Duolingo plummets 22% due to weak earnings guidance and slowing user growth

Investing.com - Duolingo Inc (NASDAQ:DUOL) reported fourth-quarter earnings that exceeded analyst expectations, but the company’s guidance for 2026 was disappointing, leading to a 22.9% drop in stock price after hours on Thursday. The decline was due to the company’s strategic shift to prioritize user growth over short-term profitability.

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The language learning platform announced a fourth-quarter adjusted EPS of $0.84, beating analyst estimates of $0.83. Revenue grew 35% year-over-year to $282.9 million, surpassing the market consensus of $275.74 million. However, the outlook for 2026 fell well below Wall Street expectations, with first-quarter revenue guidance of $288.5 million, below the expected $291.8 million, and full-year revenue guidance of $1.2-1.22 billion, below the anticipated $1.26 billion. The midpoint of $1.21 billion indicates about 17% growth, significantly lower than analyst forecasts.

In Q4, daily active users increased 30% year-over-year to 52.7 million, and paid subscriptions grew 28% to 12.2 million. However, CEO Luis von Ahn acknowledged that daily active user growth slowed throughout 2025, with an expected 20% increase in 2026, below the previous growth rate of over 40%.

“We finished 2025 on a strong note, with daily active users exceeding 50 million and bookings surpassing $1 billion for the first time,” von Ahn said. “In 2026, we will intentionally prioritize user growth and better teaching. We will focus on improving the experience for free learners to drive word-of-mouth, and support our next user growth engines (such as chess, math, and music), even if this slows short-term financial growth.”

The company expects bookings to grow about 11% in 2026, compared to nearly 20% growth under previous strategies. Adjusted EBITDA margin is projected to decline from 29.5% in 2025 to around 25%, as Duolingo shifts video call features from the premium Max plan to the standard Super Duolingo subscription and reduces barriers for free users. The company estimates that over $50 million in bookings investments have been sacrificed to improve free user experience.

Duolingo’s board approved a $400 million share repurchase plan. The company held $1.04 billion in cash at the end of this quarter and generated $93.7 million in free cash flow.

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