U.S. edtech company Duolingo released a revised IPO price range this morning, boosting its potential per-share value to $100 after initially targeting a range that topped out at $95 per share.
Per the unicorn’s SEC filings, Duolingo is now targeting a $95 to $100 per share IPO price range, up from $85 to $95 per share, or a gain of around 12% at the bottom and 5% at the top.
TechCrunch previously called the Duolingo debut a bellwether of sorts for the larger U.S. edtech ecosystem; if Duolingo can price and trade well, investors in private companies may be more willing to invest, given a more proven and attractive exit market. On the other hand, if Duolingo prices weakly or trades poorly, the company could place a wet blanket atop the startup edtech world.
The fact that Duolingo is raising its IPO price range indicates that we are more likely on the path for a strong offering than a weak one.
For edtech companies that have hit unicorn status — like Masterclass, Course Hero, Quizlet and Outschool — it’s good news. For reference, those companies have raised $461.4 million, $97.4 million, $62 million and $130 million, respectively, per Crunchbase data.
What’s Duolingo worth?
The terms of the company’s IPO have not changed, aside from its proposed price. So, Duolingo is still selling 3.7 million shares in its debut, and some 1.41 million shares will be sold by existing equity holders. The company’s underwriters also reserved their right to buy 765,916 shares of the company’s stock at IPO price in the 30 days following its debut.
At the upper and lower bands of the company’s IPO price, its simple valuation excluding underwriter shares now lands between $3.41 billion and $3.59 billion. Inclusive of its greenshoe offering, those numbers rise to $3.48 billion and $3.67 billion.
Recall that when private, Duolingo’s November 2020 Series H valued the company at just over $2.4 billion. So long as Duolingo prices in its range, it will provide investors with a nice bump in the value of their investment. Duolingo was valued at just $1.6 billion in mid-2020, indicating that it has more than doubled in value since that investment.
In valuation multiples terms, Duolingo anticipates quarterly revenue for the June 30, 2021, period of $57.9 million at the midpoint. Using the company’s simple IPO valuation at midpoint — $3.50 billion — Duolingo is worth around 15x its current run rate. That is what we might call an edtech multiple; it’s not what SaaS companies can command, but it’s still a rich multiple given historical norms.
To dig more into what Duolingo’s IPO pricing may mean for edtech startups, I reached out to my colleague Natasha Mascarenhas. She shared the following thoughts:
The Duolingo IPO could provide validation around edtech business models that focus services outside the classroom, rather than inside of it. It is a sign that supplemental education that hits on deliverables like motivation and habits are able to attract consumer money, and do so again and again. The vagueness off that sign can trickle down to companies like Quizlet, which is turning its flashcard service into an AI-powered tutor, to Masterclass, which has popularized the concept of “edutainment.”
Based on my conversations with other edtech founders, the IPO event is being looked at as an opportunity to fundraise yet again from investors who could see the stock pop. Now that the sector has grown to where there are multiple big companies with $100 million in ARR, the public market will likely have a flurry of new entrants that will eventually niche down which parts of edtech — tutoring versus a gamified app — are received the best.
Watching Duolingo’s IPO see strong demand and upward pricing as Chinese edtech companies are coming under withering regulatory pressure from their government sets up a notable contrast. Perhaps one that helps explain that while many startup markets are busy setting new records in terms of investment, China’s startups are trending down from recent peaks.