1 glorious growth stock defying the Nasdaq bear market this year

All stock market sectors are down in 2022 except one: the energy sector. But given the shift to green power, this outperformance is unlikely to persist over the long term. He highlights how difficult it has been to find returns in this difficult economic climate, with soaring inflation and rising interest rates.

The Nasdaq-100 The index, which represents the tech sector, is firmly in a bear market, down 33% year-to-date. But some individual tech stocks are doing much better right now. That doesn’t necessarily mean they’re positive for 2022, but rather that they’re less down than the index, suggesting they could be among the best performers when the economy recovers.

Duolingo (NASDAQ: DUOL) is one of them. Its stock price is down just 6% this year, and that’s because Duolingo’s business is weathering the economic downturn. Here’s why investors should consider adding it to their portfolio now.

More users are paying to use Duolingo

Duolingo is a global language education platform with a mobile-first approach. It took advantage of the intuitiveness of modern smartphones to turn the learning experience into a game, adding competition and even a social media aspect into the equation.

It has been downloaded over 500 million times, and in the recent second quarter of 2022, 49.5 million users interacted with the platform every month. That’s 31% more monthly active users than the same time last year, but the real story is how many are paying to upgrade their experience by unlocking additional features.

Duolingo now has 3.3 million paid subscribers, up 71% year-over-year and representing 7.2% of the total monthly active user base. As the graph below shows, the proportion of paying users continues to grow rapidly, which is a great sign that learners are finding value in the platform.

The company only started monetizing subscriptions in 2018, but it has already become the most profitable mobile application in the education category in both the Apple AppStore, and AlphabetPlay store.

Duolingo operates in a huge market

Despite its success so far, Duolingo may have only scratched the surface of its total desirability. The company estimates that there are 1.8 billion people learning a foreign language worldwide, and by 2025, the annual value of this market could exceed $47 billion. Digital language teaching is also becoming more popular than traditional methods – and growing more than double – so Duolingo is perfectly positioned to reap the benefits of this change.

Much of the growth could come from emerging markets like India, where the company has previously pointed to the rapidly falling cost of internet access. Between 2017 and the end of this year, Duolingo estimates that 500 million people in this country will have accessed the internet for the very first time, opening the door for them to learn global languages ​​like English more easily.

In the second quarter, Duolingo also noted that its app had been reinstated in China after being taken down last year as part of a widespread ban on foreign platforms. This is another huge market, and it already accounts for up to 2% of the company’s monthly active users after being restarted in May.

Here’s why it matters

So far, Duolingo’s revenue growth has been impressive. The company only generated $70 million in 2019, and its forecast suggests it could reach $367 million this year, which represents a compound annual increase of 73% if it hits the target. But that may just be the start of Duolingo’s road to seizing its $47 billion opportunity in the next few years.

More importantly, in the shorter term, Duolingo has raised that forecast for 2022 not once but twice. At the end of 2021, it guided for $342 million in revenue in 2022, then increased that figure to $358 million in the first quarter.

The thing is, Duolingo’s increasingly optimistic outlook stands in stark contrast to the rest of the technology sector, which has reduced its numbers since the start of the year. This is one of the main reasons why Duolingo stock has lost only 6% in 2022 compared to the Nasdaq-100 33% loss. That’s why investors might find comfort in buying now, especially if the broader market starts to rally.

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Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Antoine Di Pizio has no position in the stocks mentioned. The Motley Fool has positions and recommends Alphabet (A shares), Alphabet (C shares) and Apple. The Motley Fool recommends the following options: long calls $120 in March 2023 on Apple and short calls $130 in March 2023 on Apple. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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