KeyBanc Upgrades Duolingo, Sees Rebound in User Engagement and $460 Price Target

KeyBanc upgraded Duolingo to overweight from sector weight, citing a rebound in user engagement despite recent underperformance. The firm set a $460 price target, implying a 38x multiple on 2027 earnings. KeyBanc believes Duolingo's upcoming "Energy" feature, new product announcements, and viral marketing tactics could reaccelerate growth. The firm raised its 2026 and 2027 bookings and EBITDA forecasts by 4% to 7%, expecting a three-year EBITDA compound annual growth rate of about 44%.

KeyBanc Capital Markets has upgraded Duolingo (NASDAQ:DUOL) to overweight from sector weight, citing a rebound in user engagement despite recent underperformance. The firm set a $460 price target, implying a 38x multiple on 2027 earnings [1].

KeyBanc believes Duolingo's upcoming "Energy" feature, new product announcements at Duocon in September, and a return to more viral marketing tactics could reaccelerate growth. The firm raised its 2026 and 2027 bookings and EBITDA forecasts by 4% to 7%, expecting a three-year EBITDA compound annual growth rate of about 44% [1].

Shares of Duolingo have lagged the Nasdaq this year amid investor worries about slowing daily user growth and potential demand shrinkage from AI-powered language tools. However, KeyBanc argues that Duolingo has several drivers that could reaccelerate growth, including its Energy feature, which has already boosted daily active users and time spent on the app in initial tests [1].

The Energy rollout, which replaces the old "Hearts" system, is expected to become a major driver of engagement and conversions, similar to the learning path overhaul in 2022. Additionally, KeyBanc sees room for price optimization, a lever that could lift both revenue and margins over the next two years [1].

KeyBanc's upgrade comes as the company reported strong quarterly results, with bookings surpassing forecasts by 9% and EBITDA results outperforming expectations by 29%. The firm also cited robust gross margins of 72% and a strong financial health score [3].

Despite the AI backlash, Duolingo's CEO, Luis von Ahn, clarified that the company's "AI-first" strategy was misunderstood due to a lack of context. He affirmed no plans for full-time employee layoffs and highlighted the company's ongoing AI experimentation [2].

Analysts remain optimistic about Duolingo's performance and strategic direction, with Morgan Stanley reiterating its Overweight rating, JPMorgan increasing its price target, and DA Davidson maintaining a Buy rating [3].

References:
[1] https://ca.finance.yahoo.com/news/keybanc-upgrades-duolingo-saying-engagement-162608985.html
[2] https://theoutpost.ai/news-story/duolingo-ceo-clarifies-controversial-ai-first-strategy-emphasizing-no-layoffs-planned-19162/
[3] https://www.investing.com/news/analyst-ratings/duolingo-stock-rating-upgraded-by-keybanc-to-overweight-on-product-improvements-93CH-4196646