Duolingo Stock Fell 24% in January and Has Kept Plunging in February

Duolingo (NASDAQ: DUOL) stock has had a rough start to the year. The company's share price declined roughly 24% across January's trading. As of this writing, the stock has declined an additional 18% in February. Duolingo is now down 38% year to date.

Now, the stock has a major catalyst over the immediate horizon. Duolingo will publish its fourth-quarter results after the market closes on Feb. 26. With the company's next earnings report imminent, let's take a look at the catalysts that have pushed the education-services company's valuation lower.

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Investors aren't happy with Duolingo's strategic shifts

Duolingo last reported earnings on Nov. 5, and the stock saw substantial sell-offs following the report despite sales and profits coming in ahead of Wall Street's targets for the quarter. The valuation pullback stemmed from management's commentary and forward guidance.

For starters, the company guided for fourth-quarter bookings to come in between $329.5 million and $335.5 million -- significantly below the average analyst estimate's call for bookings of $344.1 million. Management noted that it had seen a deceleration for daily active user (DAU) growth in the fourth quarter, and that the company was shifting its strategies to promote the expansion of its user base. Along with the shift, the company indicated that it would ramp up investments in order to drive growth. With investments rising to support long-term initiatives and the potential for significantly less aggressive monetization moves to promote DAU growth, Duolingo's near-term earnings outlook could be significantly weaker than investors had previously anticipated.

Investors have been rotating out of software stocks

Software stocks have had a rough go across the first two months of 2026. Investors are worried that new artificial intelligence (AI) technologies could disrupt many players in the industry, and valuations for software-as-a-service (SaaS) stocks have faced stiff pullbacks.

While Duolingo is making moves to bolster its own AI software, concerns that alternative services from chatbots and other sources could eat into the company's growth were already a substantial source of valuation pressures last year. With the market broadly rerating SaaS stocks in a bearish direction in response to AI-related concerns, selling action on Duolingo stock has remained heavy.

In order to keep up with the pace of AI-driven innovation, Duolingo will likely need to ramp up its investments. In turn, this means that the company's earnings growth outlook has become significantly weaker. Trading at roughly 14 times this year's expected earnings, the stock could actually look quite cheap -- but rising costs could lead to softer-than-anticipated profits in 2026 and beyond.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Duolingo. The Motley Fool has a disclosure policy.