Duolingo's own A/B tests are the witness in a securities suit over its growth story
A Michigan police and fire pension fund alleges Duolingo's own A/B tests, experiments comparing versions of the app on different users, showed friction and fast AI content shrinking daily active user growth while executives called it sustainable. The DAU rate has since turned back up, and that recovery is the part no court will decide.
Vincent Jiang · 3 min read
The charge: growth sold as sustainable
Robbins Geller announced the class action on October 9 for buyers of Duolingo−0.80% — Duolingo, down 0.80 percent today Class A stock between May 2, 2025, and February 26, 2026; lead plaintiff motions, the deadline for class members to ask the court to run the case, close on December 7 91. The plaintiff, the City of Dearborn Heights police and fire retirement system, names chief executive Luis von Ahn and former chief financial officer Matthew Skaruppa, and no court has ruled on any of it 2.
At about $150 the shares still trade near 44 times next-year earnings on a $7 billion market value, so the growth story, not the lawsuit, is what holders own 7.
Energy drained when users got answers right
In April 2025 Duolingo replaced Hearts, which charged wrong answers, with Energy, which drains on correct ones 2. The complaint says the goal was "to create friction for free users to try and force them into becoming paid subscribers", while that quarter's shareholder letter called Energy "a carrot, not a stick" 2.
More ads, pricier upsells and quickly generated AI lessons came next, and the company ran "thousands" of A/B tests, experiments comparing versions of app features on different users, which the complaint says showed the friction suppressing user growth 2. Per the complaint, von Ahn put it plainly on February 26, 2026: "the quickest way to increase monetization was basically by adding friction" 2.
Three disclosures, three drops
The deceleration came clean in steps. DAU growth fell from 49% in Q1 2025 to 36% by Q3, and the stock fell 25% to $193.74 on November 5, 2025, as management reversed the push 18. On January 12, 2026 Skaruppa's resignation arrived with preliminary Q4 growth of about 30%, and the stock fell 8.5% to $161.74 12.
Board member Gillian Munson took the CFO seat on February 23, and the filing says neither officer left over disagreements 5. On February 26 Duolingo guided 2026 to about 20% DAU growth and 10–12% bookings growth, against the roughly 20% bookings analysts expected, and the stock fell 14% to close at $101 12.
Three disclosures, three single-session drops of 9 to 25 percent
- Close before disclosure
- Close after disclosure
Data
| Close before disclosure | Close after disclosure | Change | |
|---|---|---|---|
| Nov 5, 2025 | $258.32 | $193.74 | -25.0% |
| Jan 12, 2026 | $176.76 | $161.74 | -8.5% |
| Feb 26, 2026 | $117.44 | $101.00 | -14.0% |
DAU growth halved in a year, then stopped falling at 23%
- DAU growth (% YoY)
- Estimate
Data
| DAU growth (% YoY) | |
|---|---|
| Q1 '25 | 49% |
| Q2 '25 | 40% |
| Q3 '25 | 36% |
| Q4 '25 | 30% |
| Q1 '26 (estimate) | 21% |
| Q2 '26 | 23% |
The repair is showing in the user number
Since the pivot, the funnel has started growing again on the company's own numbers. Q2 2026 DAU growth was 23%, two points above Q1 and ahead of plan, helped by product changes, marketing and a one-time June event that revived streaks for 15.4 million learners 3. Duolingo now expects DAU growth above 20% for the rest of the year, has raised its full-year adjusted EBITDA margin outlook to about 26.5%, and aims monetization work at "ways to increase revenue without adding friction to free users" 3.
Revenue is the cost: growth has slowed from 41% to 18% year over year since mid-2025 6. 2025 still finished above 50 million DAUs and $1 billion in bookings, with a $400 million buyback authorized 4.
What the court cannot settle
The suit has to prove what executives knew: that the test results showed the harm while the public line called growth sustainable 2. At around $150, between the $101 February close and the $344 high, that bet rests on the recovery outliving the one-time streak fix 7.
Lead plaintiff motions close on December 7; the next DAU print arrives well before any ruling 13.
Deepdive
AI-generated from this story and its cited sources. Not investment advice.
