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Everyone Uses Mobile Apps, but Are App Stocks Worthwhile Investments Right Now?

Motley Fool - Sat Mar 9, 3:21PM CST

In investing, it can be hard to discern between legitimate moneymakers and fads. In an age where the intersection of smartphones and social media is becoming increasingly crowded, some may wonder what investment opportunities, if any, exist.

While mobile apps are used daily by consumers across all demographics, one area may be quietly emerging as a lucrative investment opportunity. Below is a breakdown of the market for mobile apps and an assessment of the areas worth paying attention to and those you may want to avoid.

How popular are mobile apps?

The smartphone industry is dominated by two players: Alphabet and Apple. The former owns Android, which boasts nearly 70% of the mobile operating system market share. The remaining 30% is held by Apple, the maker of the iPhone.

One of the biggest reasons smartphones have ballooned in popularity is mobile apps, which cover a variety of categories including gaming, streaming, education, dating, and more. According to Statista, there were 257 billion mobile app downloads in 2023. What's more, consumer spending on these apps is projected to eclipse $600 billion by 2025.

Clearly, mobile apps have huge monetization potential. But which areas are seeing the most consumer engagement, and which companies represent the most compelling investment opportunities among mobile apps?

A person studying on their laptop.

Image source: Getty Images

Consumers may be breaking up with some apps

For years, one of the hottest areas among mobile app users was online dating. Dating apps, like Tinder, Hinge, and Bumble(NASDAQ: BMBL), offer a convenient way for people to find romance through their matchmaking algorithms.

In online dating, the 800-pound gorilla is Match Group(NASDAQ: MTCH) -- which owns Tinder, Hinge, The League, and Plenty of Fish, among other regional platforms. Given the number of properties in the company's portfolio, it's not surprising to learn that Match has a whopping 15.2 million users.

The real blemish is when you consider that Match's user base is in decline. The company's 15.2 million users is 5% lower than it was at the end of 2022. To make matters worse, daily user engagement seems to be strained, as well.

Match Group isn't the only company experiencing turbulence. Rival platform Bumble is going through its own challenges. As part of its fourth-quarter and full-year 2023 earnings report, the company announced it's going to implement layoffs.

While Bumble's top line is growing at a healthy rate and the company is generating positive free cash flow, it's lagging in one key area. Bumble's average revenue per user (ARPU) was flat in 2023 -- possibly indicating that users are generally less willing to pay for dating apps.

There can be all sorts of speculation as to why dating apps may be falling out of popularity. Whether it's the price tag combined with lingering inflation or mixed engagement from tech-savvy Gen Z users, dating apps may not be the best source of growth for investors.

This foreign-language platform is rising in popularity

One of the more popular areas in mobile apps is foreign-language learning. A platform called Duolingo(NASDAQ: DUOL) is increasingly becoming a major force in mobile learning. In January, the company had more than 16.2 million downloads worldwide -- more than the nine other leading platforms combined.

According to the company's filings, Duolingo boasts 26.9 million daily active users and 88.4 million monthly active users. In 2023, the company increased its paid subscriber base by 57% year over year to 6.6 million.

The company has demonstrated that its platform is engaging. Now, the challenge is keeping paid users sticky while acquiring new subscribers, as well.

Multiple media outlets have reported that some people are leaving the dating app world and finding a connection on none other than Duolingo. Admittedly, this is likely a small cohort of people. However, there's at least a possibility that Duolingo could see an organic influx of new users who may be looking to hone their foreign-language skills while possibly connecting to like-minded people.

Nevertheless, when it comes to investing in mobile apps, the themes explored above support the notion that dating apps may not be the most lucrative investment choice right now. Alternatively, education platforms seem to be growing in popularity, and Duolingo's growing user base and staggering download volume are crushing the competition.

With a rapidly expanding addressable market for language learning combined with the company's modest paid subscriber base (relative to its total users), investors may want to keep their eyes on Duolingo. The company's growth trajectory could just be getting started.

Should you invest $1,000 in Duolingo right now?

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Adam Spatacco has positions in Alphabet, Apple, and Match Group. The Motley Fool has positions in and recommends Alphabet, Apple, Duolingo, and Match Group. The Motley Fool recommends Bumble. The Motley Fool has a disclosure policy.

Paid Post: Content produced by Motley Fool. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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