Duolingo (DUOL) Stock Forecast & Price Target

Duolingo Inc. demonstrated a robust financial performance with total revenues increasing by 38.8% year-over-year and adjusted EBITDA reaching $52.3 million, surpassing estimates due to operational leverage and revenue growth. The company also reported impressive daily active user growth, which rose to 40.5 million, representing a 50.6% year-over-year increase, and a healthy free to paid subscriber conversion with 9.5 million paid subscribers, outperforming consensus estimates. Additionally, Duolingo's momentum is reflected in a year-to-date share price increase of 21.5% and a remarkable 102% rise over the past year, underscoring investor confidence and the potential for continued growth.

The financial outlook for Duolingo Inc is negatively impacted by a significant slowdown in daily active user (DAU) growth, which is projected to decelerate to approximately 45% in the first quarter of 2025 and further in the second quarter, creating concern over user retention and engagement. Additionally, while the company initiated FY25 guidance with bookings and revenue slightly ahead of consensus, adjusted EBITDA fell short of expectations, and gross margins decreased from 73.1% the previous year to 71.9%, indicating potential profitability challenges. Furthermore, the increasing reliance on the Duolingo Max subscription as a revenue component is expected to compress gross margins by approximately 300 basis points in the first half of 2025, raising concerns about the sustainability of revenue growth in the face of discretionary spending pressures on direct-to-consumer services.