So, here's a classic market puzzle: a company reports quarterly sales that beat expectations, user growth that's still impressive, and announces a big new plan to return cash to shareholders. And the stock... tanks. Welcome to the curious case of Duolingo Inc. (DUOL) on Friday.

The language-learning app's shares were down nearly 24% in premarket trading. The trigger was the company's latest earnings report, which contained all the good numbers you'd want but also a strategic announcement that has Wall Street recalculating its growth models. In short, Duolingo is choosing to be a bit less profitable in the near term to try to get a lot bigger in the long term.

The reaction was swift. Several major firms lowered their ratings. The most notable move came from Morgan Stanley, which downgraded the stock to Equal Weight and—here's the eye-popper—slashed its price target to $100 from $245. That's not a trim; that's a wholesale reassessment.

The CEO's Long Game

The heart of the matter is in the comments from Co-Founder and CEO Luis von Ahn. "We closed 2025 with strong momentum, surpassing 50 million daily active users and generating more than $1 billion in bookings for the first time," he said.

But then came the pivot. "At the same time, advances in AI are fundamentally reshaping how people learn, and we believe this is a pivotal moment for our company. In 2026, we are deliberately prioritizing user growth and teaching better. We'll focus on improving the free learner experience to grow word of mouth and feed our next user growth engines like chess, math, and music, even though that moderates near-term financial growth."

He framed it as a trade-off for a much bigger prize: "We believe this strategy positions Duolingo to reach 100 million daily active users in the medium-term and build a significantly larger, more durable business in the long-term."

Investors, however, are notoriously impatient. The idea of "moderating near-term financial growth" is often a red flag for them, even if the long-term vision sounds compelling.

The Numbers Were Actually Pretty Good

Here's the irony: the quarterly performance that accompanied this strategic shift was robust. Duolingo's fourth-quarter sales reached $282.87 million, up 35% year over year, beating analyst consensus.

Daily active users grew 30% year over year to 52.7 million. Paid subscribers hit 12.2 million, up 28%. Total bookings increased 24% to $336.8 million. The company was solidly profitable, generating net income of $41.9 million and an adjusted EBITDA margin of 29.8%.

So, the business is fundamentally healthy and growing. The problem for the market is the guidance for what comes next.

The Guidance That Spooked the Street

Duolingo expects fiscal 2026 sales to land between $1.197 billion and $1.221 billion. The consensus estimate among analysts was for $1.264 billion. That's a miss. For the first quarter, the company expects sales of $288.5 million, just shy of the $290.52 million consensus.

This is the financial manifestation of that "moderating near-term growth" the CEO talked about. The company is telling the market that its top-line growth rate is going to slow down as it invests in the free product to attract more users.

A Buyback Amid the Sell-Off

In a move that seems almost contradictory during a growth-investment phase, Duolingo also announced a new share repurchase program of up to $400 million. This reflects a strategy to return capital to shareholders while, the company says, maintaining flexibility for those long-term investments. It's a signal of confidence in its underlying cash generation, even if the market isn't buying the growth story today.

What the Charts Are Saying

The technical picture confirms the brutal sell-off. The stock is trading about 24% below its 20-day simple moving average and 25% below its 100-day average, which is a clear sign of significant short-term weakness. Over the past year, shares have fallen substantially and are much closer to their 52-week lows than their highs.

The Relative Strength Index (RSI) is sitting right at 50, which is neutral territory—neither overbought nor oversold. Meanwhile, the MACD indicator is in negative territory and below its signal line, suggesting bearish pressure is in control. The mix of a neutral RSI and bearish MACD points to uncertain momentum.

Key technical levels to watch now are resistance around $104.50 and support near $89.00.

The Analyst Consensus Shifts

The average analyst price target for Duolingo still sits at a lofty $288.89, but that figure is likely stale and due for a major revision following these downgrades. The recent actions tell the real story:

• Evercore ISI Group: Downgraded to In-Line and lowered its target to $114.00.
• Morgan Stanley: Downgraded to Equal-Weight and slashed its target to $100.00.

The market's verdict on Friday was harsh. Duolingo shares were trading around $89.40 in the premarket, a steep decline that prices in a lot of skepticism about the company's new path. The core question for investors now is whether von Ahn's bet on a bigger, free-user-fueled future is visionary or merely a costly delay of monetization. Today, the market is voting for the latter.