Stock price rose too much? Financial report exceeded expectations, outlook flawed, Duolingo plunges

After announcing second-quarter performance guidance below expectations, Duolingo's stock plummeted more than 20% after hours.

On Wednesday after the U.S. stock market closed, language learning app Duolingo released its first-quarter report for the period ending March 31, 2024. The financial report showed that the company's first-quarter revenue increased by 45% year-on-year to $167.6 million, surpassing the expected $165.6 million; net profit reached $26.956 million, turning from a loss to a profit, with earnings per share of 57 cents, higher than the expected 27 cents.

The report indicated that as the largest revenue item, Duolingo's first-quarter subscription service revenue increased by 41% year-on-year to $197.5 million, with subscription volume growing by 47%, paid users increasing by 54% to 7.4 million, and daily active users rising by 54% to 31.4 million.

In terms of performance guidance, Duolingo raised its full-year sales and subscription revenue expectations in the report, but its second-quarter performance guidance fell below expectations, leading to a post-market plunge of about 21% in the company's stock price.

Specifically, Duolingo expects sales revenue for this year to be in the range of $726.5 million to $735.5 million, with full-year subscription service revenue expected to be in the range of $808.5 million to $817.5 million, both of which have been revised upwards from previous expectations.

However, for the second quarter, Duolingo expects sales revenue to be in the range of $175 million to $177.5 million, and subscription service revenue to be in the range of $179 million to $181.5 million, both of which are below expectations.

Company CEO Luis von Ahn stated in a declaration that the company is still in the early stages of commercialization and is exploring various ways to increase subscription volume. He specifically mentioned the promotion of Duolingo Max, the premium subscription service, and improvements to the family plan, giving the company confidence in raising its full-year guidance.

Furthermore, von Ahn also stated in a letter to shareholders:

"We believe that due to the attractiveness of word-of-mouth, our ability to increase engagement through continuous product improvements, international growth opportunities, and creative marketing, our user growth will remain strong."