Shares of Duolingo (DUOL) plummeted 27% following the release of guidance that underwhelmed investors, signaling a strategic pivot towards prioritizing user growth over immediate revenue generation. The language learning platform’s revised outlook has sparked concern about its near-term financial performance, despite strong subscriber additions.
“We have made a slight shift over the last quarter in how we invest, and we’re investing a lot more in long-term things because we see that as such a big opportunity ahead of us,” CEO and co-founder Luis von Ahn stated, acknowledging the evolving investment strategy during an interview.
The company’s forecast for the current quarter projects bookings between $329.5 million and $335.5 million, a figure that falls short of the FactSet consensus estimate of $344.3 million. Adjusted EBITDA is anticipated to be in the range of $75.4 million to $78.8 million, also below the expected $80.5 million.
While Duolingo reported a robust increase in paid subscribers to 11.5 million, exceeding the StreetAccount estimate of 11.38 million, its daily and monthly active user numbers missed expectations, coming in at 50.5 million and 135.3 million, respectively. StreetAccount analysts had projected 51.2 million daily active users and 137.4 million monthly active users.
Duolingo’s recent embrace of artificial intelligence (AI) has been central to its growth strategy. The company has introduced AI-powered features, including interactive video calls, aimed at attracting more paying subscribers. Furthermore, leveraging AI has enabled Duolingo to accelerate the rollout of new language courses.
“There are experiments that put monetization and user growth at odds, and part of my job has been, always, arbitrating between these two,” von Ahn explained, highlighting the ongoing balancing act between short-term monetization efforts and long-term user acquisition.
According to Luis von Ahn, the company is heavily focused on user growth.
Despite the disappointing guidance, Duolingo’s overall financial performance for the quarter demonstrated strength. Revenues surged by 41% to $272 million, surpassing the LSEG analyst estimate of $260 million. Total bookings also exhibited impressive growth, jumping 33% year-over-year to approximately $282 million, exceeding market expectations.
Net income soared to $292.2 million, or $5.95 per share, a substantial increase from $23.4 million, or 49 cents per share, in the same period last year. Notably, the company attributed a significant portion of this increase to a one-time tax income benefit of $222.7 million.
Looking ahead, Duolingo raised its full-year revenue guidance to a range of $1.0275 billion to $1.0315 billion, up from the previous forecast of $1.01 billion to $1.02 billion. The revised guidance reflects confidence in the long-term growth trajectory of the platform, despite the short-term concerns regarding user growth investments.
The market’s reaction suggests a heightened sensitivity to profitability expectations in the current economic climate. While Duolingo’s user growth strategy may pay off in the long run, investors are currently focused on the near-term impact on the company’s bottom line. The company’s ability to effectively monetize its growing user base will be critical in reassuring investors and driving future stock performance.
Duolingo one day stock chart.
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