The combination of a slowdown in user growth - expected after a period of phenomenal expansion - and the AI tidal wave has abruptly changed the game for the gamified learning specialist.
Unless, as so often, this is simply investors coming back to their senses after a bout of unreasonable speculative euphoria that had pushed the company's valuation to unsustainable multiples.
Once the reins are loosened and the excesses have played out, a swing - in one direction or the other - is inevitable, as we described as recently as this week with two other examples here and there.
In contrast to many other software publishers, Duolingo is comfortably profitable, with cash profit - or free cash flow - before tax of $196m in 2025. Last year, that figure came in at $111m.
Adjusted for substantial excess cash and deferred revenue, recorded on the liability side under accounting standards, Duolingo is now valued at around fifteen times its pre-tax cash profit.
In its latest earnings call, founder and chief executive Luis von Ahn Arellano said he was not seeing any erosion in its user base caused by the growing popularity of AI.
One might be inclined to believe him, even if the grumblers will rightly point out that the management team has shown very little eagerness to buy shares on the market since their company's valuation collapsed...
