Key Highlights
- Duolingo stock collapsed more than 20% after the company announced it would prioritize user base expansion over short-term revenue maximization.
- Both JPMorgan and BofA Securities downgraded DUOL to Neutral, dramatically reducing price targets to $95 and $100 from previous levels.
- The language-learning platform announced an ambitious target of 100 million daily active users by 2028, warning of near-term headwinds to bookings and margins.
- To offset shareholder concerns, management authorized a $400 million stock buyback program during the transition phase.
- Morgan Stanley and Evercore ISI joined the downgrade wave, citing worries about decelerating growth momentum and strategic execution.
Duolingo (DUOL) suffered a devastating Friday trading session. The stock crashed more than 20% in early trading, falling to $90.76, as investors reacted sharply to a fundamental shift in corporate strategy.
Executive leadership announced the company would ease aggressive revenue extraction efforts to focus on daily active user expansion. The target: 100 million daily active users by 2028, representing a dramatic increase from current levels.
This strategic pivot coincided with underwhelming financial guidance for 2026, triggering a perfect storm that sent shares spiraling downward.
Duolingo actually posted solid fourth quarter 2025 results, with earnings per share of $0.84 beating the $0.83 consensus. Revenue of $282.9 million topped estimates of $275.74 million. Yet investors focused on forward-looking concerns rather than historical achievements.
Throughout the past two years, the language-learning application had pursued aggressive subscription conversion tactics and amplified advertising impressions. This approach enhanced profitability but simultaneously diminished the experience for non-paying users. As a result, user growth momentum stalled during the second half of 2025.
Management’s response involves pulling back on monetization pressure. The platform will emphasize improving the free-tier experience, wagering that happy users will become organic ambassadors for the service.
Artificial intelligence features like “Video Call with Lily,” previously restricted to premium subscribers, will now be available to the entire user base. This expansion, however, comes with elevated operational expenses that will squeeze profit margins in the near term.
Analyst Community Grows Cautious
JPMorgan analyst Bryan Smilek downgraded DUOL from Overweight to Neutral and cut his price target dramatically from $200 to $95. He highlighted the user-centric strategy as a driver of weakened bookings and margin pressure, noting that returns on this investment will take significant time to materialize.
BofA Securities analyst Omar Dessouky also downgraded the stock from Buy to Neutral, slashing his price target from $250 to $100. His main concern focused on Duolingo’s limited progress in developing performance marketing expertise, with leadership signaling no plans to build this capability in-house.
BofA described this as a strategic error, especially given the advanced advertising targeting technologies now offered by platforms such as AppLovin and Google. The firm said its original bullish thesis no longer held validity.
Morgan Stanley reduced its rating from Overweight to Equalweight. Evercore ISI moved from Outperform to In Line. KeyBanc kept its Sector Weight rating unchanged.
D.A. Davidson analyst Wyatt Swanson provided a more sympathetic view, observing that earlier aggressive monetization efforts had generated “disgruntled users and a meaningful negative impact to ‘word-of-mouth’ marketing.”
Buyback Initiative Announced
To cushion the stock during this strategic realignment, Duolingo revealed approval for a $400 million share repurchase initiative. This move suggests leadership believes the current valuation substantially underestimates the company’s worth.
DUOL has fallen roughly 69% over the past twelve months. The shares now trade near their 52-week low.
Based on TipRanks data, the consensus analyst rating is Hold, consisting of five Buy ratings, 10 Hold ratings, and one Sell rating. The average twelve-month price target of $139.64 implies approximately 49% upside potential from current levels.
The $400 million repurchase authorization stays active as Duolingo works toward its aggressive 2028 user base growth targets.
