Duolingo ($DUOL) is scheduled to announce its fiscal 2025 second-quarter earnings on August 6th, before the market opens.
According to Bloomberg consensus estimates, the company's revenue is expected to reach $241 million, up 35% year-over-year; adjusted net income is projected at $28 million, up 15.4% year-over-year; adjusted earnings per share are expected to be $0.62, up 22% year-over-year.
In the first quarter of 2025, Duolingo continued to demonstrate strong growth momentum. Revenue reached $230.7 million, up 38% year-over-year; net income was $35.1 million, increasing by more than 30%. Although gross margin slightly declined to 71.1% due to rising AI costs, overall profitability remained robust.
On the user front, daily active users (DAUs) increased to 46.6 million, up 49% year-over-year; monthly active users (MAUs) reached 130.2 million, up 33%; paid subscribers surpassed the 10-million mark, reaching 10.3 million, up 40% year-over-year. Subscription revenue contributed 83% of total revenue, amounting to $191 million, with the penetration rate of the premium Duolingo Max subscription rising to 7%.
The company's investments in AI course development and expansion into new areas such as math, music, and chess have also started to yield results, with daily active users for these non-language courses reaching 3 million.
Dual-Edged Sword of AI Strategy: Efficiency Improvement vs. Content Challenges
Duolingo continues to advance its "AI-first" strategy, with the AI video dialogue feature launched this quarter (interaction with Lily) having a daily usage of 1.2 million times, but an average duration of only 3.2 minutes, far lower than human conversations (8 minutes). The completion rate (58%) and NPS (32) of AI-generated 148 courses still lag behind human courses (65%, 41), indicating room for content quality improvement.
AI costs currently account for about 9% of revenue, with model invocation costs still high, leaving room for marginal improvement. Organizationally, contract creators are expected to be reduced from 800 to 500, bringing adaptation pressure internally – 37% of employees reported anxiety about AI transformation in a survey.
User Structure Changes: From "Quantity Increase" to "Quality Optimization"
High-end Max users are concentrated in the 25-35 age group, with ARPU reaching $22.5, 40% higher than ordinary subscriptions. The DAU growth rate in the Asian market reached 63%, but the payment rate remained low (only 5.2% vs 9.8% in North America). TikTok contributed 35% of new users, driving growth but acquisition costs rose to $3.2.
In terms of retention, AI substitution triggered unsubscriptions mainly from users who had been on the platform for more than 2 years, which is worth watching. The cross-category conversion rate for math and music courses is only 12%, indicating limited penetration across multiple categories.
Content Ecosystem Expansion: From Language Platform to General Learning Ecosystem
The chess course is about to be launched, introducing a learning ELO system; the math course has covered 67% of K-12 content, but the average daily user time is only 7 minutes. The newly launched C2 advanced course is priced 30% higher, testing the market's tolerance for professional subscriptions.
In cross-border cooperation, the English certification exam is being promoted in collaboration with Pearson in Brazil and other places; music courses are being tested in conjunction with Spotify ($SPOT). The number of B2B customers reached 400 (+120 QoQ), but ARPU remains low ($1500/year).
Financial Structure Trends: AI Investment Dragging Gross Profit, Cash Flow Steady
Labor costs' share dropped to 18% (vs. 21% last season)
Cloud service costs rose to 14%, driven by AI model usage
Content amortization remains stable at 9%
Subscription prepaid cycles extended to 8.2 months (year-on-year growth), indicating stronger user renewal willingness. This quarter's capital expenditure focuses on AI training clusters, with an expected investment of $23 million.
Market Expectation Differences: Potential Highlights and Risks Coexist
Underestimated highlights:
Family subscription retention rate is as high as 92%, with strong stickiness
ARPU for courses in minor languages like Japanese is significantly higher than English (+22%)
The B2B English test grew by 85% year-over-year, although the volume is small but the growth is fast
Risks to watch:
The EU DSA Act upgrading AI content regulation
Memrise introducing AR real-world learning functionality, possibly diverting light users
A stronger dollar impacting overseas revenue (38% from non-U.S. markets)
Multiple Institutions Lower Target Price, User Growth Slowdown Raises Concerns, Long-Term Prospects Still Optimistic
Recently, several investment banks have lowered their target price for the language learning platform Duolingo, primarily due to signs of weakening user growth data. Citizens JMP lowered the target price from $475 to $450, noting that the year-over-year growth rate of daily active users (DAUs) in June 2025 had decreased from 53% in March to 37%. Meanwhile, JPMorgan ($JPM) and Morgan Stanley ($MS) also lowered their target prices to $500 and $480, respectively, citing reasons such as a decline in U.S. market DAUs, the negative impact of social media public opinion, and a slowdown in subscription order growth.
According to third-party research firm Sensor Tower, Duolingo's DAUs in the second quarter of 2025 increased by 39% year-over-year, significantly lower than the 51% growth in the first quarter. Morgan Stanley ($MS) reported that in May, user resistance caused by controversies over AI replacing human translation led to a short-term decline of about 10% in U.S. market DAUs, with TikTok user interaction volume also halved, but there were signs of stabilization starting in late June.
Despite short-term pressures, most analysis agencies remain optimistic about Duolingo:
JMP Securities maintains an "outperform" rating, believing that the weak performance in the second quarter is a temporary phenomenon, and the price correction provides a good buying opportunity;
Morgan Stanley expects the negative impact of social media to gradually fade, continuing to give an "overweight" rating;
Evercore ISI ($EVR) even raised the target price to $540, based on its market research indicating strong growth potential.
Analysts generally recognize Duolingo's industry-leading position and strong competitiveness:
Industry Leader: As a leader in the gamified language learning field, Duolingo continues to expand course content with the help of AI technology;
Financial Health: Maintaining a high gross margin of 72%, with revenue growth of 39%;
Product Innovation: Enhancing monetization through diversified product channels such as the high-end Super Duolingo subscription and Duolingo English test.
In the short term, Duolingo is facing multiple pressures, including a slowdown in user growth, AI strategy controversies, and overseas monetization challenges. However, its first-mover advantage in the language learning field, strong content expansion capabilities, and continuously optimized business model still form a solid moat.
The upcoming Q2 earnings report on August 6th will be a key window to test its growth resilience, AI-driven efficiency, and market confidence. If it can stabilize user structure and demonstrate the effectiveness of AI strategy implementation, the current adjustment might instead become an entry opportunity for long-term investors.
This content is based on tiger AI and Bloomberg data, and is for reference only.
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