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Duolingo: threatened by free riders — and electronic Babel fish

Technology sector updates

Welcome to Duolingo! Congratulations for signing up to the world’s largest language app. Your chosen tongue is start-up-ese.

Exercise Onespot the dissonant word or phrase on this list: fast growth; large losses; initial public offering; Pittsburgh.

Duolingo’s Pennsylvania HQ makes it an outlier. But it has not stopped the edtech company from joining the US listing rush. Shares ended the first day of trading up 36 per cent. Duolingo’s near $5bn market value is double its last private valuation and a huge 31 times trailing revenues.

To justify that, the business will need to turn a lot of free users into paying customers. Just 4.5 per cent of users pay at present.

The lossmaking company promises users they can master one of 40 languages by practising for a few minutes each day. Gaming-style tasks make courses addictive. Common content means overheads are low. Cost of revenue accounted for 28 per cent of the top line last year.

A pandemic boost nearly doubled revenues in the last quarter, up 97 per cent on the same period the year before to $55m. Duolingo’s freemium model aims to make money in three ways: adverts, a $12.99 monthly premium subscription to avoid them and a $49.99 English language certification. Subscriptions account for nearly three-quarters of sales.

Spotify is the most compelling recent example of freemium success. It took 13 years to become profitable. So Duolingo’s $13.5m quarterly net loss after nine years in operation need not be a deal breaker. Revenue per user in the last quarter was $1.38. Spotify, which is profitable, reports over €6 ($7.15) per user.

Duolingo believes rival apps pose a risk — though its brand is the strongest in its field. The big existential threat is an AI translation tool that works well in real time. Zoom, Apple and Google are among the companies working on voice tech products. An electronic Babel fish — the living translator imagined by sci-fi writer Douglas Adams — might dissuade novices from ever bothering to learn a new language.

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