Core Insights - Duolingo reported Q2 2025 revenue of $252 million, a 41% year-over-year increase, with total subscription revenue reaching $268 million, also up 41% [1] - The company achieved a net profit of $44.8 million, marking an 84% increase year-over-year, and user numbers reached 130.2 million, with daily active users (DAU) at 47.7 million, a 40% increase [1] - CEO Luis von Ahn attributed the strong performance to product-driven growth strategies, enjoyable learning experiences, and rapid iteration capabilities [1] User Metrics - DAU reached 47.7 million, up 40% year-over-year, while monthly active users (MAU) increased to 128.3 million, a 24% growth [4][3] - Paid subscribers grew to 10.9 million, reflecting a 37% year-over-year increase, with paid subscriber penetration at 9.0% of last twelve months MAUs [4][5] - The DAU/MAU ratio improved to 37%, indicating increased user engagement [5] Subscription Performance - Duolingo Max subscription share increased to 8%, although growth was slower than expected due to the faster growth of Duolingo Super [6] - Duolingo Super's growth was driven by a global price increase trial in March, which raised average revenue per user (ARPU) by 5-6% [7] - The company plans to optimize video call features in Duolingo Max to enhance user experience [7] Business Developments - Duolingo acquired UK-based music game startup NextBeat to enhance its music course offerings, with plans to integrate music and gaming elements into learning [10] - The chess feature has shown strong demand, with a 23% increase in user retention, and will expand to Android [9] - The company is also implementing a new energy bar system to replace the previous heart mechanism, which has positively impacted DAUs and subscription conversion rates [10][11] Market Performance - China emerged as one of the fastest-growing markets, with a successful collaboration with Luckin Coffee, which has over 6,000 stores acting as low-cost user acquisition channels [2][12] - The partnership with Luckin Coffee has effectively attracted new Duolingo Super users, although Duolingo Max has not yet launched in China due to regulatory approvals [12] - The company plans to focus on localized, cost-effective marketing strategies in China while considering a trial of performance advertising in the U.S. market starting Q3 [13]

Investment Rating - The report maintains an "Outperform" rating for the industry [2] Core Insights - Duolingo is the world's most widely used language learning platform, with over 80% of its revenue coming from subscription fees. The introduction of the AI MAX feature is expected to enhance the company's paid user rate, total user base, and product pricing [3][11] - The online language learning market is projected to grow at a compound annual growth rate (CAGR) of 19.73%, reaching $70 billion by 2028, driven by AI-enabled online learning [3] - Duolingo's revenue growth remains robust at over 40%, with a gross margin above 70%. The company has raised its revenue growth guidance for the year to over 32% [3] Company and Product Overview - Duolingo, founded in 2011, focuses on technology-enabled education and offers over 40 language courses through its app, which has a monthly active user (MAU) count of 130 million as of Q1 2025, reflecting a 33% year-over-year increase [8][30] - The company operates on a "free learning + investment value" model, leveraging user data to optimize products and monetize through subscription services [8][11] Financial and Business Performance - Duolingo's revenue is primarily derived from subscription services, which accounted for 80% of total revenue, with a year-over-year growth rate of approximately 50% [24] - The company reported a total revenue of $231 million in Q1 2025, a 38% increase year-over-year, with subscription revenue reaching $191 million, up 45% year-over-year [34] - The gross margin remains strong at 71.7%, with ongoing optimization of operational costs [27] User Growth and Engagement - The number of paid subscribers reached 10.3 million by Q1 2025, representing a 40% year-over-year increase, with a paid user rate of 8.9% [30] - Daily active users (DAU) reached 46.6 million, a 49% year-over-year increase, indicating strong engagement in mature markets [30] Growth Drivers - AI technology is accelerating course content development, with Duolingo generating 148 new language courses in a year, a process that previously took over a decade [51] - The company is expanding its learning categories, including math and music, which have already attracted 3 million DAUs [54] - Duolingo is enhancing its high-level English courses to increase the proportion of English learners among its user base, which currently stands at 46% of DAUs [57]