Duolingo's Revenue Outlook Dims Despite Strong User Growth

Duolingo's shares fell more than 10% in extended trading after the language-learning company projected third-quarter revenue below Wall Street's expectations. This outlook tempered optimism from a stronger user growth forecast, as the company continues to prioritize boosting engagement over near-term monetization.

The company has focused on user growth this year, experimenting with ways to increase subscription revenue without alienating its large base of free users. CEO Luis von Ahn anticipates daily active user (DAU) growth will remain above 20% for the remainder of the year, attributing this to product enhancements, improved retention, and marketing initiatives. In the second quarter, DAU grew 23% to 58.7 million, surpassing Visible Alpha estimates, though paid subscribers slightly missed consensus.

Chief Financial Officer Gillian Munson explained the strategy: "We're enabling our teams to do more to grow DAU and not be as primarily focused on monetization in this moment because we think it can set us off on a much healthier plane to get to 100 million DAUs." The company also benefited from lower AI costs, which boosted gross margins, as Duolingo increasingly utilizes open-source AI models for certain features.

Duolingo's second-quarter revenue climbed 18% to $298.5 million, exceeding the average analyst estimate of $295.6 million. Adjusted core profit also surpassed expectations. The company cited product improvements, the wider deployment of AI-powered features like Video Call, and disciplined performance marketing for the increased engagement. A "Streak Revival" campaign temporarily brought millions of inactive users back, but sustained growth is expected from retention and learning outcome improvements.

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We're enabling our teams to do more to grow DAU and not be as primarily focused on monetization in this moment because we think it can set us off on a much healthier plane to get to 100 million DAUs.