Duolingo continues to demonstrate strong user and free-cash-flow growth, indicating a competitive advantage in the education market.
Game maker Take-Two Interactive is experiencing strong growth from its existing game lineup and preparing for a significant new release.
10 stocks we like better than Duolingo ›
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Duolingo‘s (NASDAQ: DUOL) third-quarter earnings report continued to show excellent growth, as more users continue to sign up for its app to learn new languages and explore other new courses it now offers, such as chess and math. The recent dip is a great buying opportunity, as Duolingo remains on track to gain a sizable share of the $7 trillion education market.
The stock is currently down 64% from its previous peak, as Duolingo’s financial guidance for Q4 was below expectations. However, management is prioritizing user growth over monetization. It is much easier to generate revenue from a product if you are delivering the optimal outcomes to the user. This is why management plans to invest in enhancing the learning experience on its app, which is expected to generate additional revenue in the future.
Moreover, Duolingo’s Q3 results suggest that concerns about ChatGPT diverting users for quick learning help might be overblown. Daily active users grew 36% year over year, and importantly, they continue to grow at a faster rate than monthly users. This illustrates Duolingo’s expertise at driving daily usage of its learning app.
There is no substitute for a dedicated app designed to retain and engage users. Duolingo reported year-over-year revenue growth of 41%, indicating that customers are so satisfied with the app that some are willing to sign up for a subscription for more in-depth learning experiences.
Duolingo’s trailing-12-month free cash flow has continued to grow steadily, increasing by 52% over the last year, reaching $347 million. This means investors can now buy the shares at a significantly lower multiple of free cash flow, currently around 27. The dip in the shares should prove to be temporary, particularly if Duolingo reports another solid financial report in Q4.
Take-Two Interactive(NASDAQ: TTWO) is one of the leading producers of video games, which have overtaken movies and music as the largest entertainment industry. It generates over $6 billion in trailing-12-month revenue in an industry valued at around $200 billion and is expected to continue growing. The stock recently slipped about 10% from its 52-week high after the company announced a delay in the release of a major upcoming game.
Grand Theft Auto VI was previously slated for a May 2026 release date, but that date was pushed back to Nov. 19, 2026. Delays are common in the industry, particularly for Take-Two, which has a history of pushing back release timelines to allow its developers to further polish the game. These delays effectively lay the groundwork for a higher-quality gaming experience than otherwise, which shareholders in the company should desire anyway.
Grand Theft Auto VI is expected to drive record revenue and profits for Take-Two following its release, setting the stage for several years of growth through ongoing game updates. By fiscal 2030 ending in March, the consensus analyst estimate has Take-Two’s bookings (non-GAAP revenue) reaching $10.8 billion, up from $5.6 billion reported for fiscal 2025.
In addition to the popular Grand Theft Auto series, Take-Two also owns other iconic series, such as NBA 2K, Red Dead Redemption, and Borderlands. The company’s mobile titles, like Toon Blast and Match Factory!, are also showing growth and contributing to sales. All these titles contributed to Take-Two’s record fiscal Q2, with bookings up 33% year over year.
Even before Grand Theft Auto VI is available, Take-Two is already showing significant momentum in driving growth from its existing lineup, making the stock a buy after the recent pullback.
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John Ballard has positions in Duolingo. The Motley Fool has positions in and recommends Duolingo and Take-Two Interactive Software. The Motley Fool has a disclosure policy.
2 Growth Stocks Down 10% to 64% to Buy in November was originally published by The Motley Fool
