What Happened?
Shares of language-learning app Duolingo (NASDAQ:DUOL) jumped 3.2% in the afternoon session after investors appeared to focus on the company's long-term growth prospects and positive analyst ratings, following a significant price drop in previous months.
This move occurred after the stock had fallen substantially from its peak, despite the company reporting strong third-quarter results. In that report, Duolingo revealed a 41% rise in revenue and a 36% increase in daily active users. However, the stock had previously declined due to guidance for slower bookings. More recently, sentiment from market analysts pointed to potential upside. For example, the average price target among a group of 17 analysts suggested a significant increase from its recent trading price, with a consensus "Moderate Buy" rating on the shares.
After the initial pop the shares cooled down to $205.99, up 3.1% from previous close.
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What Is The Market Telling Us
Duolingo’s shares are extremely volatile and have had 42 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was about 1 month ago when the stock dropped 27.4% on the news that 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.
Duolingo is down 36.8% since the beginning of the year, and at $205.99 per share, it is trading 61.9% 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 $1,482.
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