Bullish indicating open at $55-$60, IPO prices at $37
On Wednesday, Scotiabank (TSX:BNS) analyst Nat Schindler adjusted the price target on Duolingo Inc. (NASDAQ:DUOL) to $405.00, a decrease from the previous target of $425.00. Despite this change, Schindler maintained a Sector Outperform rating on the company’s stock. Currently trading at $336.34 with a market capitalization of $15.2 billion, Duolingo has demonstrated impressive momentum with a 52% return over the past year. The revision comes as Duolingo prepares to announce its first-quarter earnings for 2025 on Thursday morning, May 1st, after the market closes.InvestingPro analysis reveals that Duolingo maintains strong financial health, with 15+ additional key insights available to subscribers. A comprehensive Pro Research Report offering detailed analysis is available for this high-growth education technology company.
Schindler noted that Duolingo entered the first quarter with a "clean setup," although daily active user (DAU) growth has shown signs of slowing, which was anticipated. The analyst pointed out that the user mix is improving, with notable expansions in the Max program and a significant increase in engagement from English learners with premium features—reportedly at double the rate of other users. This user engagement has contributed to the company’s impressive 72.8% gross profit margin and robust revenue growth of 40.8% over the last twelve months.
The report highlighted that while the overall DAU growth is normalizing, Duolingo’s monetization strategies are becoming more influential. The DAU to monthly active user (MAU) ratio is on the rise, driven by more engaged user cohorts, such as Max program participants and English learners. The company’s family plan, which accounted for 23% of subscriptions in the last quarter, is also credited with improving retention rates.
Max, Duolingo’s personalized AI tutor, is still in the early stages of adoption, representing around 5% of subscriptions as of the fourth quarter of 2024. However, Schindler commented that the early lifetime value (LTV) of Max looks promising. Furthermore, cost pressures associated with AI are expected to decrease in the second half of 2025.
The analyst also emphasized the potential in monetizing English learners, a segment Duolingo has not fully capitalized on in the past. With intermediate and advanced English content now available across more than 20 courses, Duolingo is positioned to convert over 2 million DAUs already engaging with the new content. Schindler suggests that the company’s guidance—which forecasts approximately 28% growth in bookings and a 25% EBITDA margin—could be surpassed if the post-New Year’s conversion rates hold and momentum with Max continues.
The primary focus for Duolingo, according to Schindler, will be whether the company can continue to increase its average revenue per user (ARPU) while effectively managing costs. If successful, there is potential for both top-line and bottom-line growth throughout the year. With a strong current ratio of 2.61 and more cash than debt on its balance sheet, InvestingPro data suggests Duolingo is well-positioned financially to execute its growth strategy. Subscribers can access detailed financial metrics, valuation analysis, and expert insights through InvestingPro’s comprehensive research tools.
In other recent news, Duolingo Inc. has been in the spotlight with several noteworthy developments. Morgan Stanley (NYSE:MS) initiated coverage on Duolingo, giving it an Overweight rating and setting a price target of $435. The firm highlighted Duolingo’s significant growth potential in a large total addressable market, emphasizing its innovative approach to gamified learning. Additionally, UBS adjusted its price target for Duolingo to $400, maintaining a Buy rating, reflecting a positive outlook ahead of the company’s first-quarter earnings report. Citizens JMP also reaffirmed its Market Outperform rating for Duolingo, citing the company’s unique business model and potential for growth in the language-learning market.
Further diversifying its offerings, Duolingo announced the launch of a new chess course, marking its first new subject addition since expanding into math and music in 2023. This move is part of Duolingo’s strategy to broaden its educational content, potentially increasing its total addressable market. JMP analysts noted Duolingo’s recent advertising model as a key driver of financial growth, with the model now contributing significantly to the company’s revenue. These strategic initiatives, combined with Duolingo’s focus on user engagement and monetization, have led to sustained growth and a maintained Market Outperform rating by JMP. Investors are closely watching Duolingo’s performance to see if it can continue its upward trajectory.
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