Duolingo's (DUOL) increased prioritization of user growth over monetization is likely to pressure near-term guidance, with fiscal 2026 bookings expected to come in well below Street expectations despite growth in daily active users, Morgan Stanley said in a note Tuesday.

Following the release of preliminary 4Q bookings and daily active user growth, the focus has shifted to 2026 fiscal guidance, Morgan Stanley said. Given the deceleration in Q4 bookings, "we are increasingly worried about initial FY26 bookings guidance and expect DUOL to reset expectations well below the street at +21% y/y," the analysts said.

As a result, Morgan Stanley said its "tactically cautious" on the stock and cut its fiscal year 2026 booking growth expectations from 18% year-over-year to 15%, despite a 30% year-over-year increase in daily active users, arguing that the daily active user growth is expected to bottom out and stabilize in Q2 2026, before reaccelerating again.

Duolingo will report Q4 earnings Feb. 26.

Morgan Stanley maintained its overweight rating on the stock and lowered its price target to $245 from $275.

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