Duolingo Faces Stock Drop Despite Beating Q4 Sales Estimates

Duolingo's stock plummeted 14.6% despite beating Q4 sales expectations. While Q4 revenue grew 39% year-over-year, earnings per share fell short of Wall Street's target. Investors should consider the mixed results before making buying decisions.

Date: 28-02-2025

AI Rating: 5

Duolingo's Q4 Performance Overview
Duolingo's stock saw a significant decline of 14.6% despite exceeding analyst expectations for Q4 sales. The company reported $209.6 million in sales, outperforming the forecast of $205.5 million, indicating strong revenue growth. However, a closer look reveals other metrics that investors should consider.

Revenue Growth
Duolingo achieved a remarkable 39% year-over-year revenue growth, which reflects positively on its sales strategy and market acceptance. For the full year, revenue growth of 41% to $748 million is quite substantial, and management's forecast of $970 million for 2025 showcases continued confidence in growth.

Earnings Analysis
Despite the strong revenue metrics, Duolingo's earnings showed a less impressive performance. The Q4 earnings rose only 15% year-over-year to $13.9 million, translating to an earnings per share of $0.28. This was significantly lower than the expected $1.09 per share, which is a significant disappointment for investors. The full-year earnings of $88.6 million, resulting in $1.79 per share, indicate a 450% increase year-over-year, slightly alleviating concerns regarding the quarterly results, but still raises caution among investors looking for continuity in performance.

Free Cash Flow
In terms of free cash flow (FCF), Duolingo generated $274.9 million in 2024, resulting in a growth rate exceeding 90% over 2023. This positive trend in FCF indicates a growing capacity for reinvestment and potential shareholder returns.

Investor Consideration
While Duolingo's better-than-expected revenue growth might have inspired some initial investor confidence, the mixed results, especially regarding earnings, could lead to further scrutiny. Stakeholders may need to take a long-term view as management predicts continued revenue growth into 2025. However, a high valuation of approximately 51.5 times trailing free cash flow could deter immediate investment interest unless earnings growth accelerates.

Stocks: DUOL