Essential Points
- Duolingo’s stock collapsed by more than 20% after executives announced a pivot away from aggressive monetization toward user base expansion.
- Both JPMorgan and BofA Securities downgraded DUOL to Neutral, slashing price targets dramatically to $95 and $100.
- The company outlined an aggressive target of 100 million daily active users by 2028, warning investors to expect near-term headwinds on bookings and margins.
- Management authorized a $400 million buyback program designed to stabilize the stock price during this transition phase.
- Morgan Stanley and Evercore ISI joined the downgrade wave, citing concerns about decelerating growth metrics and strategic uncertainty.
Duolingo (DUOL) suffered a devastating Friday trading session, with shares crashing more than 20% in early market activity to $90.76 as investors digested a dramatic strategic pivot announced by company executives.
Executive leadership disclosed intentions to scale back intensive monetization efforts, instead prioritizing a dramatic expansion of daily active users. The ambitious target calls for reaching 100 million daily active users by 2028, representing a massive jump from current levels.
Coupled with underwhelming financial guidance for 2026, this strategic shift triggered a severe market reaction.
Duolingo actually beat fourth quarter 2025 estimates, posting $0.84 earnings per share against consensus expectations of $0.83. The company generated $282.9 million in revenue, topping the $275.74 million forecast. Despite these positive results, investor attention fixated on forward-looking concerns.
Throughout the past two years, the language education platform pursued an aggressive monetization strategy, pushing subscription conversions and maximizing advertising exposure. While this approach enhanced profitability metrics, it simultaneously eroded the experience for non-paying users. As a result, new user growth started slowing during the second half of 2025.
Management’s response involves pulling back on monetization pressure. The platform will emphasize improving the free tier experience, gambling that happier users will drive organic growth through personal recommendations and social sharing.
Advanced artificial intelligence features like “Video Call with Lily,” previously reserved for premium subscribers, will now be available to the entire user base. Unfortunately, this democratization comes with elevated infrastructure expenses that will squeeze margins in the near term.
Analyst Community Grows Skeptical
JPMorgan analyst Bryan Smilek cut his rating on DUOL from Overweight to Neutral while dramatically reducing his price target from $200 to $95. He highlighted the user-centric strategy as a driver of bookings pressure and margin deterioration, noting that meaningful returns on this investment remain years away.
BofA Securities analyst Omar Dessouky also downgraded the stock from Buy to Neutral, trimming his target from $250 to $100. His analysis focused on Duolingo’s limited progress developing sophisticated performance marketing capabilities, with executives indicating no plans to build this competency in-house.
BofA described this as a strategic error, especially given the advanced ad optimization technologies now offered by companies like AppLovin and Google. The firm concluded that its original bullish thesis no longer held.
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 assessment, observing that the company’s previous heavy-handed monetization tactics had generated “disgruntled users and a meaningful negative impact to ‘word-of-mouth’ marketing.”
Management Announces Share Buyback Initiative
To cushion the stock during this strategic transition, Duolingo revealed approval of a $400 million share repurchase authorization. This move demonstrates management’s conviction that the current valuation substantially underestimates the company’s intrinsic value.
DUOL has fallen roughly 69% over the past year. The shares are currently trading near their 52-week bottom.
Based on TipRanks data, the consensus recommendation is Hold, reflecting five Buy ratings, 10 Hold ratings, and one Sell rating. The mean twelve-month price objective of $139.64 implies approximately 49% upside potential from present levels.
The $400 million repurchase authorization stays active as Duolingo works toward its aggressive 2028 user growth targets.
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