In this article RBLX
DUOL
DASH Follow your favorite stocks CREATE FREE ACCOUNT
Duolingo, Doordash and Roblox apps Tiffany Heard-Grear | Bloomberg | Getty Images
Across the tech sector this earnings season, companies told Wall Street to get ready for ramped up spending as the artificial intelligence boom accelerates. But while investors largely rewarded the megacaps for their boosted capital expenditure forecasts, or just shrugged off their guidance, companies outside the trillion-dollar club are getting punished. DoorDash , Duolingo and Roblox all saw their stock prices suffer double-digit slumps last week after the companies said spending is on the incline, raising concerns about future profitability. Unlike the tech giants, which are promising hefty buildouts to meet soaring demand for AI services and workloads, smaller companies are getting viewed more skeptically, with analysts uncertain about whether their bets will pay off and result in substantial new revenue opportunities. "Investors don't like investment cycles," Evercore ISI's Mark Mahaney told CNBC's "Closing Bell: Overtime" last week. That's what happened, he said, with "all those companies that went into and out of this earnings cycle and negatively surprised the market by saying, 'We really want to lean into investments first.'"
watch now
DoorDash's stock sank 17% on Thursday, its worst drop in the food delivery platform's five years as a public company. In its third-quarter earnings report, DoorDash said it plans to shell out "several hundred million dollars" on new products and technology next year. "We wish there was a way to grow a baby into an adult without investment, or to see the baby grow into an adult overnight, but we do not believe this is how life or business works," the company wrote in its earnings release. DoorDash has recently amped up investments in autonomous delivery, with the launch of Dot in September, and spent a combined $5.1 billion on restaurant booking platform SevenRooms and British food delivery service Deliveroo. CEO Tony Xu said on the earnings call that the company's investment track record signals "some success in repeating this playbook, and we're doing this now for future growth." Analysts see it differently. "Looking ahead, we maintain our Hold rating as we see limited multiple expansion opportunity until there is greater clarity surrounding how long investments could weigh on margins," wrote analysts at Gordon Haskett. A DoorDash spokesperson said in a statement that the company is "fortunate to have an increasingly successful core business" and that it takes a "disciplined investment approach" to new projects.
'Monetization and user growth at odds'
Duolingo also had its worst day as a public company on Thursday, despite beating on revenue and bookings in its third-quarter earnings report. The stock lost a quarter of its value and is now down 41% for the year, after Duolingo said it's prioritizing finding new users. The company has been pouring money into AI features, such as an interactive video call option, as it tries to win over paying subscribers. "There are experiments that put monetization and user growth at odds, and part of my job has been, always, arbitrating between these two," CEO Luis von Ahn told CNBC after the earnings report. He said the company is shifting the "trade off to be much more towards user growth." On the earnings call, von Ahn said that it's "going to take some time for us to see the results, financial results, over the long-term investments that we're doing." After the report, analysts at KeyBanc Capital Markets downgraded the stock to the equivalent of hold from buy, citing concerns that increased investments will weigh on near-term bookings, earnings and valuation. "This suggests to us that it might take several quarters to see more meaningful financial benefits," the firm said. Duolingo didn't provide a comment.
watch now
... continue reading