Duolingo’s stock is plunging and the company is blaming its slower growth on less “unhinged” posting
The company intends to spend more on educational app technology, structure its product so it’s less focused on extracting payments, and pay more attention to boosting social media engagement.
Duolingo plunged in early trading, putting the shares on track for their worst-ever day, after the company posted weaker-than-expected user growth in Wednesday’s Q3 results and simultaneously signaled that it was deprioritizing monetization over the short term in an effort to revive its growth numbers.
Given that “prioritizing monetization” is essentially Wall Street’s unofficial slogan, the stock market tumble is perhaps understandable.
But what does it actually mean? Basically, it means the decisions the company makes in structuring how the app works will be biased toward keeping new users on the app, rather then steering them to pay up to subscribe right now or monetizing their eyeballs through ads. (While those app roadblocks do pull in cash, they also increase the number of people who quit the app out of frustration.)
Why is the company doing this? CEO Luis von Ahn explained on the post-earnings conference call. (We’ve lightly edited it for clarity):
“We see a huge opportunity. Over the next few years, education and the way people learn, they’re going to change fundamentally, and it’s because of AI... We have line of sight now to create an app that can teach really, really well. Much better than anything that humanity has seen before, as good as a human tutor but also more engaging...
We just posted 135 million monthly active users. If we’re able to do an app that teaches much, much better than we have now, we will be talking about billions of users that we have. And that’s what we want to shoot for here. So, this is why we are investing in the long term...
The goal here is — because the opportunity is so large — the goal here is to be growing DAUs fast for a very long time.”
In a statement to Sherwood News, the company reiterated those points:
“The reason we’re taking the long view is because we see an opportunity to grow fast for a long period of time and make an app that can teach better than anything we’ve seen before. The financial impact from this reprioritization is relatively small and we believe it’s worth it in the near term because of the huge opportunity ahead.”
Reinvigorating user growth could be tough, however.
Duolingo intends to redouble its efforts on creating “unhinged” social media marketing content — which often features a stalker-like version of its ubiquitous green owl that’s fixated on getting you to do your language lessons.
Such content was key to the way the company built its user base over the last few years. But the company decided to take a break on it as it dealt with a separate social media backlash on LinkedIn — more below — as Von Ahn explained on the conference call.
“We paused all the unhinged posts in our social media for a bit because we were listening to our community and trying to build brand love. And when we don’t post unhinged things, that basically our posts were much less likely to go viral, and that did have an impact on [daily active user] growth.
The good news is that, over the last few weeks, we have started the unhinged posts again in our social media accounts. And while it hasn’t gotten all the way to the peak where it was, we’ve seen a lot of recovery. So, that’s really starting to show up. And we do expect that to affect [daily active users] positively.”
Judging from the reaction in the shares Thursday, people seem skeptical a stampede of users is on its way.
After all, the company said it was prioritizing user growth in the just-reported Q3, but user growth actually missed Wall Street expectations, arriving at 35.8%, lower than the 40% level Duolingo saw in Q2.
And Wyatt Swanson, an analyst who covers the stock for brokerage firm DA Davidson, told us that it’s far from assured that the company will be able to recapture the social media magic that previously made its unhinged posts viral sensations on TikTok and Instagram.
The company decided to pause such posts in the aftermath of a social media backlash to a clunky LinkedIn post laying out the company’s AI strategy. (It implied it would use AI to replace human contractors.)
Since that interruption in content, it seems like Duolingo’s owl is having trouble reclaiming a prominent place in the algorithms, which will make it much tougher to go viral and boost user growth, Swanson said.
“The setup really hasn’t improved that much,” he said of the company’s effort to refocus on growth. “The stock reflects that they’re just in a really weird spot.”
