Shares of Duolingo (DUOL +3.57%) took a dive like a wounded green owl on Thursday. The language-learning expert posted strong first-quarter results on Wednesday evening, but some investors wanted a stronger user-growth story, and others simply cashed in some paper profits.
The stock fell as much as 21.4% just after the opening bell today, firming up at a 17% price drop around 2 p.m. ET.
Duolingo's blowout results
In the first quarter of 2024, Duolingo's revenue jumped 44.9% year over year to $167.6 million. On the bottom line, the year-ago period's net loss of $0.06 per diluted share swung to $0.57 of positive earnings per share.
Your average Wall Street analyst would have settled for earnings of roughly $0.27 per share on sales near $165.6 million. Moreover, management raised its full-year guidance for revenue, subscription-style order bookings, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
A statement from the company said, "We're excited about our near-term opportunities, which remain consistent: user growth, optimized subscription conversion and tiers, and family plan."
Why the stock tumbled anyway
So Duolingo's business is doing great, but the shares still crashed. There are two reasons for this confusing state of affairs:
- The number of daily active users rose 54% year over year, in line with the growth in paid subscribers. But those impressive growth rates are down from 65% and 57%, respectively, in the company's last quarterly report. It's enough to drive a nervous investor distracted, suggesting an end to the company's exciting hypergrowth phase.
- The stock roared into this report with a full head of steam. Duolingo's share price soared 86% higher in the 52 weeks leading up to Wednesday's closing bell, including a 40% surge from a dip in February. It's no surprise to see investors take some profits off the table after a market-stomping run like that.
I don't think that Duolingo's days of high-octane growth are over, though. The growth in users has wobbled both up and down over the last year, but always in that sweet pocket between 55% and 65%. The stock isn't cheap at 209 times earnings and 57 times cash flows, but positive profit metrics are relatively rare for companies in this stage of explosive business growth -- and I'm still a buyer of Duolingo stock.
Now excuse me, I think it's time for a quick Spanish lesson. ¡Hasta luego, amigo!
