Duolingo Slumps on Q3 User Growth Shortfall and Weak Guidance
Duolingo recently released its Q3 earnings, revealing mixed results that raised eyebrows among investors. The language-learning platform reported an adjusted EBITDA of $80 million, surpassing Wall Street’s forecast of $71.2 million. Additionally, Q3 sales reached $271.1 million, exceeding expectations of $260.3 million.
Key Financial Performance Metrics
Despite the positive earnings figures, daily active users fell short of projections. Duolingo reported 50.5 million daily active users, while analysts had anticipated 51.1 million. The company’s guidance for full-year sales is estimated to be between $1.028 billion and $1.032 billion, slightly better than expectations of $1.018 billion.
Impact of One-Time Tax Gain
Duolingo’s net income reflected a significant boost from a one-time tax-related gain of $223 million. This gain elevated the earnings per share to an impressive $5.95, far exceeding the expected $0.76 per share. However, this figure may not provide a clear picture of the company’s ongoing financial health.
Challenges to User Growth and Stock Performance
Duolingo has struggled to maintain the momentum it enjoyed earlier in the year. The company’s stock surged nearly 70% by May, but a controversial memo about their AI-first strategy led to a notable backlash. This memo proposed replacing some external contractors with AI technology, causing concern among users and investors alike.
As signs of slowing user activity emerged, the stock price began to decline. Although there was a temporary lift after the strong Q2 earnings report, the downward trend resumed shortly afterward. By the end of the trading session on Wednesday, Duolingo’s stock had fallen nearly 20% compared to the start of the year, marking its lowest level for 2025.
Investor Concerns
The primary concern for Wall Street revolves around Duolingo’s ability to restore its growth in daily active users. This metric is crucial as it reflects user engagement, which is a key indicator of the platform’s long-term success.
- Q3 adjusted EBITDA: $80 million
- Q3 sales: $271.1 million
- Daily active users: 50.5 million
- Full-year sales guidance: $1.028 billion – $1.032 billion
- One-time tax gain: $223 million impacting net income
- Earnings per share: $5.95
- Year-to-date stock performance: down nearly 20%
In summary, while Duolingo continues to perform well financially in certain areas, the decline in daily active users poses significant challenges moving forward. Investors and analysts will be closely monitoring the company’s strategies for reclaiming its growth trajectory.
