Duolingo drops as BofA turns bearish ahead of earnings, says valuation 'too high'

The Pittsburgh, Pennsylvania-based company is slated to report second-quarter results on Wednesday, Aug. 5, after market close.

Of 25 brokers covering the stock, the recommendation breakdown is 4 "strong buy" or "buy", 19 "hold" and 2 "sell"; the median price target is $110, according to LSEG data.

With the decline, the stock is down 25% year to date, compared with about a 13% advance in the Nasdaq .IXIC.

Language-learning platform Duolingo's DUOL.O shares were down 3% to $131.75 on Tuesday after BofA Global Research downgraded the stock to "underperform" from "neutral", citing valuation.

The broker cut its price target by $10 to $93, implying about 32% downside to the stock's last close.

BofA analyst Omar Dessouky said the stock's 20% rally since early June appears to coincide with an inflection in monthly-active users in June, likely due to a one-time promotion with Airbnb ABNB.O, adding that the inflection is not sustainable.

Dessouky said DUOL's shares are now valued at 16x his estimate for CY27 EBITDA, a 6x premium to midcap subscription stocks, whose EBITDA growth is similar to DUOL's.