Pension fund accuses Duolingo of burying user-growth crisis

A municipal pension fund accuses Duolingo of burying bad news about its slowing user growth.

The City of Dearborn Heights Act 345 Police & Fire Retirement System filed a securities class action on October 7, 2026, alleging the language-learning company and two of its top executives hid how badly an aggressive push to squeeze more money from users was hurting the platform's most closely watched number - daily active users.

The complaint, filed in the US District Court for the Western District of Pennsylvania, names Duolingo, its CEO and co-founder Luis von Ahn, and its former CFO Matthew Skaruppa as defendants. It brings claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. The class period runs from May 2, 2025 through February 26, 2026.

At the start of that period, the filing says, Duolingo had more than 46 million daily active users on its "freemium" model, with about 10% paying for subscriptions. The complaint alleges the company flooded free users with unskippable ads, pushed paying subscribers toward pricier tiers, and replaced human-created lessons with rapidly produced AI content of lower quality - all while telling investors the business was delivering "sustainable growth."

One feature is central to the complaint. In April 2025, Duolingo replaced its Hearts system - where users lost a heart for wrong answers - with a new feature called Energy. Under the old system, free users who performed well could keep using the app for extended periods. Under Energy, the complaint alleges, users lost energy with each correct answer. The better someone did, the faster their session ran out. The complaint alleges the "real, undisclosed goal was to create friction for free users to try and force them into becoming paid subscribers."

In its second-quarter 2025 shareholder letter, the complaint says, the company described Energy as "a carrot, not a stick" that was creating "a more motivating and gamified experience." On the earnings call that quarter, according to the complaint, the CEO said Energy was increasing daily active users, revenue, and median time spent learning. The filing alleges these statements were misleading. The company ran "thousands" of A/B tests - experiments comparing different versions of app features to see which works better - and the complaint alleges the data showed the added friction was suppressing user growth.

The complaint also points to an April 28, 2025 internal memo the CEO posted on LinkedIn, announcing the company would "gradually stop using contractors to do work that AI can handle" and shift to an "AI-first" model. The backlash was immediate. According to the complaint, users across TikTok documented themselves deleting the app, often sacrificing years-long streaks. By May 17, 2025, the filing states, the company entered a "social media blackout" and wiped content from its TikTok and Instagram accounts.

Daily active user growth fell from 49% in the first quarter to 40% in the second quarter of 2025. The complaint alleges the CEO blamed the slowdown solely on his AI memo and told investors "that impact is in the past." According to the filing, the real drivers were the ongoing monetization push and declining content quality - not just the memo backlash.

Three disclosures form the spine of the complaint. On November 5, 2025, Duolingo reported that third-quarter daily active user growth had fallen to 36% and announced a pivot away from monetization toward "teaching better." The stock fell 25%, or $66.28 per share, closing at $193.74, the complaint states. The filing notes the disclosure triggered analyst downgrades and price target cuts from firms including Goldman Sachs, JPMorgan, and Wells Fargo.

On January 12, 2026, the company disclosed the CFO's resignation and released preliminary fourth-quarter daily active user growth of "approximately 30% year over year." The stock dropped 8.5%, or $14.92 per share, to close at $161.74, according to the filing.

On February 26, 2026, Duolingo reported fourth-quarter results and guided to 2026 daily active user growth of only 20%, bookings growth of 10% to 12% versus consensus estimates of 20%, and adjusted EBITDA margin of 25% against consensus of 30%. The complaint quotes the CEO admitting the results "may come as a surprise to some investors" and stating the company "found that the quickest way to increase monetization was basically by adding friction." The stock fell 14%, or $16.45 per share, to close at $101.

What the former CFO had earlier described as "a relatively small financial impact from this kind of reprioritization" and "a change of small proportion" turned out, according to the complaint, to have material consequences for the company's 2026 bookings, revenue, and profitability outlook.

The allegations in this complaint have not been tested, and no court has ruled on any of the claims.