Down 80%, Is Duolingo Stock a Buy Now?

Shares of Duolingo (NASDAQ: DUOL) have fallen more than 80% from their height, a sharp reversal for one of the market's former high-growth favorites. After peaking above $500, the stock now trades closer to $100. That kind of drop naturally raises a key question: Is this a buying opportunity or a warning sign?

To answer that, you need to understand why the stock fell and what the company is doing now to improve the situation.

Image source: Getty Images.

Why did Duolingo's stock fall?

Let's start by saying that the stock sell-off was not a result of a collapse in the business. The company delivered solid numbers in 2025. Revenue grew roughly 39%, annual bookings surpassed $1 billion, and net profit more than tripled from $89 million to $414 million. The platform now serves more than 50 million daily active users, a remarkable feat for a company running an app!

So, the issue is not performance. And while it's not easy to pinpoint a specific reason, the decline in user growth is likely the main culprit. To put it into perspective, daily active users' growth has slowed to around 30% in Q4, down from 40%-plus in earlier periods. Management expects that growth will slow further to about 20% in 2026.

The company pointed to its own actions -- including increased monetization efforts such as ads and subscription upsells -- as factors that likely weighed on user growth. In other words, Duolingo is optimized for revenue -- and it came at a cost. Now, management is reversing course to address the problem.

A strategic reset toward growth

For 2026, Duolingo is explicitly prioritizing user growth and the free learner experience, even if it means sacrificing near-term profitability. The company is targeting roughly 20% DAU growth, aiming to reach 100 million daily users by 2028. To get there, it plans to:

• Reduce friction in the free experience
• Expand access to features to lower-tier and free subscribers, including artificial intelligence (AI) tools
• Increase product investment

Not surprisingly, Duolingo guided bookings growth of just 10%-12% for 2026, signaling a clear trade-off between user growth and monetization. Management is attempting to reaccelerate the top of the funnel after pushing monetization too far. The success of this shift will depend on whether improving the user experience can translate into stronger engagement -- and ultimately, higher conversion over time.

The bull and bear case

There are upsides and risks of buying the stock today. Let's start with the bullish view.

One thing is that Duolingo's core business model remains intact. It operates a freemium platform where engagement drives monetization over time. If the current strategy works, a larger, more engaged user base could lead to higher subscriber conversion, stronger retention, and potentially expanded customer lifetime value.

Besides, the ongoing use of AI could further enhance the platform by improving personalisation and learning outcomes while reducing content costs. For instance, thanks to features like Video Call with Lily, an AI agent, learners can practice their speaking skills in a safe and comfortable environment.

On the other hand, the bears are concerned about whether the company can execute effectively to reach its 100 million daily active-user target. If reinvestment fails to drive meaningful user growth, Duolingo could end up with slower revenue expansion, compressing margins, and limited improvement in long-term economics.

On top of that, there is also a broader question: As AI tools become more capable, will users rely less on structured learning platforms like Duolingo and general AI tools like ChatGPT? In short, if engagement weakens or monetization stalls, the stock may not return to its premium valuation.

What does it mean for investors?

Duolingo is a business in transition. The company is correcting course -- shifting from monetization back to growth -- and betting that a larger user base will drive stronger economics over time.

For investors, this isn't just a "buy the dip" moment. It's a bet on execution. If Duolingo can reaccelerate growth and rebuild momentum, the current pullback could be an opportunity. If not, the current decline may be less a dip -- and more a repricing.

Investors must decide whether the stock belongs to the former or the latter.

Lawrence Nga 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.