Evercore upgrades Duolingo, sees strong user growth and earnings upside

Evercore ISI raised Duolingo's rating to Outperform from In Line, citing robust user growth and product enhancements that could lead to higher earnings than currently anticipated. The firm boosted its price objective to $210, implying a more than 40% increase from the August 31 closing price of $146.98. Its forecast of 2028 earnings per share and adjusted EBITDA both exceed consensus estimates by 10% and 22%, respectively.

Duolingo's user satisfaction remains high, with 66% of respondents reporting strong satisfaction. Artificial intelligence adoption, a potential risk, is not significantly eroding the platform's user base, as 63% of overlapping users engage with Duolingo daily. Recent product developments, such as free speaking practice, spoken tokens, and expanded video call features, bolster Duolingo's competitive position.

Recent third-party data indicates a 17% year-on-year increase in daily active users and 24% growth in the third quarter. Evercore projects 99 million daily active users by 2028, exceeding the industry average. The brokerage suggests that Duolingo's GAAP EPS could reach $5.10, surpassing the Street's estimate of $4.10 by 24%. However, the primary risk lies in monetization, as Duolingo's revenue per user and bookings per user have decreased year-on-year.