Duolingo (DUOL) Stock Forecast & Price Target

Duolingo Inc. reported a significant increase in adjusted EBITDA, reaching $52.3 million, which reflects a year-over-year growth of $17.1 million, primarily driven by operational leverage and strong revenue performance. The company also experienced robust daily active user growth, totaling 40.5 million, a 50.6% increase year-over-year, alongside a 38.8% rise in total revenues. Furthermore, the strength in converting free users to paid subscribers is evident, as the number of paid subscribers climbed to 9.5 million, exceeding consensus estimates, while the monthly active user count reached 116.7 million, marking a healthy potential for continued growth.

Duolingo Inc. is experiencing a significant slowdown in daily active user (DAU) growth, with management projecting a decrease to around 45% in Q1 2025 and further deceleration anticipated in Q2, which raises concerns about the company's ability to sustain user engagement. Additionally, the company's fiscal year 2025 guidance for revenue growth, while slightly ahead of consensus, indicates that adjusted EBITDA is expected to fall short of expectations, exacerbated by gross margins declining from 73.1% to 71.9% year-over-year. Given the anticipated compression of gross margins due to the increasing proportion of Duolingo Max revenues and potential headwinds from discretionary spending in a direct-to-consumer model, the overall financial outlook remains negative.