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Gamification and artificial intelligence are “a winning combination” for language-learning app maker Duolingo , according to Bank of America. Analyst Nat Schindler, who reiterated his buy rating on the company, boosted his price target on Duolingo shares to $160 from $105. Shares closed at $136.63 on Wednesday, and the firm anticipates shares could rise about 17%. The analyst highlighted a new AI-driven paid subscription, Duolingo Max, that could boost the company’s growth prospects, according to a Wednesday research note. The service includes new AI features powered by GPT-4, including a role-play function to allow users to practice conversations. “We believe that this higher-priced subscription will help create better monetization potential and AI could also help reduce content generation costs over time as well,” Schindler wrote in a Wednesday note. “We believe the company is still in the early stages of monetization and initiatives such [as] regionalized pricing, more custom content will drive better paid conversion and grow [long-term value]/user[s],” the analyst added. “We think Duolingo investors will look favorably at the large addressable market, differentiated and extensible platform, and strong future margin growth potential … which warrant a significant premium to peer group comps,” Schindler said. To be sure, the analyst noted potential risks to his valuation include competition from peers adopting new technology or formatting. He noted that frequent regulatory changes regarding consumer data protection and privacy could limit how much Duolingo can generate differentiated insights. Further, the company’s reliance upon third-parties for distribution and revenue collection may also present complications, since their operating rules are not within Duolingo’s control, the analyst said. Nonetheless, Schindler believes user metrics in the first quarter are “likely to remain strong” and anticipates a strong margin outlook for the year. Shares are up 92% in 2023. —CNBC’s Michael Bloom contributed to this report.
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