Good morning,
Can you say initial public offering in multiple languages?
If not, Duolingo’s language-learning app may teach you. The Pittsburgh-based edtech company had a successful Nasdaq debut on Wednesday under the ticker DUOL.
On Tuesday, Duolingo announced it would offer 3.7 million shares of Class A common stock at $102 per share, an uptick from the company’s initial expected range of $85-$95. “We had a lot of investor demand, and it just naturally led the price up,” Duolingo CFO Matt Skaruppa told me on Wednesday morning.
But it actually opened at $141 a share. The stock price landed at $139.01 at the end of Duolingo’s first day of trading. So, its shares soared about 36%. By selling about 5.1 million shares, Duolingo earned approximately $521 million through the IPO, garnering a valuation of $6.5 billion, Reuters reported.
Duolingo was founded by Luis von Ahn and Severin Hacker in 2011, and von Ahn serves as the CEO. The two engineers met at Carnegie Mellon University in Pittsburgh. Von Ahn, who is from Guatemala, was a professor in the computer science department and Hacker was his Ph.D. Student. The company filed its IPO with the Securities and Exchange Commission on June 28. The underwriters include Goldman Sachs, Allen & Company, BofA Securities, and Barclays Capital Inc.
Going public was a natural progression, Skaruppa says. “Luis and Severin knew that they wanted to create a really impactful, long-lasting, and durable business,” he says. “And in their minds, they always knew that probably ran through an IPO.”
“We reached a certain scale of revenue and size and then a maturation of the business processes; we felt like we were ready to go in,” he says. “We wanted to make sure that we had capital for the long term to hit all of our growth targets.”
The founders’ mission is to “develop the best education in the world and make it universally available,” according to the IPO prospectus. Duolingo offers courses in 40 languages to approximately 40 million monthly active users. So, what makes the company so appealing to investors?
“They told us what they like is, it’s a founder-led business where the founder is going to continue to drive the mission, the product, and the business forward,” Skaruppa says. “We did have a good scale last year, almost 200 million bookings … so they liked the growth profile. The investors also really liked the margin profile of the business. We have 70% gross margins and nice, free cash flow as well.”
The Duolingo app launched in 2012. “Our core language learning app is free to use for as long as you’d like,” Skaruppa explains. “There’s no content behind a paywall. We want the app to be amazing and to draw users back day after day to learn languages. And then we asked people to pay us a subscription fee.” That’s the company’s primary source of revenue, he says.
It surpassed one million paid subscribers for its Duolingo Plus subscription product in March. In 2019, paid subscribers rose 200% year-over-year, according to the company. Duolingo was valued at $1.5 billion in December 2019.
Skaruppa joined the company as its first CFO in February 2020. He was previously a senior member of Goldman Sachs Investment Partners. He prepped for Duolingo’s IPO by “making sure that the business processes and systems are ready to go, to withstand the public markets; you have tight timelines, and accuracy is paramount.” But many of those processes were already in place, Skaruppa says. “It was just fine-tuning,” he says. “So, I was very lucky.”
Any IPO advice? “Choose a company that has a great mission, a great business model, and a great leader,” Skaruppa says. “Those things are going to shine throughout the process, regardless of the bankers, lawyers, and advisors you hire.”
See you tomorrow.
Sheryl Estrada
[email protected]
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Courtesy of Grand View Research
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