DUOL Q1 Earnings Call: AI-Driven Product Expansion and User Growth Lift Guidance

Language-learning app Duolingo (NASDAQ:DUOL) reported Q1 CY2025 results topping the market’s revenue expectations, with sales up 37.7% year on year to $230.7 million. The company expects next quarter’s revenue to be around $240 million, close to analysts’ estimates. Its non-GAAP profit of $1.43 per share was 20% above analysts’ consensus estimates.

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StockStory’s Take

Duolingo’s first quarter was marked by rapid expansion in new subjects and engagement features, with management crediting artificial intelligence as a key enabler of faster product development and improved efficiency. CEO Luis von Ahn highlighted the launch of chess, as well as ongoing growth in math and music, emphasizing that these subjects are already being monetized through existing subscription and ad models. The company reported continued strong user growth across both mature and emerging regions, pointing to product improvements and viral marketing campaigns as primary drivers.

Looking forward, management raised full-year revenue and adjusted EBITDA guidance, citing confidence in the scalability of AI-driven content creation and the expanding appeal of advanced language features. They discussed the opportunity to further reduce operating costs as generative AI models become cheaper and more efficient, especially for features like video-based language practice. CFO Matt Skaruppa noted that these optimizations are expected to support margin expansion in the second half of the year, while ongoing investments in new subjects and user engagement remain a priority.

Key Insights from Management’s Remarks

Duolingo’s management discussed several drivers behind quarterly performance and their strategy for continued growth:

• AI-Driven Content Creation: The company accelerated the rollout of new language courses and features by leveraging generative AI, which now produces nearly all course content. This shift has allowed Duolingo to add 148 new courses over the past year, compared to only 100 in the previous twelve years.
• Expansion Beyond Language Learning: The addition of chess, and ongoing development in math and music, reflects a broader strategy to teach subjects that require long-term engagement. These new subjects are already monetized via subscriptions and ads, and while currently smaller than language learning, they are growing faster in daily active users.
• Viral, Low-Cost Marketing: Duolingo continues to rely on highly efficient social media campaigns, often leveraging its mascot in viral content, which management says drives significant user acquisition at minimal cost. Recent campaigns, such as the "Duo owl faked his own death" storyline, generated over a billion impressions without notable marketing spend.
• Product-Driven User Growth: Features such as Duolingo Max and the Video Call with Lily, powered by AI, are credited with increasing user retention and word-of-mouth growth, especially among English learners. The company noted that English learners now represent a higher proportion of Max subscribers compared to other user segments.
• Pricing and Monetization Experiments: Management is actively testing different subscription prices across regions and evaluating which features to bundle at different subscription tiers. They recently tested a price increase for Super Duolingo for new users and are considering adjusting the feature mix between tiers based on user feedback and cost efficiencies.

Drivers of Future Performance

Management anticipates that further AI integration, subject expansion, and enhanced monetization strategies will be the main themes shaping results in upcoming quarters.

• AI-Powered Feature Rollouts: The company expects continued efficiency gains and margin expansion from AI, both in content creation and operational automation. Lower generative AI costs are enabling broader access to premium features and may allow for pricing changes in price-sensitive regions.
• Subject and Market Diversification: Growth in new subjects like chess, math, and music is forecast to support user engagement and incremental revenue. Management believes that word-of-mouth and targeted marketing will be key to scaling these new areas.
• Subscription and Pricing Strategy: Ongoing tests around pricing and feature packaging are set to influence conversion rates and average revenue per user. The company is monitoring the impact of potential changes to in-app payment flows and is prepared to adapt based on the evolving regulatory environment.

Top Analyst Questions

• Curtis Nagle (Bank of America): Asked about gross margin cadence and why improvements are seen more in the second half. Management cited planned optimizations and the timing of generative AI cost reductions.
• Chris Kuntarich (UBS): Inquired about retention trends for Duolingo Max and the pace of new course expansion. Management reported Max is 7% of subscribers and reiterated that recent course launches focus on broader access rather than new languages.
• Bryan Smilek (JPMorgan): Explored drivers of user growth and English learning adoption. CEO Luis von Ahn pointed to product improvements and viral marketing, noting English learners are growing faster as more advanced content becomes available.
• Ross Sandler (Barclays): Questioned the impact of recent app store payment changes on margins. Management said they will test new payment flows and acknowledged that lower payment processing fees could benefit gross margins.
• Alex Sklar (Raymond James): Asked about subscription tier packaging and the possibility of shifting features across plans. Management said they are testing new configurations, with no major changes implemented yet.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) the pace at which Duolingo’s new subjects like chess expand their user base and monetization, (2) the impact of generative AI cost declines on gross margin improvements and potential adjustments to subscription pricing, and (3) the effectiveness of viral marketing campaigns in supporting growth in both mature and emerging markets. Progress in experimenting with payment processing outside of app stores could also influence profitability.

Duolingo currently trades at a forward EV/EBITDA ratio of 80×. Should you load up, cash out, or stay put? See for yourself in our free research report.

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