Duolingo (DUOL) plummeted over 22% in a massive sell-off following the release of its Q4 2025 earnings report.
While the company actually beat Wall Street’s expectations for both revenue and profit for the previous quarter, investors were spooked by a radical “pivot in strategy” that prioritizes free user growth over near-term profits and monetization.
The Numbers: A “Beat” Followed by a “Crash”
The market reaction was driven almost entirely by the company’s disappointing guidance for the rest of 2026:
| Metric | Reported (Q4 2025) | 2026 Guidance (The “Miss”) |
| Revenue | $282.9M (Beat estimates) | $1.20B–$1.22B (Below $1.26B estimate) |
| EPS | $0.84 (Beat estimates) | N/A |
| Daily Active Users (DAU) | 52.7 Million | ~20% growth (Down from 40%+ previously) |
| Bookings Growth | 33% (Full Year 2025) | 10%–12% (Sharp deceleration) |
Why Investors are Panicking
The 22% drop is the result of three major “red flags” that emerged during the earnings call:
1. The Strategy Pivot: “Free Over Fee”
CEO Luis von Ahn announced that in 2026, Duolingo will deliberately sacrifice short-term revenue to “fix” its free user experience.
- Reducing Friction: The company plans to remove several “paywalls” and “monetization friction points” that were previously used to push users toward the paid Super and Max tiers.
- The Cost: Duolingo estimates this pivot will cost the company more than $50 million in foregone bookings this year alone.
2. The “T-Mobile” & AI Threat
Earlier in February 2026, T-Mobile launched a network-integrated, real-time AI translation service. Investors are increasingly worried that “agentic AI” (tools that translate for you in real-time) is commoditizing the end goal of language learning, making a dedicated learning app less of a “must-have” for casual travelers.+1
3. Margin Compression
To stay competitive, Duolingo is moving premium AI features (like “Video Call”) down from the $30/month Max tier to the standard Super tier.
- The Result: The company’s EBITDA margin is projected to drop from nearly 30% to 25% in 2026 as operating costs for AI outpace subscription revenue growth.
The “Silver Lining” for Long-Term Bulls
Despite the stock crash, the company’s fundamentals remain objectively strong:
- Milestone Reached: Duolingo surpassed 50 million Daily Active Users and $1 billion in bookings for the first time in 2025.
- $400M Buyback: In a show of confidence, the Board authorized a $400 million share repurchase program to capitalize on the lower stock price.
- New Verticals: The company is doubling down on Math, Music, and Chess to expand its total addressable market beyond just language.
Market Context
The 22% drop has erased approximately $1.5 billion in market capitalization. As of today, the stock is trading near $92, a level not seen since early 2023. Analysts are split: some see this as a “falling knife” caused by AI disruption, while others (like those at Citigroup) argue the stock is now “deeply oversold” given its high gross margins.
