Duolingo stock fell 12% despite record profitability and revenue growth, here’s why

Duolingo, the popular language learning app, is facing its slowest rate of subscriber additions since 2022, which has put the company at risk of falling from its high ranking in the Obsidian League.

Despite surpassing market expectations in daily average use for the quarter ending in March, the app’s shares plummeted by 12% overnight, underscoring investor concerns about its growth trajectory.

Duolingo has steady growth but slowing momentum

Daily active users (DAU) increased by 55% reaching 31.4 million, a continuation of the app’s strong performance during the pandemic when many people took up new languages during lockdowns. However, Duolingo’s Chief Executive Luis von Ahn expressed a cautious outlook.

“We had 10 quarters of accelerating DAU growth and we kept saying almost every quarter: like, this can’t happen forever”.

This acknowledgment of inevitable slowdowns may have contributed to investor unease despite the overall positive numbers.

Record profits and revenue growth

Contrasting the slowdown in growth, Duolingo reported a robust financial performance for the quarter.

The company’s net income stood at $27 million, a significant improvement from a net loss of $2.6 million in the same quarter of the previous year.

Revenue also saw a substantial increase, up 45% to $167 million.

This financial success was driven partly by innovations in the app and new pricing strategies, including higher-priced packages for families and an unlimited usage option called Max, which now accounts for 10% of active users.

Earnings outlook and investor reaction

Despite the strong financial outcomes and an upward revision of the revenue forecast for the year to $735.5 million from $729.5 million, the focus for investors remained on the slowing pace of new user additions.

This concern is reflected in the expected opening price for Duolingo shares, down 12% at $244.64.

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