KeyBanc upgrades Duolingo saying engagement concerns are overstated

Investing.com -- KeyBanc Capital Markets upgraded Duolingo (NASDAQ: DUOL) to overweight from sector weight, saying recent underperformance in the language-learning app’s shares overlooks a rebound in user engagement. The firm set a $460 price target, implying a 38x multiple on 2027 earnings.

Duolingo’s stock has lagged the Nasdaq this year amid investor worries that daily user growth is slowing and that AI-powered language tools could shrink demand for paid lessons.

But KeyBanc argues the company has several drivers that could reaccelerate growth, including its upcoming “Energy” feature, new product announcements at Duocon in September, and a return to more viral marketing tactics.

The Energy rollout, which replaces the old “Hearts” system, is already boosting daily active users and time spent on the app in initial tests. KeyBanc says the feature could become a major driver of engagement and conversions, similar to its learning path overhaul in 2022.

The firm also sees room for price optimization, something Duolingo has only tested in limited markets as a lever to lift both revenue and margins over the next two years.

KeyBanc raised its 2026 and 2027 bookings and EBITDA forecasts by 4% to 7%, arguing that AI innovations are more likely to enhance monetization rather than cap demand. The firm now expects Duolingo to deliver a three-year EBITDA compound annual growth rate of about 44%.

Shares remain off their highs, but KeyBanc says Duolingo’s product pipeline and brand strength position it to resume strong audience growth, even after a temporary slowdown.

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