What Happened?
Shares of language-learning app Duolingo (NASDAQ: DUOL) fell 6.2% in the afternoon session after the stock continued to pullback following a significant rally the previous week driven by its strong Q2 2025 earnings report. The company had reported a 41% year-over-year increase in revenue and a 46% increase in subscription revenue, exceeding analyst expectations and leading to a substantial jump in the stock price. The rally was fueled by the company's raised full-year guidance and a positive investor reaction to its AI-driven growth strategy and expansion into new subjects like music and chess.
However, the current decline can be attributed to several factors. First, OpenAI's GPT-5 launch event featured a demonstration of the new model being used to create a simple French language app & give foreign language speaking assistance. This is clear competition and disintermediation. Stock action also appears to be partly attributable to profit taking, where investors sell their shares to lock in gains after a significant price increase.
The shares closed the day at $322.88, down 5.2% from previous close.
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What Is The Market Telling Us
Duolingo’s shares are extremely volatile and have had 33 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 8 days ago when the stock gained 3.3% on the news that markets rebounded following a sharp sell-off in the previous trading session as a weaker-than-expected U.S. jobs report fueled speculation that the Federal Reserve will cut interest rates in September. The July Nonfarm Payrolls (NFP) report revealed a significant slowdown in the labor market, with the economy adding only 73,000 jobs, well below the anticipated 110,000. Furthermore, data for May and June was revised downwards, indicating 250,000 fewer jobs were created than initially reported. This weaker economic data has led investors to increase their bets on a potential interest rate cut by the Federal Reserve. According to the CME FedWatch Tool, the probability of a rate cut in September has surged to over 80%. Lower interest rates are generally seen as a positive for growth-oriented stocks, as they can boost economic activity and increase the present value of future earnings, fueling broad-based rallies in sectors like technology.
Duolingo is down 1% since the beginning of the year, and at $322.50 per share, it is trading 40.4% below its 52-week high of $540.68 from May 2025. Investors who bought $1,000 worth of Duolingo’s shares at the IPO in July 2021 would now be looking at an investment worth $2,320.
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