Core Viewpoint - Analysts warn that Duolingo no longer deserves the previous valuation premium due to slowing growth and increased strategic uncertainty. The company's strategic focus will shift from short-term monetization to long-term user growth, implying a sacrifice of foreseeable bookings and profits in the short term for uncertain future user growth, complicating the predictability of the company's growth model beyond 2026 [1][3][10] Financial Performance - Duolingo's third-quarter performance appears robust, with revenues of $271.713 million, a significant increase from $192.594 million in the same period last year. Gross profit reached $196.911 million, up from $140.414 million [5] - However, the fourth-quarter guidance is disappointing, with management projecting median bookings of $333 million, revenues of $275 million, and EBITDA of $77 million, all below market consensus by 3% and 4% respectively [6][7] Strategic Shift - Management has indicated a clear shift in focus towards long-term user growth projects, which will lead to a decrease in short-term monetization priorities. This confirms market concerns that the company's current growth rate is slowing and that monetization efficiency will be sacrificed for stable user growth [7][10] - The company plans to increase marketing expenses in the U.S. market to support daily active user (DAU) trends, further squeezing short-term profits [7] Market Reaction - Following the disappointing guidance, several investment banks have downgraded their ratings and target prices for Duolingo. UBS cut its target price from $450 to $285, a 37% decrease, while Bank of America reduced its target from $370 to $301. Morgan Stanley maintained an overweight rating but lowered its target from $500 to $300 [9][10] - Analysts believe that the uncertainty surrounding growth warrants a lower valuation multiple, with Bank of America reducing the 2026 enterprise value/sales multiple from 13x to 10x [10] User Growth Indicators - Despite the target price reductions, Morgan Stanley maintains an overweight rating, suggesting that Duolingo needs to demonstrate stable user growth without a significant gap from bookings growth to change market sentiment [11] - Recent data shows that daily active user growth has stabilized at approximately 30% year-over-year growth in September and October [12] - The U.S. market appears to be recovering from a low point, with improved brand sentiment and increased social media engagement, which may translate into growth over time. Long-term growth drivers remain intact, particularly in key expansion markets like China and in critical courses such as advanced English and chess [13]