DUOL Stock Appreciates 22% in a Month: Buy, Hold, or Sell?

Duolingo, Inc. DUOL shares have surged 22% over the past month, handily outperforming the broader industry’s 5% gain and the Zacks S&P 500 composite’s modest 1% rise. The magnitude of this rally underscores Duolingo’s resurgence after lagging behind both the market and its peers for much of the year.

In contrast, key competitors Coursera COUR and Chegg CHGG have been sliding, down 9% and 6%, respectively, in the same period. The divergent paths among these education technology players reflect a notable shift in investor sentiment within the online learning sector.

With Duolingo gaining ground while rivals retreat, the question now is whether this momentum makes DUOL a buy, hold, or sell at current levels.

Duolingo: Turning AI and Data Into a Growth Engine

A major strength for Duolingo lies in its ability to translate artificial intelligence and proprietary learner data into tangible business outcomes. Unlike many peers still touting AI as a future promise, Duolingo has embedded it deeply into its product development and monetization strategy.

Leveraging its massive learner dataset, the company has been able to design and deploy new verticals — including Music and Chess — with precision and speed unmatched in the industry. This AI-driven agility gives Duolingo a sustainable competitive edge in personalization, scalability, and cost efficiency.

These efficiencies are already showing up in the financials. The company recently lifted its full-year outlook, partly due to lower-than-expected AI-related costs. Gross margin expanded 130 basis points sequentially to 72.4%, signaling that innovation is fueling — not diluting — profitability.

Equally remarkable is the acceleration in content creation. Duolingo added 148 new language courses in April, its largest single expansion ever. For context, it took the company over a decade to create its first 100 courses. Such rapid scaling fosters higher engagement, stronger brand loyalty and ultimately, sustainable bookings growth.

Expanding Revenue Streams and Scaling Profitability

Duolingo’s evolution from a pure-play language app to a diversified learning platform is another critical growth catalyst. Its monetization strategy hinges not just on raising prices but on shifting users toward premium tiers, driving a 6% year-over-year rise in average revenue per subscriber. This “mix-shift” approach signals healthy monetization without jeopardizing user experience.

Optionality beyond language learning is proving to be real. The newly launched Chess course already attracts over a million daily active users on iOS, demonstrating Duolingo’s ability to replicate its teaching model across entirely new domains. Early traction in Music and other categories further validates this potential. Each new subject not only broadens the total addressable market but also deepens user retention through diversified learning experiences.

Management’s guidance reinforces this optimism, projecting fiscal 2025 revenues of $1.011-$1.019 billion with adjusted EBITDA margins nearing 29%. Expected revenue growth of around 36% at the midpoint suggests a strong balance between innovation and profitability.

Strong Capital Efficiency and Liquidity Cushion

Duolingo also stands out for its efficient capital utilization and solid financial foundation. Its return on equity (ROE) of 13.3% exceeds the industry average of 7%, highlighting the company’s ability to generate superior profits from shareholder investments. Likewise, its return on invested capital (ROIC) of 12.4% far outpaces the industry’s 3.8%, underscoring disciplined deployment of capital into high-return opportunities.

Liquidity remains robust, with a current ratio of 2.81 versus the industry’s 1.78, a healthy indicator that Duolingo is well-positioned to meet short-term obligations and absorb potential market fluctuations.

Outlook: Strong Earnings Momentum Ahead

The Zacks Consensus Estimate pegs Duolingo’s 2025 earnings at $3.16, implying a striking 68% year-over-year increase. For 2026, earnings are projected to climb another 41%, with sales expected to advance 36% in 2025 and 26% in 2026. These estimates suggest that Duolingo’s growth trajectory remains firmly intact, supported by expanding product lines and operational leverage.

Verdict: A Buy on Innovation and Market Expansion

Duolingo stands out as an innovation-driven growth story. Its deep integration of AI and proprietary data is enabling faster rollouts, greater personalization, and stronger cost control. With expanding subject categories such as Chess and Music, the company is broadening its reach while strengthening daily engagement.

The diversified revenue base — spanning premium subscriptions, advertising, and testing services — further reduces concentration risk and enhances resilience. Coupled with strong liquidity and robust growth forecasts, Duolingo continues to offer an attractive entry point for long-term investors.

DUOL currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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