Shares of Duolingo (NASDAQ: DUOL) tumbled more than 12% in premarket trading on Tuesday, erasing gains from a first-quarter earnings beat. The language-learning platform reported revenue of $292 million, up 27% year-over-year, and net income of $43.5 million, but its outlook for full-year bookings and margins disappointed investors already wary of heavy spending on artificial intelligence.
The company's guidance for second-quarter bookings of $283.5 million and full-year bookings of $1.28 billion implies growth of just 5.8% and 10.5%, respectively. This cautious forecast, combined with management's admission that returns on new AI features may not materialize until 2027 or later, has intensified scrutiny of Duolingo's strategy.
CEO Luis von Ahn described the quarter as part of a broader transition, emphasizing that the company is focusing on user engagement over immediate revenue. "We've made speaking a core part of the learning experience," von Ahn said, noting that the company is "still early" in its 2026 strategy. However, investors are growing impatient with the long-term narrative.
Analysts at Barclays, led by Ross Sandler, characterize Duolingo's current position as a "limbo period" through the first half of 2026, while Morgan Stanley's team notes that daily active user growth has not yet accelerated despite months of prioritizing user acquisition. DAUs reached 56.5 million in the first quarter, up 21% year-over-year, but that pace has not satisfied the market.
The margin outlook is another sticking point. Duolingo reported a first-quarter gross margin of 73.0%, benefiting from lower per-unit AI costs. However, management expects margins to slip to around 69.0% by the fourth quarter as adoption of AI-driven features increases. Full-year adjusted EBITDA is projected at $310 million, representing a 25.7% margin, below some estimates.
Subscriptions remain the primary revenue driver, with segment revenue rising 31% to $250.9 million. Advertising revenue grew 15% to $20.6 million, while the Duolingo English Test saw a 6% decline to $11.3 million. The company ended the quarter with $1.1 billion in cash and has repurchased approximately $50.6 million worth of shares under a $400 million buyback program.
Competitive risks are also emerging, with Duolingo's filing highlighting potential threats from other language-learning apps and its reliance on third-party AI vendors. As the company pushes to expand both its free and paid user base, cost control remains a key challenge.
The bottom line: Duolingo is asking investors to view 2026 as a transitional year, but with bookings growth slowing and margins under pressure, patience is wearing thin. The market wants clearer evidence that AI investments will pay off—and soon.
