What Happened:

Shares of language-learning app Duolingo (NASDAQ:DUOL) fell 6.7% in the afternoon session as the major indices declined (Nasdaq down -1.70%, S&P 500 down -1.1%, Dow down -0.61%), while yields soared. Geopolitical tension heightened following reports on Saturday, April 13, 2024, that Iran launched drones and missiles at Israel, driving uncertainty about possible disruption to global trade and commerce should the tension escalate. Also, the Census Bureau report revealed March 2024 retail sales rose 0.7% compared to the previous month (ahead of market expectations for a 0.3% increase), suggesting consumption is strong amidst recent inflation concerns. 

Prior to these reports, market volatility had picked up after the March 2024 CPI (Consumer Price Index - a gauge of the average price consumers pay for goods and services) report revealed inflation came in slightly hotter than expected, adding to fears that the Fed could delay rate cut plans in 2024. 

As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Duolingo? Access our full analysis report here, it's free.

What is the market telling us:

Duolingo's shares are somewhat volatile and over the last year have had 26 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was about 2 months ago, when the stock gained 23.3% on the news that the company reported fourth-quarter results and delivered robust user and revenue growth, leading to a nice beat on bookings. DAU growth accelerated for the 10th quarter in a row to 65% year on year in Q4, while the ratio of DAUs to MAUs improved to 30%, which highlights that engagement is improving. 

The top line also benefitted from strengths in the company's family plan offering and better-than-expected performance in New Year promotions. Bottom line metrics also came in strong, with adjusted EBITDA, free cash flow, and EPS exceeding expectations, demonstrating the company's ability to balance growth and profitability. Lastly, guidance for the next quarter and the full year were ahead of expectations for both revenue and adjusted EBITDA. 

Zooming out, this was a great quarter that shareholders will appreciate.

Duolingo is down 8.1% since the beginning of the year, and at $197.03 per share it is trading 18.3% below its 52-week high of $241.21 from December 2023. Investors who bought $1,000 worth of Duolingo's shares at the IPO in July 2021 would now be looking at an investment worth $1,416.

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