Duolingo stock has plummeted 30%. Why does the analyst see a unique buying opportunity?

Shares of online language learning platform Duolingo plummeted nearly 30% after the company issued a weak fourth-quarter outlook. The company is shifting its focus to user growth rather than rapid monetization, and its performance will be affected. Analysts reacted to the forecast change by lowering their target prices, despite Duolingo posting record revenue in the third quarter. Needham called the price drop a "unique buying opportunity".

Shares of online language learning platform Duolingo fell nearly 30% in trading on Nov. 6 after the company released its fourth-quarter outlook. The company expects adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $75.4-$78.8 million, 6% below the Wall Street consensus estimate, Barron's points out. Duolingo's expectations for subscription volume were also worse than what analysts were expecting: $329.5-335.5 million versus $344.1 million, Seeking Alpha reports .

The worsening outlook is due to Duolingo shifting its focus from rapid monetization to improving the quality of learning and sustainable audience growth, the company explained. "Over the last quarter, we've changed our investment approach a bit and now invest much more in long-term projects because we see huge opportunities ahead," platform CEO and co-founder Luis von Ahn told CNBC. He promised that Duolingo will continue to work on monetization as well.

At the end of the third quarter, the company's adjusted EBITDA grew by 68% and reached $80 million, while analysts predicted $72 million, Barron's wrote . Revenues totaled a record $271.7 million, up 41% year over year and also exceeding Wall Street's forecast.

After Duolingo presented its financials and outlook, Wells Fargo reiterated its recommendation to sell its shares and revised its target price from $239 to $185, Investing.com writes. The new target is only slightly higher than the quotes at the time of publication of this text. The bank's analysts noted that a more positive attitude to these securities is possible if there are concrete examples of how Duolingo's refusal to partially monetize contributes to the growth of user engagement.

Goldman Sachs also lowered its target price on Duolingo shares from $425 to $250, but it is taking a neutral stance. The bank's analysts emphasized that investors are likely to focus on whether the platform can return to a more stable operating performance in the coming quarters. This, according to Goldman, would boost confidence in the company's long-term growth potential.

Needham also lowered its target price for Duolingo shares from $460 to $300, while maintaining its recommendation to buy them. Analysts called the collapse of quotes "a unique buying opportunity". They are confident in the short-term prospects of the platform, emphasizing that the return of more active marketing campaigns could stimulate audience growth.

According to MarketWatch, the majority of analysts who track Duolingo's momentum advise building a stake in the company - 17 out of 28 - with ten analysts suggesting holding the stock in a portfolio and only one suggesting selling it.

This article was AI-translated and verified by a human editor