Investors bid down Duolingo stock on worries concerning margin hit from increased investment.
- Duolingo’s Q3 revenue climbed 41% YoY to $271.7 million, exceeding the $260.35-million consensus estimate.
- CEO Luis von Ahn said, “In Q3, we decided to shift the balance towards longer-term initiatives.”
- The stock has declined by about 20% this year.
Duolingo, Inc. (DUOL) stock tumbled over 21% in the early premarket session on Thursday, despite the quarterly beat, as management commentary about increased investment to boost user growth dampened sentiment.
If the premarket session’s losses carry over into the regular session, Duolingo’s stock is on track to experience its worst day ever. The company went public in June 2021.
Duolingo’s Q3 Earnings Snapshot
Duolingo’s earnings per share (EPS) for the third quarter of fiscal year 2025 rose sharply to $5.95 from the year-ago’s $0.49, blowing well past the Fiscal.ai-compiled consensus of $0.76 per share.
Revenue climbed 41% year over year (YoY) to $271.7 million versus the $260.35-million consensus estimate. Subscription bookings and total bookings rose 36% and 33%, respectively.
The Pittsburgh, Pennsylvania-based company had 135.3 million monthly active users (MAU) and 50.5 million daily active users (DAU) at the end of the third quarter. Paid subscribers rose 33%.
The company said higher generative artificial intelligence (Gen AI) and hosting costs dragged down its gross margin by 40 basis points.
In a letter to shareholders, CEO Luis von Ahn said, “In Q3, we decided to shift the balance towards longer-term initiatives. In particular, we’re investing proportionally more in teaching better, and we’re prioritizing user growth over monetization in the A/B tests that get launched.”
Duolingo’s Outlook
The company guided fourth-quarter revenue between $273 million and $277 million, based on bookings of $329.5 million to $335.5 million. It expects full-year revenue to be between $1.028 billion and $1.032 billion, and bookings to be between $1.15 billion and $1.16 billion.
Analysts, on average, estimate quarterly revenue of $274.40 million and full-year revenue of $1.018 billion.
What Retail Feels About Duolingo’s Stock After Q3 Print
Duolingo stock was among the top five trending equity tickers on Stocktwits as of early Thursday. Retail sentiment toward Duolingo stock turned ‘extremely bullish’ from ‘bullish’ a day ago, and the message volume spiked to ‘extremely high’ levels.
A bullish user suggested buying some extra shares, capitalizing on the stock’s weakness.
Another user lauded the company’s strategy of not teaching language alone but also chess.
Some users attributed the stock plunge to not-so-great fourth-quarter guidance.
Duolingo stock is down approximately 20% this year, while the average analyst’s price target suggests nearly a 70% upside from current levels, according to Koyfin.
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