Duolingo Drops By A Third as It Trades $50M in Bookings for 100M Users

Core Insights - Duolingo's stock dropped approximately 24% after announcing a strategic shift prioritizing user growth over immediate monetization, leading to a sacrifice of $50 million in bookings [1] - The company aims to increase daily active users (DAUs) from 50 million to 100 million by 2028, despite a projected decline in EBITDA margins from 29.5% to 25% [1] - Analysts have raised Strong Buy ratings from 6 to 23, with an average price target indicating a potential upside of 109% from the current share price [1] Financial Performance - Duolingo reported Q4 2025 revenue of $282.9 million, a 35% year-over-year increase, surpassing estimates [1] - Q1 2026 bookings are projected at $301.5 million, below the consensus estimate of $329.7 million, while full-year bookings guidance is set between $1.27 billion and $1.30 billion, trailing the $1.39 billion estimate [1] - The adjusted EBITDA margin is expected to compress to approximately 25% in 2026 [1] Market Sentiment - Reddit sentiment regarding Duolingo has shifted from a neutral score of 54.6 to a bearish score of 25.2, reflecting investor concerns over the company's strategic direction [1] - Analysts predict an 18.5% annual decline in earnings over the next three years, despite an 18% revenue growth forecast [1] - DAU growth is expected to decelerate to around 20% in 2026, down from 36% [1] Strategic Initiatives - Duolingo is focusing on enhancing the free learner experience to stimulate word-of-mouth growth and support future user growth engines, including chess, math, and music [1] - The company has authorized a $400 million share repurchase program and holds $1.04 billion in cash with no debt [1] - The effectiveness of the user growth strategy in converting to revenue at scale will be evaluated against the 2028 target [1]