Duolingo IPO: Price Target Increased - EdTech Boost

Duolingo Adjusts IPO Price Range Upward

This morning, Duolingo, a U.S.-based educational technology firm, announced an updated initial public offering (IPO) price range.

The revised target now reaches $100 per share, representing an increase from the previously anticipated maximum of $95.

Details of the Revised IPO

According to filings with the Securities and Exchange Commission (SEC), Duolingo is currently aiming for a price between $95 and $100 per share.

This adjustment signifies a rise of approximately 12% at the lower end and 5% at the upper end of the initial range, which was set at $85 to $95 per share.

Implications for the Edtech Sector

The debut of Duolingo on the public market has been described as a key indicator for the broader U.S. edtech landscape.

A successful IPO, with strong pricing and trading, could encourage further investment in privately held edtech companies by demonstrating a viable and appealing exit strategy for investors.

Positive Signal for Edtech

Conversely, a lackluster performance by Duolingo could dampen enthusiasm and investment within the startup edtech sector.

The decision to increase the IPO price range suggests a more optimistic outlook and a higher probability of a successful offering.

Impact on Unicorn Edtech Companies

This news is particularly encouraging for other edtech companies that have achieved unicorn status, such as Masterclass, Course Hero, Quizlet, and Outschool.

These companies have collectively raised significant funding, with amounts totaling $461.4 million (Masterclass), $97.4 million (Course Hero), $62 million (Quizlet), and $130 million (Outschool), according to Crunchbase data.

• Masterclass: $461.4 million raised
• Course Hero: $97.4 million raised
• Quizlet: $62 million raised
• Outschool: $130 million raised

Duolingo’s Valuation: An In-Depth Look

The initial public offering (IPO) details for Duolingo remain consistent, with the exception of the anticipated share price. Consequently, Duolingo continues to offer 3.7 million shares during its market debut. Additionally, approximately 1.41 million shares are being sold by current shareholders.

The company’s underwriters have also retained the option to purchase up to 765,916 shares at the IPO price within 30 days of the offering.

Based on the high and low ends of the proposed IPO price, Duolingo’s valuation, excluding underwriter shares, currently falls between $3.41 billion and $3.59 billion. Including the over-allotment option, or “greenshoe,” this range expands to $3.48 billion and $3.67 billion.

Growth Since Last Funding Round

It’s worth noting that in November 2020, during its Series H funding round, Duolingo was valued at slightly over $2.4 billion. If the IPO prices within the projected range, investors will see a substantial increase in their investment’s value.

The company’s valuation stood at $1.6 billion in mid-2020, demonstrating more than a doubling in worth since that time.

Valuation Multiples Explained

Duolingo projects quarterly revenue of $57.9 million for the period ending June 30, 2021, at the midpoint of its guidance. Utilizing the midpoint of the company’s IPO valuation – $3.5 billion – Duolingo’s worth is approximately 15 times its current revenue run rate.

This valuation multiple is typical for edtech companies, though generally lower than those commanded by Software-as-a-Service (SaaS) businesses. However, it represents a significant multiple when compared to historical averages.

Expert Insight on the IPO

To gain further perspective on the implications of Duolingo’s IPO pricing for other edtech startups, I consulted with my colleague, Natasha Mascarenhas. Her observations are as follows:

The strong demand and upward price movement observed in Duolingo’s IPO stand in stark contrast to the increasing regulatory scrutiny faced by Chinese edtech companies from their government.

This contrast may help explain why, while many startup markets are experiencing record investment levels, Chinese startups are trending downwards from previous highs.