This language app is JPMorgan's favorite online education play with nearly 40% upside

Published Thu, Apr 18 202411:09 AM EDTUpdated Thu, Apr 18 202412:32 PM EDT

JPMorgan listed Duolingo as its best idea in online education ahead of the Pittsburgh-based tech firm's first-quarter earnings report in early May. In a research report Thursday, the bank reiterated an overweight investment rating on Duolingo, along with a 12-month price target of $270, implying the stock could rally another 39% from Wednesday's close. Duolingo has slipped almost 9% this year after more than tripling in 2023, when it soared 219%. With the mild downdraft since Duolingo's fourth-quarter earnings report, JPMorgan analyst Bryan Smilek said the stock's risk/reward ratio looks attractive at its current prices. DUOL YTD mountain DUOL YTD chart Smilek also said there may be additional room for potential upside to Duolingo's full-year 2024 outlook as part of its first-quarter numbers. "We believe Duolingo could raise its 2024 outlook based on solid 1Q trends & recent third-party data, strong marketing, & healthy execution — a full-year guidance raise would align with management's historical beat & raise cadence," he wrote. Smilek praised Duolingo's strong advertising presence, saying it's resulted in rising user growth. "Duolingo's product obsession & gamification have driven its industry-leading scale, brand reputation, strong engagement, & efficient customer acquisition (~90% of user growth organic)," he wrote. "Our analysis across social media platforms suggests 1Q & 2Q [to date] marketing campaigns have been strong, supporting acquisition & engagement trends." The analyst also believes that a 20% increase in bookings and revenue growth could be achievable for Duolingo due to other catalysts such as paid sub-growth and monetization, alongside a longer-term, secular shift toward online language learning. Another key opportunity for the company comes from advanced English learning courses. Another tailwind supporting Duolingo is its entry into the S & P MidCap 400 Index , effective before the market opens on Monday, April 22. As a result, passive index funds that track the midcap index and its value or growth subsets will be forced to buy Duolingo. Duolingo went public in the summer of 2021 at an IPO price of $102 in an offering led by Goldman Sachs and Allen & Co. — CNBC's Michael Bloom contributed to this report.