Duolingo stock has crawled back: will these gains hold as growth slows?

Duolingo stock price has slumped this year as concerns about disruption by artificial intelligence tools and as investors watch its turnaround strategy. DUOL was trading at $132 after falling by 25% this year and 64% in the last 12 months. It has slumped by 75% from its all-time high, with its market capitalization falling from $24.12 billion to the current $6.2 billion.

Analysts predict Duolingo’s revenue slowdown

Duolingo stock price has pulled back sharply in the past few months as investors predict that its business will slow in the future. That’s because analysts believe that its business is vulnerable to AI disruption.

The company has taken measures to grow its business in the long term. In a statement, the management maintained that it would reduce its focus on revenue growth. Instead, it will focus on user growth in the long term.

The company also announced plans to expand in adjacent areas like chess, math, and music. It is also expanding its video call service to more users and reducing subscription friction. 

The most recent earnings reports showed that its business continued growing in the first quarter. Its daily active users jumped by 21% to 56.5 million. Paid subscribers grew by the same percentage to 12.5 million. Its goal is to get to 100 million users by 2028.

The data also revealed that Duolingo’s revenue jumped by 27% to $292 million, which is impressive for a company whose business is being highly disrupted. 

Duolingo has continued to be profitable, with the net income rising to $43 million from the previous $35.1 million. 

Wall Street analysts predict that its growth will continue, although the deceleration will accelerate. The average estimate among analysts is that the upcoming results will show that revenue comes in at $295 million, up by 17% from the same period last year. 

For the year, analysts estimate that its revenue will jump by 16% to $1.21 billion. This will mark a deceleration after it expanded by nearly 40% last year. This slowdown will then continue, falling to 13% YoY next year.

Most notably, analysts expect that its earnings per share will drop drastically this year, moving from $11.77 last year to $6.69. 

Analysts are largely bullish about the Duolingo stock. For example, JPMorgan’s Bryan Smilek hiked his target from $94 to $125. Morgan Stanley and Jefferies have the same target of $125, while Wedbush expects it to hike to $139. The average estimate among analysts is $150. 

Duolingo stock technical analysis

Duolingo stock chart | Source: TradingView

The daily chart shows that the DUOL stock has bounced back gradually in the past few months. It has jumped from the year-to-date low of $89.7 in April to the current $132. 

The stock has formed an ascending channel and is slowly approaching the upper side. However, the stock remains below the 100-day moving average. 

Most importantly, the Relative Strength Index (RSI) has formed a descending channel, a sign that it has formed a bearish divergence. Similarly, the Percentage Price Oscillator (PPO) has continued falling. 

The stock has also formed a bearish flag pattern. Therefore, there is a risk that it will resume the downward trend, potentially after releasing its financial results next week.