What happened
Shares of Duolingo (DUOL -1.88%) were sliding today even though there was no news out on the popular language-learning app.
Instead, Duolingo was falling in sympathy with Chegg (CHGG -0.29%), another education stock whose shares got roasted after the company revealed on its earnings call last night that new user growth was stalling due to competition from ChatGPT.
Duolingo closed down 10.2% on the news while Chegg crashed 48.4%.
So what
Chegg stock cratered after the education company known for renting out textbooks and providing homework assistance said that it saw a "significant spike in student interest in ChatGPT," which it believes is impacting new customer growth.
The implication for Duolingo, another education stock, is clear, especially as language translation and language-learning tools are among ChatGPT's capabilities.
Perhaps in anticipation of competition from ChatGPT, Duolingo announced a new subscription tier in March, Duolingo Max, which is powered by GPT-4, the newest generative AI technology.
Duolingo Max adds two new features to the subscription tier above, Super Duolingo: Explain My Answer and Roleplay. Explain My Answer offers a chat to learn why a user got an answer wrong, while Roleplay gives users an opportunity to practice conversation in a chat with real-world scenarios.
Now what
Duolingo hasn't yet reported first-quarter earnings, and the update next week on May 9 should give investors a sense of how the language-learning specialist is faring with ChatGPT now on the market and how the new Duolingo Max is performing, which should help neutralize the threat from the new AI chatbot.
In Q1, investors are expecting revenue to increase 39.1% to $113 million and for its adjusted loss per share to narrow from $0.31 to $0.23. Investors will be paying close attention to those numbers and any comments on ChatGPT in next week's report.
