Duolingo stock forecast as CEO warns of “near-term tradeoffs”

Duolingo stock crashed to its lowest level since August 2024, continuing a downward trend that started in May last year when it peaked at $544. It has dropped by 70% below its all-time high, erasing billions of dollars in value as its valuation plunged to $7.48 billion.

CFO departure concerns as management warns of short-term tradeoffs

Duolingo stock continued its freefall this week after the management announced the transition of its Chief Financial Officer (CFO), Matt Skaruppa, who helped to take it public. He will be replaced by Gillian Munson, who has served on the board since 2019. She also worked at Vimeo, a top video software company. 

It is common for stocks to drop whenever there is a major announcement, such as the resignation of a senior member of the team, such as the Chief Financial Officer (CFO) or the CEO.

The stock also dropped after the company published its preliminary results for the fourth quarter. These numbers showed that its daily active users (DAU) rose by 30% YoY, while its bookings were above the. The previous guidance of between $329 million and $335 million.

While these numbers were strong, analysts and investors are concerned about profitability as the management guided on more investments, which will lead to some tradeoffs. The CEO said:

“While I’m delighted with our preliminary fourth quarter metrics, we plan to continue to invest meaningfully in the product, even when it involves near-term tradeoffs. We are doing this because our long-term opportunity is to teach billions of people, and while we’ve made incredible progress, we remain early in our journey.”

Wall Street analysts are bullish on DUOL despite the crash 

A closer look at Duolingo’s analysts’ forecasts shows that most of them are still bullish on the company, with the average target of $309, which is up by 91% above the current level.

This target, however, has been falling in the past few months as the stock has continued falling. It was $329 and $416 one and six months ago, respectively.

BMO Capital Markets upgraded the company on Monday to buy, while Citigroup reiterated its market perform rating. The other bullish analysts are from companies like UBS, Truist, and Bank of America.

Analysts point to the ongoing revenue and user growth, which they believe will be resilient over time. The average estimate is that the annual revenue in 2025 was 37%, followed by 22.7% this year.

READ MORE: Buy Duolingo stock as its growth ambitions are ‘far grander’ than previously thought

One major catalyst that a Bank of America analyst noted was that the company has room to expand its subjects from languages to other areas, a move that will capture more users. Also, analysts point to the growth of gamified learning, an area in which Duolingo has thrived.

The company’s valuation has also improved in the past few months, with the forward price-to-earnings ratio being 14, lower than the sector median of 18.3. This is a cheap valuation multiple for a company that is experiencing double-digit growth.

The Rule-of-40 multiple also shows that it is highly undervalued, as its net income margin is 40% and its forward growth metric is 39%, giving it a multiple of 79%.

Duolingo stock price technical analysis 

The daily timeframe chart shows that the DUOL stock price has been in a strong downward trend in the past few months, moving from a high of $544 in May last year to the current $161.

It formed a big down-gap on November 5 after publishing its financial results. After that, the stock formed an island reversal pattern, which is a consolidation that happens after a big gap. It is usually one of the most common reversal patterns in technical analysis.

However, this island formed a head-and-shoulders pattern and has moved below the neckline. Therefore, the stock will likely continue falling as sellers target the key support level at $150. The stock will then bounce back later this year and possibly retest the key resistance level at $200.

The post Duolingo stock forecast as CEO warns of “near-term tradeoffs” appeared first on Invezz