DUOL Q2 Deep Dive: New Features and International Markets Fuel Growth

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Language-learning app Duolingo (NASDAQ: DUOL) beat Wall Street’s revenue expectations in Q2 CY2025, with sales up 41.5% year on year to $252.3 million. Guidance for next quarter’s revenue was optimistic at $259 million at the midpoint, 2.3% above analysts’ estimates. Its non-GAAP profit of $1.70 per share was 31.9% above analysts’ consensus estimates.

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Duolingo (DUOL) Q2 CY2025 Highlights:

  • Revenue: $252.3 million vs analyst estimates of $240.8 million (41.5% year-on-year growth, 4.8% beat)
  • Adjusted EPS: $1.70 vs analyst estimates of $1.29 (31.9% beat)
  • Adjusted EBITDA: $78.68 million vs analyst estimates of $61.07 million (31.2% margin, 28.8% beat)
  • The company lifted its revenue guidance for the full year to $1.02 billion at the midpoint from $991.5 million, a 2.4% increase
  • EBITDA guidance for the full year is $291.8 million at the midpoint, above analyst estimates of $281.2 million
  • Operating Margin: 13.2%, up from 10.5% in the same quarter last year
  • Monthly Active Users: 128.3 million, up 24.7 million year on year
  • Market Capitalization: $15.61 billion

StockStory’s Take

Duolingo’s second quarter results were met with a strong positive market reaction, reflecting investor confidence in the company’s expanding user base and product mix. Management attributed this quarter’s robust performance to the continued adoption of subscription tiers, notably Super and Max, as well as successful engagement initiatives like the Energy pacing mechanic. CEO Luis von Ahn highlighted strong growth across core markets, with particular momentum in Asia, and credited brand partnerships and product updates for driving both daily active user growth and higher user retention.

Looking ahead, Duolingo’s raised full-year outlook is underpinned by ongoing expansion in new subject areas, incremental marketing investments, and enhancements to premium offerings. Management emphasized upcoming improvements to the Max subscription, including bilingual Video Call features and broader rollouts of the Energy system, as key drivers of future conversion and engagement. CFO Matt Skaruppa noted, “Our guiding principle is optimizing platform LTV, and as we experiment with pricing and features, we believe these changes will support sustainable growth.”

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to broad-based subscription growth, user engagement improvements, and progress in non-language subjects like Chess.

  • Subscription tier mix shift: Growth in both Super and Max subscriptions contributed to overall revenue expansion, but Super outperformed expectations while Max’s growth was more moderate. Management explained that Super’s broader appeal and improved features attracted a wider base, while Max’s flagship Video Call feature proved challenging for beginners but retained strong engagement among intermediate learners.

  • Energy pacing mechanic rollout: The new Energy system, replacing the Hearts mechanic for free users, increased both user engagement and conversion rates. CEO Luis von Ahn described Energy as shifting from penalizing mistakes to rewarding consistent use, resulting in higher median time spent and a measurable lift in daily active users and bookings.

  • International and China momentum: China emerged as Duolingo’s fastest-growing market, aided by a prominent partnership with Luckin Coffee. Management noted strong demand across Asia, though regulatory requirements have delayed the launch of Max in China, impacting the premium mix there.

  • AI infrastructure cost savings: The company benefited from lower AI compute costs, particularly in content generation and the Video Call feature. These savings supported margin expansion and allowed for more pricing and feature experiments across subscription tiers.

  • Expansion into new subjects: The rapid launch and adoption of Chess, alongside ongoing development in Math and Music, were highlighted as early successes in expanding Duolingo’s total addressable market. While revenue from these subjects remains minimal, management believes they will drive user growth and engagement over the long term.

Drivers of Future Performance

Duolingo’s outlook is shaped by product upgrades, international expansion, and new user engagement strategies.

  • Product innovation and feature enhancements: Management plans to improve the Max subscription, including making Video Call more accessible to beginners through bilingual conversations and contextual backgrounds. The full rollout of the Energy mechanic is expected to further boost engagement and conversion. These updates are designed to increase average revenue per user (ARPU) and subscription retention.

  • Incremental marketing and geographic investments: Duolingo will begin targeted marketing in the U.S.—where growth has lagged versus international markets—and maintain investment in influencer and performance channels abroad. Management cited the success of similar efforts in Mexico, which led to a meaningful acceleration in local user growth.

  • AI cost efficiency and pricing experiments: As AI infrastructure costs continue to fall, management expects to experiment with Max pricing and feature bundling, especially in markets not yet served. These efforts aim to optimize customer lifetime value (LTV) and improve gross margins while expanding the premium user base.

Catalysts in Upcoming Quarters

In upcoming quarters, the StockStory team will be watching (1) the full rollout and user response to the Energy pacing system, (2) improvements to the Max subscription, especially the launch of bilingual Video Call and expansion into new languages and markets, and (3) the impact of incremental U.S. marketing on user growth. Additional focus will be on the progress of new subject areas and further AI-driven cost efficiencies.

Duolingo currently trades at $343.90, in line with $344.25 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free).

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