Language-learning app Duolingo (NASDAQ: DUOL) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 41.1% year on year to $271.7 million. The company expects next quarter’s revenue to be around $275 million, close to analysts’ estimates. Its GAAP profit of $5.95 per share was significantly above analysts’ consensus estimates.

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StockStory’s Take

Duolingo’s third quarter results were met with a significant negative market reaction, despite the company exceeding Wall Street’s expectations on both revenue and earnings. Management attributed this divergence to a deliberate shift in strategic priorities, emphasizing long-term user growth over short-term monetization. CEO Luis von Ahn explained that recent changes to product and marketing—such as a renewed focus on engaging social media content in Asia and product improvements for retention—drove daily active user growth, while a conscious decision to limit monetization experiments impacted near-term bookings. Management acknowledged that the company is placing more emphasis on teaching quality and user expansion, stating that, “We are investing in the long term, aiming to build an app that teaches better than ever before.”

Looking ahead, Duolingo’s guidance is shaped by its increased investment in AI-driven product features and a continued focus on expanding its user base, particularly in fast-growing regions like Asia. Management highlighted a pipeline of new offerings, including guided video calls for beginners, expanded math and music content, and player-versus-player chess, all designed to improve user engagement and learning outcomes. CFO Matt Skaruppa emphasized that this strategic shift will likely result in slower near-term monetization growth, but he added, “We think that if we do this effectively, we’ll both grow users for a long time and increase platform LTV.” The company intends to balance profitability with substantial product investment to capture what it sees as a large, long-term market opportunity.

Key Insights from Management’s Remarks

Management identified a deliberate pivot toward prioritizing user growth and product efficacy, underpinned by advances in AI and expansion in key international markets.

• Strategic shift to user growth: Management described a rebalancing of priorities, opting to favor user expansion and teaching improvements over immediate monetization. This involved making product decisions that may limit short-term bookings but are intended to maximize daily active users and long-term engagement.

• AI-driven product development: CEO Luis von Ahn stressed that artificial intelligence is enabling faster content creation and smarter adaptive learning modules, particularly in the company’s top nine language courses. The use of AI has also accelerated the rollout of new features, such as guided video calls for beginner learners and more personalized lesson recommendations.

• International momentum—Asia leads: The company reported that Asia, and China specifically, is now the fastest-growing region for user acquisition and engagement. Strategic partnerships and culturally relevant marketing, including “unhinged” social media posts, have contributed to this surge. Asia now represents about 5–6% of the business but is growing rapidly.

• Expansion of non-language offerings: Duolingo’s chess course has quickly become its fastest-growing new subject, showing higher retention than language courses and generating millions of users in just a few months. Upcoming enhancements include full rollout of player-versus-player functionality and broader support for math and music content.

• Max subscription and pricing experiments: While the premium Max subscription doubled bookings year over year, it underperformed management’s expectations. Efforts to boost Max adoption include new guided video calls and potential feature reallocation among subscription tiers. Management is also testing a variety of pricing strategies, including potential lower-cost “super light” packages and targeted promotions.

Drivers of Future Performance

Duolingo expects future performance to be driven by continued product investment, international expansion, and a focus on user engagement over immediate profitability.

• Long-term investment in teaching efficacy: Management believes that prioritizing improvements in course quality and adaptive learning features will drive user growth and retention, though these benefits may take time to fully materialize in financial results.

• International expansion and localization: The company is focusing resources on growing markets such as Asia, with China positioned as a major opportunity for both DAU growth and premium subscription uptake. Management noted that local regulatory and geopolitical risks remain, but the current strategy is to grow efficiently with modest marketing investment.

• Balancing profitability with growth: Duolingo intends to sustain disciplined operating margins while funding product development and AI-driven innovation. CFO Matt Skaruppa stated that while margin expansion remains important, it will not be prioritized at the expense of capturing what management sees as a “humongous opportunity” in global language and skills education.

Catalysts in Upcoming Quarters

In the coming quarters, our team will closely track (1) the rollout and user adoption of new AI-powered features like guided video calls and expanded math and music content; (2) the pace of international user growth, particularly in Asia and China, and the impact of localized marketing strategies; and (3) the evolution of premium subscription offerings and any material changes in pricing or feature allocation. Execution on product innovation and international expansion will be key indicators of Duolingo’s ability to balance growth and profitability.

Duolingo currently trades at $209.10, down from $261.41 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free for active Edge members).

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