Duolingo Stock Drop Shows Why Investors Are Questioning Its AI Learning Bet

PITTSBURGH, May 5, 2026, 09:08 EDT

Duolingo shares tumbled more than 12% in premarket trading Tuesday. The language app beat first-quarter estimates, yet its full-year bookings and margin guidance missed the mark. That was enough to rattle investors, especially with ongoing questions swirling around Duolingo’s AI spending and user growth.

This isn’t about last quarter’s figures. The focus is on whether Duolingo can afford to keep fueling user growth through 2026—pretty much asking investors to sit tight for profits the company promises will show up eventually. Shares dropped 11% in volatile after-hours trading late Monday, following a Reuters report that the Pittsburgh firm is prioritizing engagement over quick revenue gains.

Bookings are front and center. Duolingo’s second-quarter bookings guidance lands at $283.5 million; for the full year, $1.28 billion is on the table. That pencils out to 5.8% Q2 growth and 10.5% for the year. Bookings cover up-front payments from subscriptions, ads, English tests, and in-app purchases—though a chunk gets booked gradually as subscription revenue.

First-quarter numbers easily topped last year’s. Revenue surged 27% to $292.0 million. Daily active users reached 56.5 million, a 21% increase, with paid subscribers also rising 21% to 12.5 million. Net income climbed to $43.5 million. Adjusted EBITDA—excluding interest, taxes, depreciation, amortization, and some other items—came in at $83.4 million.

Duolingo CEO and co-founder Luis von Ahn called the quarter just one piece of a wider shift. “We’ve made speaking a core part of the learning experience,” von Ahn said. He added the company remains “still early” in its 2026 strategy. Duolingo, Inc.

The product now comes with more AI features, plus broader speaking tools. CFO Gillian Munson called these “long-term bets” in comments to Reuters, and made it clear that any payoffs probably won’t show up until “2027 and beyond.” Reuters

Investors are looking for something concrete, but so far, nothing. Barclays, led by Ross Sandler, calls Duolingo’s situation a “limbo period” that could last until mid-2026. Morgan Stanley flagged another concern: after six months focused squarely on user growth, daily active user figures remain lackluster. Investing.com

Subscriptions continue to make up the bulk of Duolingo’s business, pushing revenue up 31% to $250.9 million this quarter. Advertising chipped in $20.6 million, marking a 15% gain. Duolingo English Test pulled back, dropping 6% to $11.3 million, the latest filing shows.

AI is putting pressure on margins. Duolingo logged a 73.0% gross margin in the first quarter, helped by cheaper AI per unit. Still, management expects that to dip to roughly 69.0% by Q4 as AI-powered features pick up steam. For the year, adjusted EBITDA is forecast at $310 million, or a 25.7% margin.

Duolingo finished the quarter sitting on $1.1 billion in cash and cash equivalents. As of May 1, the company had bought back roughly 514,000 shares, spending about $50.6 million under its $400 million buyback authorization.

Babbel and Busuu are hardly the only rivals in the mix. Duolingo’s filing points to a crowded online language-learning field, and it specifically calls out its reliance on outside AI vendors—an issue that looms larger as the company tries to ramp up both free and paid users while keeping a lid on expenses.

Here’s the gist: if Duolingo can’t ramp up daily user growth or prevent AI costs from eating into efficiency gains, it could be staring at slower bookings growth and tighter margins. Right now, the company is pointing investors to 2026—not as business as usual, but as a year of transition.

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6 August 2026

Duolingo Shares Fall Despite Faster User Growth Than Bookings in Q2