Duolingo set a third-quarter revenue forecast that came in under Wall Street expectations, dampening investor enthusiasm generated by an improved engagement outlook. The language-learning company's shares tumbled more than 10% in after-hours trading following the update.
Management reiterated that the company is favoring user-growth initiatives over immediate monetization. Executives said the objective this year has been to grow the active user base and to explore ways to increase subscription revenue without creating obstacles for the platform's sizable population of free users.
Chief Executive Luis von Ahn signaled confidence in the product-driven approach, with Duolingo now expecting daily active user (DAU) growth to stay above 20% for the remainder of the year. DAU, a central engagement metric, rose 23% year-over-year to 58.7 million in the second quarter, a result that exceeded Visible Alpha estimates. Paid subscriber figures, however, were slightly under consensus.
Chief Financial Officer Gillian Munson explained the trade-off between short-term monetization and user growth: "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," she said.
On the cost side, Duolingo cited reduced AI expenses as a contributor to improved gross margins. Munson said the company is increasingly deploying open-source AI models for features that do not require its most advanced systems, lowering costs for those capabilities.
For the quarter, revenue rose 18% to $298.5 million, topping the analysts' average estimate of $295.6 million, according to data compiled by LSEG. The company's adjusted core profit also exceeded expectations.
Management attributed higher engagement during the quarter to product enhancements, a wider rollout of AI-driven features including Video Call, and more disciplined performance marketing. A one-time "Streak Revival" campaign also drew millions of previously inactive users back to the platform, though executives emphasized that lasting expansion will depend on better retention and improved learning outcomes rather than promotional spikes.
Looking ahead, Duolingo projected third-quarter revenue of roughly $302 million, below analysts' estimate of about $304 million. The company maintained its full-year revenue guidance.
Impacted sectors: Education technology, consumer internet, and software/AI cost management.