Key Takeaways
- Duolingo shares plummeted more than 20% following leadership’s decision to emphasize user expansion rather than immediate revenue generation.
- JPMorgan and BofA Securities both cut DUOL to Neutral ratings, with price targets reduced sharply — JPMorgan to $95, BofA to $100.
- Management is targeting 100 million daily active users by 2028, prepared to accept reduced bookings and compressed margins along the way.
- A $400 million stock repurchase program was approved to provide support during this strategic transition period.
- Several other Wall Street firms, including Morgan Stanley and Evercore ISI, also cut their ratings amid concerns over decelerating growth and strategic direction.
Duolingo (DUOL) experienced a brutal trading session on Friday. Shares collapsed by more than 20% during early market hours, dropping to $90.76, as Wall Street digested news of a fundamental strategy change from company leadership.
The language-learning platform revealed plans to pull back on aggressive user monetization tactics in exchange for accelerating its daily active user count. Management’s ambitious goal: reaching 100 million daily active users by the end of 2028, significantly higher than present figures.
This strategic announcement arrived alongside disappointing financial projections for 2026, creating a perfect storm that sent investors heading for the exits.
Duolingo delivered solid fourth-quarter 2025 results, reporting $0.84 in earnings per share versus the $0.83 consensus estimate. Revenue totaled $282.9 million, exceeding Wall Street’s $275.74 million projection. However, traders were fixated on future prospects rather than past performance.
Over the previous two years, the company had pursued an aggressive subscription push and ramped up advertisement exposure. While this approach boosted profitability, it simultaneously degraded the experience for non-paying users. User acquisition began decelerating in the latter half of 2025.
Leadership’s solution involves pulling back from heavy-handed monetization tactics. The platform will now focus on enhancing the free user experience, betting that satisfied users will organically promote the app through word-of-mouth.
Previously paywalled AI-powered features such as “Video Call with Lily” will become accessible to all users. This decision increases operational expenses, which will compress profit margins during the transition phase.
Wall Street Firms Cut Ratings
JPMorgan analyst Bryan Smilek downgraded DUOL from Overweight to Neutral, slashing his price target from $200 down to $95. He pointed to the user-centric strategy as a catalyst for reduced bookings and margin compression, emphasizing that investment returns will require patience.
BofA Securities analyst Omar Dessouky similarly moved his rating from Buy to Neutral, dropping his target from $250 to $100. His primary concern centered on Duolingo’s minimal advancement in performance marketing, with management indicating little likelihood of building that competency going forward.
BofA characterized this as a strategic error, particularly considering recent improvements in advertising targeting capabilities at platforms like AppLovin and Google. The firm stated its initial bullish thesis had been invalidated.
Morgan Stanley shifted DUOL from Overweight to Equalweight. Evercore ISI changed its stance to In Line from Outperform. KeyBanc maintained its Sector Weight designation.
D.A. Davidson analyst Wyatt Swanson offered a more understanding perspective, noting that previous aggressive monetization tactics had created “disgruntled users and a meaningful negative impact to ‘word-of-mouth’ marketing.”
Buyback Program Launched
To cushion the stock during this strategic transformation, Duolingo greenlit a $400 million share repurchase program. Management is communicating confidence that shares are significantly undervalued at present price levels.
DUOL has declined approximately 69% over the trailing twelve months. The stock is currently trading close to its 52-week low point.
According to TipRanks, the consensus rating stands at Hold, comprised of five Buy ratings, 10 Hold ratings, and one Sell rating. The average 12-month price target of $139.64 suggests potential upside of approximately 49% from current trading levels.
The $400 million repurchase authorization remains in effect as the company pursues its 2028 daily active user objectives.
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