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On Wednesday, Morgan Stanley (NYSE:MS) initiated coverage on shares of Duolingo Inc. (NASDAQ:DUOL) with an Overweight rating, accompanied by a bullish price target of $435.00. According to InvestingPro data, Duolingo currently trades at $336.34 and shows strong financial health with an overall rating of "GREAT," though the stock appears overvalued based on InvestingPro’s Fair Value analysis. The firm’s analysis suggests that Duolingo represents a top-tier consumer internet company with considerable growth potential in a substantial total addressable market (TAM) of $220 billion.
According to Morgan Stanley, Duolingo’s gamified learning strategy effectively merges the mobile gaming and language learning sectors. Despite capturing only about 0.5% of the market, the firm sees a significant opportunity for expansion. Duolingo’s user base, which stands at approximately 117 million, is just a fraction of the global language learners estimated at 2 billion, indicating room for increased user acquisition.
The firm highlighted three main drivers for Duolingo’s growth. Firstly, user growth continues to accelerate annually since 2021, and there is still potential for expansion even in the company’s most mature markets. Secondly, Duolingo’s focus on engagement through a test-and-learn approach to gamification is expected to boost usage frequency and duration. Lastly, Morgan Stanley points out that despite a more than 2.5-fold increase in revenue per user over the past five years, Duolingo’s monetization per user is still approximately five times lower than its mobile peers.
Morgan Stanley anticipates that Duolingo’s recent introduction of product-first subscriptions could significantly enhance the company’s monetization strategy. The interplay between user growth, engagement, and monetization leads the firm to view Duolingo as a structural compounder, projecting a 26% compound annual growth rate in revenue over the next five years. InvestingPro has identified 15 additional investment tips for Duolingo, including strong liquidity metrics and impressive growth indicators. Access the complete analysis and comprehensive Pro Research Report, along with data for 1,400+ other US stocks, with an InvestingPro subscription.
In other recent news, Duolingo has introduced a new chess course, marking its first new subject addition since expanding to math and music in 2023. This move is part of Duolingo’s strategy to diversify its educational content and is seen as a potential way to expand its total addressable market. Analysts from DA Davidson note that this could contribute a 5-10% upside to the 2026 consensus Total (EPA:TTEF) Bookings. Meanwhile, Citizens JMP has maintained its Market Outperform rating for Duolingo, setting a price target of $400, citing the company’s unique business model and growth potential in the language-learning market. The firm’s analysts emphasize the role of Duolingo’s advanced learning assistant, Max, as a key driver for future success. Additionally, Duolingo’s advertising model has been highlighted by JMP analysts as a major contributor to its revenue growth, now accounting for about one-fourth of year-over-year revenue increases. UBS analyst Chris Kuntarich has adjusted Duolingo’s price target to $400 from $430 but continues to recommend the stock as a Buy, expressing optimism about the company’s strategy ahead of its first-quarter earnings report. Lastly, JPMorgan has reaffirmed an Overweight rating with a $360 price target, highlighting strong daily active user growth and monetization potential from the Max and Family plans as key success factors.
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