KeyBanc downgrades Duolingo after weak growth outlook

Investing.com -- KeyBanc Capital Markets downgraded Duolingo to Sector Weight from Overweight, citing weaker-than-expected growth trends and reduced financial forecasts following the company’s fourth-quarter outlook.

“Our upgrade thesis was predicated on product initiatives improving user growth and conversion rates,” KeyBanc analyst Justin Patterson wrote. “This has not played out, as evidenced by lower-than-expected 4Q bookings guidance.”

The firm said that management’s recent shift in focus toward strengthening its teaching effectiveness could prove beneficial over the long term but carries short-term costs.

“While management’s tactical decision to invest more in teaching effectively may pay off in a higher growth rate in future years, the near-term consequence is a reduction to our 2026E/2027E bookings and EBITDA and likely an overhang on valuation multiples,” KeyBanc stated.

The downgrade ends a positive stance the firm had held on the language-learning app since its earlier upgrade.

KeyBanc believes the loss of near-term momentum, combined with softer guidance, suggests limited upside for the stock until growth reaccelerates.

Duolingo has shifted its focus to new initiatives. However, KeyBanc believes this will weigh on near-term growth.

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