What Happened?

Shares of language-learning app Duolingo (NASDAQ:DUOL) fell 9.9% in the morning session after Bank of America analyst Curtis Nagle downgraded the stock's rating from Buy to Neutral. The analyst cited "less upside potential as shares are now trading at peak valuation."

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Duolingo? Access our full analysis report here, it’s free.

What The Market Is Telling Us

Duolingo’s shares are very volatile and have had 21 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was 10 months ago when the stock gained 23.3% on the news that the company reported fourth-quarter results and delivered robust user and revenue growth, leading to a nice beat on bookings. DAU growth accelerated for the 10th quarter in a row to 65% year on year in Q4, while the ratio of DAUs to MAUs improved to 30%, which highlights that engagement is improving. The top line also benefited from strengths in the company's family plan offering and better-than-expected performance in New Year promotions. 

Bottom line metrics also came in strong, with adjusted EBITDA, free cash flow, and EPS exceeding expectations, demonstrating the company's ability to balance growth and profitability. 

Lastly, guidance for the next quarter and the full year were ahead of expectations for both revenue and adjusted EBITDA. Zooming out, this was a great quarter that shareholders will appreciate.

Duolingo is up 59.9% since the beginning of the year, and at $342.67 per share, it is trading close to its 52-week high of $373.03 from December 2024. Investors who bought $1,000 worth of Duolingo’s shares at the IPO in July 2021 would now be looking at an investment worth $2,465.

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