Duolingo, Inc. (DUOL) shares plummeted 8.33% in pre-market trading on Friday, following the language learning app's fourth-quarter earnings report. While the company posted record revenues and strong user growth, its plans to increase investments in AI and automation weighed heavily on investor sentiment.

During the earnings call, Duolingo's CEO Luis von Ahn and CFO Matt Skaruppa outlined the company's strategy to leverage generative AI for improving its products and scaling content creation. However, this investment is expected to pressure margins in the short term, with a projected 300-basis-point year-over-year impact on gross margin in the first half of 2025.

"While this means a more moderate pace of profit growth compared to the exceptional levels of the past two years, we're still delivering margin expansion, just with an eye on building something even bigger," von Ahn stated. Duolingo expects its adjusted EBITDA margin to expand by nearly 200 basis points to 27.5% in 2025, but the impact of AI costs will be more pronounced in the first half.