Duolingo (DUOL) has decided to prioritize long-term user growth over near-term monetization, fueling concerns that the run-rate for daily active user growth is slowing, Morgan Stanley said in a Thursday note.

The company needs to show stabilizing user growth without a significant gap to bookings growth, Morgan Stanley said, adding that its concern from here is that user growth continues to decelerate with worsening flow-through.

Looking at positives, Morgan Stanley analysts said that Duolingo's daily active user growth has stabilized in September and October at about 30% year-on-year growth.

Additionally, the US seems to be recovering with improved brand sentiment and increased social virality. Furthermore, Duolingo's long-term growth drivers remain intact with "impressive" traction across its China market and key courses like advanced English and Chess, Morgan Stanley said.

The firm maintained its overweight rating on Duolingo but lowered its its price target to $300 from $500.

Duolingo shares were 29% lower in recent trading.

Price: 183.40, Change: -76.63, Percent Change: -29.47