Duolingo Earnings Crush Estimates. Why the Stock Is Down 28%.

Core Insights - Duolingo reported a significant revenue growth of over 40% and an adjusted EBITDA of $80 million for Q3, surpassing analyst expectations, yet the stock plummeted by 28% due to disappointing Q4 guidance [3][4][6] - The company’s Q4 EBITDA forecast of $75.4 million to $78.8 million fell short of the anticipated $80.4 million, reflecting a strategic shift towards enhancing user experience and long-term growth over immediate monetization [5][8] Financial Performance - Duolingo achieved a record revenue of $271.7 million in Q3, marking a 41% increase year-over-year, with adjusted EBITDA rising 68% from the previous year [4][8] - The stock experienced a dramatic decline, dropping 28% to $187.57, and has fallen 65% from its all-time high on May 14 [6] Strategic Shift - The company is focusing on user experience and long-term growth, which analysts believe may delay financial benefits, as evidenced by a slowdown in daily active user growth from 40% in Q2 to 36% in Q3 [5][7] - Analysts have mixed views on this strategy; while some see it as a potential misstep, others believe it reflects ambitious growth plans [9][10] Analyst Ratings - D.A. Davidson maintained a Neutral rating but reduced the target price from $300 to $220, citing concerns over the effectiveness of past product initiatives [7][9] - Raymond James reiterated a Market Perform rating, acknowledging the uncertainty but also recognizing ongoing growth initiatives [10]