TLDR
- Duolingo stock dropped 20% in extended trading after Q4 bookings forecast of $329.5-$335.5 million fell short of $343.6 million estimate
- Language-learning company prioritizing teaching quality and user experience over near-term revenue maximization
- Third quarter revenue beat expectations at $271.7 million while paid user base expanded 34% to 11.5 million
- Annual revenue outlook raised to $1.028-$1.032 billion, up from prior $1.01-$1.02 billion guidance range
- China market performance strengthened through Luckin Coffee partnership, but CEO acknowledges geopolitical concerns
Duolingo stock experienced a sharp decline Wednesday evening after releasing fourth-quarter projections. The company forecast bookings ranging from $329.5 million to $335.5 million for the period.
Wall Street analysts anticipated bookings of $343.6 million. The miss triggered a 20% drop in share price during after-hours trading.
CEO Luis von Ahn outlined the reasoning behind softer guidance. The company is recalibrating its approach to balance growth with product quality.
“On a relative basis, we’re going to work more on teaching quality than we have in the recent past,” von Ahn explained to Reuters. This shift marks a change from the company’s recent emphasis on converting free users to paid plans.
Revenue Growth Continues Despite Strategic Pivot
The third quarter showed continued momentum in core business metrics. Revenue totaled $271.7 million, exceeding analyst projections of $260.3 million.
Duolingo has surpassed revenue expectations every quarter since becoming a public company in 2021. This consistent performance demonstrates the strength of its freemium business model.
Paid subscriptions increased 34% compared to the same period last year. The platform now has 11.5 million paying users across its various tiers.
Super Duolingo removes advertisements from the learning experience. Duolingo Max incorporates artificial intelligence features for personalized instruction.
The company has found success monetizing AI capabilities. “We are one of the few companies that has found a way to make profit off of AI,” von Ahn said.
Gross profit margin reached 72.5% in the quarter. This exceeded analyst estimates of 71.4% despite investments in AI technology.
Regional Performance and Growth Trajectory
The partnership with Luckin Coffee launched in July produced strong results in China. This collaboration expanded brand awareness throughout the Chinese market.
Von Ahn addressed the inherent risks of operating in the region. “China comes with a risk. There’s geopolitics, et cetera,” he noted.
Daily active user growth maintained a 30% year-over-year pace through September and October. Management anticipates some moderation in this growth rate during Q4.
The company increased its full-year revenue forecast based on Q3 performance. Updated guidance calls for revenue between $1.028 billion and $1.032 billion.
This represents an increase from the previous range of $1.01 billion to $1.02 billion. Analysts had expected $1.02 billion for the full year.
The company projects annual bookings near $1.2 billion. This assumes a 33% growth rate alongside a 29% adjusted EBITDA margin.
Strategic Direction Raises 2026 Questions
CFO Matthew Skaruppa acknowledged the strategy shift could have lasting effects. “Would we expect some of that to persist into 2026? Sure,” he said.
The emphasis on teaching quality over monetization may pressure financial results into next year. Management accepts this tradeoff in pursuit of long-term objectives.
Von Ahn clarified the Q4 forecast reflects deliberate choices rather than business weakness. “The change in Q4 is pretty much because of the shift to go to longer-term initiatives,” he explained.
Despite the near-term booking softness, management expressed confidence in future prospects. Company executives repeatedly described the market opportunity as “huge” during the earnings call.
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