TLDR
- Duolingo shares plummeted more than 20% following management’s announcement of a strategic realignment favoring user expansion over immediate revenue optimization.
- JPMorgan and BofA both cut their ratings to Neutral, with JPMorgan reducing its price target to $95 and BofA to $100.
- The language learning platform is targeting 100 million daily active users by 2028, accepting near-term bookings pressure and margin compression as trade-offs.
- The company unveiled a $400 million stock repurchase program to provide support during the strategic transition period.
- Several additional firms, including Morgan Stanley and Evercore ISI, also reduced their ratings amid concerns about decelerating growth and strategic direction.
Shares of Duolingo (DUOL) took a significant hit on Friday, plunging over 20% in morning trading to $90.76 as Wall Street reacted negatively to a substantial change in corporate strategy revealed by executives.
Management disclosed plans to de-emphasize monetization tactics in pursuit of expanding its daily active user count. The ambitious goal: reaching 100 million daily active users by 2028, a substantial increase from present figures.
This strategic announcement was paired with disappointing financial projections for 2026, creating a perfect storm that sent investors heading for the exits.
Duolingo exceeded fourth quarter 2025 expectations, delivering earnings per share of $0.84 versus the $0.83 consensus. Revenue reached $282.9 million, surpassing analyst estimates of $275.74 million. However, investor attention quickly shifted to future prospects.
Over the preceding two years, the company had intensified its subscription push and advertising exposure. While this strategy boosted profitability, it simultaneously diminished the quality of the free user experience. By late 2025, user growth momentum began to stall.
Leadership’s response involves pulling back on aggressive monetization tactics. The platform will focus on enhancing the free tier experience, betting that satisfied users will organically promote the service through word-of-mouth referrals.
Premium AI-powered features such as “Video Call with Lily,” which were previously exclusive to paying subscribers, will now become accessible to all users. This decision carries higher operational costs, putting pressure on near-term profit margins.
Wall Street Analysts React Negatively
JPMorgan analyst Bryan Smilek lowered his rating to Neutral from Overweight, slashing his price target dramatically from $200 down to $95. He pointed to the user growth emphasis as a catalyst for reduced bookings and margin compression, acknowledging the strategic investments require time to yield returns.
BofA Securities analyst Omar Dessouky similarly cut his rating to Neutral from Buy, reducing his target from $250 to $100. His primary reservation centered on Duolingo’s minimal advancement in performance marketing capabilities, with management indicating they’re unlikely to build that expertise.
BofA characterized this as a strategic misstep, particularly considering the significant improvements in ad targeting technology at platforms like AppLovin and Google. The investment bank stated its original investment thesis had been invalidated.
Morgan Stanley reduced DUOL from Overweight to Equalweight. Evercore ISI shifted its stance to In Line from Outperform. KeyBanc maintained a Sector Weight rating.
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.”
Company Launches Buyback Initiative
In an effort to stabilize the share price during this transitional phase, Duolingo approved a $400 million stock repurchase program. The move demonstrates management’s conviction that shares are trading below intrinsic value at present prices.
DUOL has declined approximately 69% over the trailing twelve months. The stock is currently trading close to its 52-week low.
According to TipRanks, the consensus analyst rating stands at Hold, comprising five Buy ratings, 10 Hold ratings, and one Sell rating. The average 12-month price target of $139.64 suggests approximately 49% upside potential from current trading levels.
The $400 million share repurchase authorization remains in effect as management executes its plan to achieve 2028 user growth objectives.
