.

At $104, the share price is trading just 2 per cent above its listing price last year. But Duolingo is in line to show improved results in the second half of the year. Net loss of $15mn in the last quarter was largely because of stock-based compensation. It has regained its listing in China too. The country accounts for 2 per cent of monthly users but has a large market of potential English-language learners.

Focus on entertainment is what sets Duolingo apart from other edtech stocks. Investment in natural language processing poses a threat to language courses — a market Duolingo estimates to be worth $60bn. It is an area that companies such as Alphabet’s Google are investing in heavily. But Duolingo promotes itself as less a functional service than a source of self-improvement. Across Europe, the UK and US a large and growing population of older learners have both the time and the money to take them up on it.