Shares of Duolingo fell sharply after the company cut its near-term bookings outlook and disclosed a strategic shift aimed at prioritizing user growth over aggressive monetization. The language-learning platform said first-quarter and 2026 bookings would be below expectations, prompting at least two Wall Street firms to reduce their ratings and price targets.
The stock declined 18% in Friday trading after the update.
As part of the change in emphasis, Duolingo will make its AI-driven "Video Call with Lily" feature available to the lower-priced Super Duolingo tier rather than restricting it to the higher-priced Max subscription. Company management framed the move as an effort to boost engagement after a period in which heavier use of advertising and subscription prompts drove up bookings per user but coincided with slower user growth.
Analysts reacted by lowering expectations. Morgan Stanley moved the stock to Equal-weight from Overweight and trimmed its price target to $100. The bank said that deeper and more persistent reductions in monetization, combined with increased spending, resulted in initial 2026 bookings guidance that was 3% below Morgan Stanley's estimates and EBITDA guidance that was 15% below. The firm also reduced its 2026 bookings and EBITDA forecasts by 4% and 17%, respectively.
Morgan Stanley added that it no longer has conviction that Duolingo can achieve both user growth and improved monetization in the next few quarters. The bank noted the stock is trading at roughly 10 times next-twelve-month EBITDA, and said a valuation re-rating is unlikely until the company demonstrates stabilized daily active user trends and stronger monetization.
Evercore also downgraded the shares to In Line from Outperform and cut its price target to $114, lowering its 2027 EBITDA estimate by 27%. Evercore highlighted that the company's decision to invest more in the free user experience, expand into new subjects such as Chess and Math, and add AI features will slow revenue growth to an expected 15% to 18% in 2025 from 35% in the fourth quarter. The firm said EBITDA margins could decline to 25% in 2026 from 30% in 2025.
Both firms indicated they will await clearer signs of stabilized user and revenue trends before adopting a more constructive view on the shares.
Context for investors
The moves reflect a company trade-off between near-term monetization and longer-term user engagement. Management's broader access to AI functionality and investment in new subject areas signal a deliberate pivot toward user growth, at the expense of previously higher bookings per user driven by advertising and subscription upsells.
Market participants will be watching daily active user metrics, bookings performance, and margin trends to gauge whether the strategy produces the intended stabilization in growth and monetization.