What Happened?
Shares of language-learning app Duolingo (NASDAQ: DUOL) fell 27.4% in the morning session after the company's weaker-than-expected profit forecast for the fourth quarter overshadowed its strong third-quarter results. The language-learning app posted impressive third-quarter numbers, with revenue of $271.7 million and earnings of $5.95 per share, significantly beating Wall Street's estimates. However, the positive results were undone by the company's outlook. While Duolingo's fourth-quarter revenue guidance of around $275 million was in line with expectations, its forecast for EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), a key measure of profitability, fell short of analyst projections. This disappointing profit outlook signaled potential margin pressure ahead, leading investors to sell off the stock despite the current quarter's success.
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What Is The Market Telling Us
Duolingo’s shares are extremely volatile and have had 39 moves greater than 5% over the last year. But moves this big are rare even for Duolingo and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 17 days ago when the stock dropped 2.7% on the news that the company's services were disrupted by a major Amazon Web Services (AWS) outage and investment bank UBS lowered its price target on the stock. The widespread AWS outage impacted numerous digital services, including Snapchat, Canva, and OpenAI, after the cloud provider confirmed it was experiencing “increased error rates” at its facilities in Northern Virginia. This operational disruption coincided with a negative assessment from UBS. The bank cut its price target on Duolingo to $450 from $500, citing concerns about slowing user growth. UBS trimmed its forecasts for daily active user growth for the upcoming quarters and for the full fiscal year 2026. Adding to the pressure, reports noted increased insider selling, which raised concerns about investor confidence.
Duolingo is down 43.5% since the beginning of the year, and at $184.18 per share, it is trading 65.9% below its 52-week high of $540.68 from May 2025. Investors who bought $1,000 worth of Duolingo’s shares at the IPO in July 2021 would now be looking at an investment worth $1,325.
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