Duolingo DUOL shares fell about 15% on Thursday after the language-learning platform issued a third-quarter revenue forecast that fell short of Wall Street expectations, overshadowing better-than-expected second-quarter results and stronger user growth.
The company reported second-quarter revenue of $298.5 million, an 18% increase from a year earlier and above analysts’ expectations of $295.6 million, according to LSEG data.
Adjusted core profit also exceeded estimates.
However, investors focused on Duolingo’s guidance for third-quarter revenue of about $302 million, below analysts’ expectations of roughly $304 million.
The company maintained its full-year revenue forecast despite the softer quarterly outlook.
Daily active users (DAUs), a key measure of engagement, rose 23% year over year to 58.7 million during the second quarter, ahead of Visible Alpha estimates, although paid subscriber growth came in slightly below consensus.
User growth strategy takes priority over monetization
Management said the company continues to prioritize expanding its user base over maximizing near-term revenue from subscriptions.
Chief Executive Officer Luis von Ahn said Duolingo now expects daily active user growth to remain above 20% for the rest of the year, supported by product improvements, stronger user retention and marketing initiatives.
Chief Financial Officer Gillian Munson said the company is allowing teams to focus more heavily on growing engagement rather than immediate monetization, believing that strategy will help Duolingo reach its long-term goal of 100 million daily active users.
The company also credited broader deployment of AI-powered features, including Video Call, along with more disciplined marketing efforts, for boosting engagement during the quarter.
Management noted that a one-time “Streak Revival” campaign helped bring millions of inactive users back to the platform.
However, executives said future growth is expected to come primarily from improvements in retention and learning outcomes rather than temporary promotional campaigns.
AI efficiency improves margins
Lower artificial intelligence costs also contributed to stronger profitability during the quarter.
Munson said Duolingo has increasingly adopted open-source AI models for features that do not require its most advanced systems, helping reduce operating costs and improve gross margins.
The company raised its adjusted EBITDA outlook for the full year to 26.5%, up from the 25% target announced earlier this year.
It also increased its gross margin forecast, with Munson stating, “For gross margin, we now expect to end the year closer to 70% as compared to the 69% we initially expected.”
Full-year guidance remains unchanged
Despite the softer third-quarter revenue outlook, Duolingo reaffirmed its annual financial guidance.
Munson said the company continues to expect bookings growth of about 11% and revenue growth of roughly 16% for the full year.
For the third quarter, the company expects bookings of approximately $307 million alongside revenue of about $302 million.
Management also disclosed that employees could receive a cash bonus if fourth-quarter daily active user growth reaches at least 25%.
According to BarCharts data, Duolingo currently holds a consensus Hold rating from analysts, including two Buy ratings, 18 Hold ratings and two Sell ratings.
Thursday’s decline erased part of the stock’s recent gains as investors weighed the company’s long-term user growth strategy against expectations for near-term revenue expansion.
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