By Ben Levisohn

If most gaming companies are playing checkers, Duolingo is playing chess...literally.

Duolingo, known for its language games that teach users Spanish, French, German, Japanese, Korean, and Chinese, among others, announced this past week that it had launched a new offering in beta form: chess. It's the app's first new addition since it added math and music in 2023.

While some might see chess as an egghead pursuit, it has an enormous following. While data is hard to come by, D.A. Davidson analyst Wyatt Swanson estimates that some 690 million people play chess, while the website Chess.com has about 210 million registered users. What separates Duolingo's offering from others is its focus on teaching people how to play the game, not just offering them a place to compete.

If all goes well, chess could bring in an additional $60 million to $150 million in total bookings in 2026. "We think creating a course in this subject makes sense and ultimately may be just the start of [Duolingo] expanding into courses that go beyond traditional education," writes Swanson, who rates the stock Buy with a $410 price target, up 10% from a recent $371.53.

Duolingo doesn't need chess to succeed, however. When Morgan Stanley analyst Nathan Feather initiated the stock with an Overweight rating on Wednesday, he played down the company's offerings outside its core language games. Language learning is four times as large as music, the follow-up category, and Feather isn't sure Duolingo's strong brand extends beyond languages. Instead, he refers to the noncore offerings as "call options" -- bets that could pay off but where success isn't the base case.

That didn't stop Feather from initiating the stock with a Street-high $435 price target, and the possibility of $530 if everything goes right. The list of reasons for optimism is long. They include a large total addressable market, one big enough to boost revenue by 26% annually over the next five years; margins that could increase to 40% by 2029, with an outside chance of reaching 50%; and the fact that it's a beneficiary of artificial intelligence with its generative-AI based Max tier.

"With the stock 30% off the high despite no tariff risk or history of macro sensitivity, we see this as a compelling entry point," he writes.

Perhaps a little less compelling now. Duolingo stock jumped 10% on Wednesday, boosted by both the initiation and a suddenly buoyant market. That means the stock is down just 16% from its February high, though it still has 18% upside to Feather's $435 target. If the bull case plays out, it would be a 43% gain. Given the market volatility, there's a good chance that investors will get another dip to buy, especially as Duolingo's earnings on May 1 approach.

Duolingo isn't playing games -- and its stock is one to watch.

Write to Ben Levisohn at ben.levisohn@barrons.com

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April 25, 2025 21:30 ET (01:30 GMT)

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