By Mackenzie Tatananni

Artificial intelligence took center stage in the latest earnings report from Duolingo, as the language learning app continues to adopt the technology at a feverish pace. Their strategy might seem heavy-handed, but analysts say it's working.

On Thursday, Duolingo posted first-quarter earnings of 72 cents a share, topping the 51 cents a share analysts expected, according to FactSet. Revenue surged 38% to $230.7 million and beat analysts' estimate of $223.2 million.

As expected, AI featured prominently in the accompanying news release, where CEO Luis von Ahn lauded it as a critical efficiency tool.

"Our investments in AI have also helped us accelerate content creation, and we believe we're just beginning to scratch the surface of what we can offer our users," von Ahn said.

Shares of the language learning platform surged 14% $454.01 on Friday. The benchmark S&P 500 was up 1.2%, while the tech-heavy Nasdaq Composite rose 1%.

Preceding the company's latest earnings report was an internal memo in which the company's top executive pledged to make Duolingo "AI-first."

"One of the best decisions we made recently was replacing a slow, manual content creation process with one powered by AI," von Ahn wrote in the memo, which was shared to Duolingo's LinkedIn page on April 28. "Without AI, it would take us decades to scale our content to more learners."

The CEO indicated that embracing the new technology would come at the expense of human jobs. Duolingo will "gradually stop using contractors to do work that AI can handle," von Ahn said.

The strategy has drawn mixed reactions from users, but it seems to be working for Duolingo. UBS analysts noted Friday that the company "found pockets of earlier-than-expected success around optimizing GenAI-related costs" in the quarter.

However, "it's unclear if the savings were more one-time in nature around ChatGPT 4.1 adoption," the analysts added.

Though the platform is free to access, Duolingo makes most of its money through premium subscriptions that unlock additional content.

The company unveiled a new subscription tier called Duolingo Max in 2023, saying it would give users access to AI-powered tools that could assist them in their language learning journey.

Total gross margin decreased year-over-year to 71.1% in the March quarter from 73%. Duolingo attributed this change to increased generative AI costs resulting from the expansion of Duolingo Max.

The company hasn't been shy about integrating AI into its services, to the point where it has become a defining feature of the platform. Just last week, Duolingo announced the launch of 148 new language courses created with generative AI.

J.P. Morgan analysts said Friday they remain bullish on Duolingo's generative AI innovation and believe the resulting content expansion will drive growth in daily active users.

The company launched a beta version of a new chess course last week, in a bid to diversify its portfolio along with math and music, both of which were added in 2023.

J.P. Morgan noted that both languages and chess are learned through practice and repetition, which should help it integrate smoothly into the platform's existing offerings.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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May 02, 2025 11:01 ET (15:01 GMT)

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