Core Insights - Duolingo operates the world's most popular digital language education platform and is leveraging artificial intelligence (AI) to enhance the learning experience and unlock new revenue streams [1] - The company's stock reached a record high in May but has since declined by 26%, raising questions about its valuation and growth potential [2] User Growth and Engagement - Duolingo's mobile-first, gamified approach attracted 130.2 million monthly active users in Q1 2025, a 33% increase year-over-year [4] - The number of paying subscribers grew by 40% to a record 10.3 million during the same period, driven in part by AI enhancements [5] Subscription and AI Features - The Max subscription plan, launched in 2023, includes AI-powered features such as Roleplay, Explain My Answer, and Videocall, contributing significantly to new paying users [6][7] - The Max plan accounts for 7% of the total subscriber base, aligning with the company's goal of providing a digital learning experience comparable to human tutoring [7] Financial Performance - Duolingo reported $230.7 million in revenue for Q1 2025, reflecting a 38% year-over-year growth and exceeding the high end of its forecast [8] - The company raised its full-year revenue guidance for 2025 to as much as $996 million, up from a previous estimate of $978.5 million [9] - GAAP net income for Q1 was $35.1 million, a 30% increase year-over-year, while adjusted EBITDA soared by 43% to $62.8 million [10] Valuation Metrics - Duolingo's stock is trading at a P/E ratio of 193.1, significantly higher than the S&P 500's P/E ratio of 24.1, indicating a high valuation [12] - The forward P/E ratio for 2026 is 48.8, suggesting a slightly more reasonable valuation based on future earnings estimates [13] - The price-to-sales (P/S) ratio stands at 22.9, a 40% premium compared to its average of 16.3 since going public in 2021 [15] Investment Outlook - While Duolingo's stock may not be ideal for short-term investors, its potential for long-term growth could make it a solid investment for those willing to hold for five years or more [17]