Table of Contents
- Company profile – global market leader in online language learning apps
1.1 A growth market with unique characteristics - Duolingo's latest quarterly figures for June 2025
- Duolingo stock forecast for 2026
- Key figures for Duolingo stock from the HGI analysis
- Duolingo stock valuation
The market for language learning services has been growing for years and continues to gain importance. Duolingo (ISIN: US26603R1068) is one of the best-known players in this market. With its playful language learning app, the company has quickly made a name for itself in the field of digital education worldwide. Since going public in 2021, the company has developed rapidly and is now clearly positioned as a leading provider in the EdTech sector. Investors also benefited from a 149 percent increase in the stock price compared to the issue price.
Source: Duolingo stock price
With an innovative freemium business model, high user retention, and consistently strong revenue growth, Duolingo is pulling out all the stops. However, there are also risks that should not be underestimated, as the following analysis of Duolingo's stock will show. Above all, a disruptive threat from AI could make life difficult for the language learning app provider.
Company profile – global market leader in online language learning apps
Duolingo is a digital learning platform founded in 2011 that specializes in language learning. Users around the world can learn more than 40 languages in a fun and interactive way via the app or website. What makes Duolingo special is its highly gamified approach. Users learn in short units that are structured like mini games, with points, levels, daily challenges, and, of course, rewards. Elements from pedagogy, artificial intelligence, and game mechanics are combined to make language learning effective and motivating. And it all works well, as demonstrated by the more than 47 million daily active users. More than ten million of them pay a subscription fee. In addition to general language lessons, Duolingo also offers a digital language test for university admission and professional purposes with its “Duolingo English Test.” The goal here is to make high-quality education available worldwide for free. A look at the individual segments reveals more about the company's business activities. Duolingo's business model is based on a classic freemium approach. This means that only the basic functions of the app are available free of charge. Additional services must therefore be unlocked via paid offers.
Source: Duolingo 10-K Annual Report 2024
Subscription revenues are therefore by far the most important source of income. In 2024, they accounted for more than 81 percent of total revenues. A premium subscription offers various advantages over the free version. These include ad-free use, unlimited hearts, offline access to lessons, and progress reports. The motivation for users lies primarily in the convenient learning experience and the opportunity to learn more effectively and flexibly. However, product design and the degree of gamification are also crucial to success. They ensure user loyalty and conversion, turning free users into paying users.
In addition to subscription revenues, Duolingo also generates revenues in the “Other” segment, i.e., from other sources. These primarily include advertising revenues generated by the free use of the app. In the free basic version, users are shown short advertising clips after lessons or during certain activities. Money is also earned through the “Duolingo English Test.” This is a standardized language test that is accepted by educational institutions worldwide. It offers a cost-effective, digital alternative to traditional language tests. Partnerships with institutions and companies can also fall into this category. In-app purchases, which account for around 27 percent of other revenues, are also important in this context. These are purchases of virtual goods within the app. Specifically, these are so-called gems or lingots, which users can use to unlock additional features without having to take out a subscription. In the long term, other revenues are growing significantly slower than premium memberships.
A growth market with unique characteristics
The market for digital language learning platforms is strongly growth-oriented. But it is also highly competitive and dynamic. It benefits from several global trends, such as the increasing digitization of education, global mobility, the demand for English language skills, and the spread of mobile devices. Low barriers to market entry ensure fierce competition. To name just a few: Rosetta Stone, Mondly, Busuu and Babbel. But new EdTech platforms, AI-powered tools such as ChatGPT, and specialized education start-ups are also keeping the pressure on. They are all competing for similar customers.
Duolingo positions itself in this environment as a particularly accessible, entertaining, and technologically advanced platform. Free access combined with a gamified learning approach has quickly ensured a wide reach and brand awareness in the past. Nevertheless, the company faces several challenges. One of these is user retention and monetization. Although Duolingo has hundreds of millions of registered users worldwide, only a few of them are paying customers. To be precise, of the most recent 128 million monthly active users, only 10.9 million opted for a Plus version. The company must therefore continuously work to increase the conversion rate from free to paying users without compromising the appeal of the free version. It must also succeed in keeping users on the platform.
Finally, international scaling also presents challenges, for example in the localization of content, cultural differences in learning behavior, and compliance with local education regulations and data protection requirements. However, Duolingo appears to be one of the players making the most progress in this area. For years, more has been implemented abroad than in its home market, the US. In 2024, the figure was 58 percent, with the pace of growth remaining high internationally.
Another – and much larger – problem area is competition from new technologies, especially AI. Here, language models such as ChatGPT or specialized AI tutors are proving to enable highly personalized, dialogue-oriented language learning. This is potentially even more effective than Duolingo's systematic but often repetitive style of practice. There are also challenges in terms of content and pedagogy. Although Duolingo places great emphasis on entertaining learning, the company is occasionally criticized for making the app too playful and not promoting real language skills sufficiently. The lack of real conversation practice in particular has long been seen as a weakness. However, Duolingo has responded consistently with new features that enable interactive language exercises. Nor is it entering the AI race unprepared. With the Duolingo Max premium subscription, users can now engage in realistic dialogues with the AI character Lily, allowing them to practice speaking in a protected environment. This offering is complemented by Birdbrain, the company's proprietary AI system, which dynamically adapts exercises to the individual learning level, ensuring a personalized learning experience. These enhancements close an important gap in the previous learning concept, as the focus is no longer solely on vocabulary and grammar, but also on the active use of the language in everyday situations.
However, what is exciting about Duolingo is not only the software platform, but above all the mass market in which it operates. Measured by the language learning market, this does not even amount to one percent. As can be seen from the 47.7 million DAUs in the second quarter of 2025, there could still be enormous potential for growth here. This user metric grew by 40 percent compared to the previous year. Luis von Ahn, CEO of Duolingo, also sees great potential. As he recently said in an interview with Bloomberg, he wants to teach over a billion people with Duolingo in the future. That would mean a tenfold increase in user metrics. It should also be noted that Duolingo is expanding its offering beyond languages. With Duolingo Math, children and adults can learn basic arithmetic and fractions in a playful way – using the same principle as language learning. In addition, there is initial content from the field of music and a chess course for beginners. Duolingo is thus gradually developing from a language learning app into a comprehensive EdTech platform that is second to none.
Duolingo's latest quarterly figures for June 2025
Duolingo continued its strong growth momentum in the second quarter of 2025 while further increasing profitability. Both revenue and bookings increased by over 40% year-on-year. Particularly encouraging was the significant growth in daily active users, which rose by 40% despite a strong prior-year quarter. The number of paying subscribers also grew strongly, demonstrating that Duolingo is increasingly successful in monetizing its user base.
Source: Financial Data Duolingo
Operating efficiency was also further improved. The adjusted EBITDA margin rose to 31 percent, which not only represents a significant year-on-year increase but also underscores the strong scalability of the business model. Among other things, lower-than-expected AI-related costs and the continued robust performance of the advertising business had a positive impact. Overall, the second quarter figures show that Duolingo remains on a very solid growth path, both in terms of users and earnings.
Duolingo stock forecast for 2026
Based on its latest quarterly results, Duolingo is significantly more confident about the full year 2025 and is raising its forecast. After a strong second quarter, the company now expects full-year revenue growth of 36 percent and a 32 percent increase in bookings compared to the previous year. Adjusted EBITDA could rise to almost $300 million in the best-case scenario. According to Duolingo, revenue is expected to increase by 34 percent and bookings by 28 percent in the third quarter. All of this points to continued high demand and a strong position in the global EdTech market. At the same time, however, currency effects could play a role, as more than half of bookings come from abroad.
Source: Sales and Margin forecast
A look at the long-term forecasts reveals that analysts expect Duolingo to continue growing strongly in the future. Although growth will slow down over the years, revenue growth could still be in double digits even after 2030. Revenue growth will be accompanied by disproportionately low earnings growth. Nevertheless, the net margin could rise from 11.8 percent in 2024 to 20 percent.
Key figures for Duolingo stock from the HGI analysis
In the HGI analysis, Duolingo stock perform extremely well, scoring 13 out of a possible 18 points. This is a solid, albeit not perfect, stock. Duolingo is impressive, at least in terms of growth. And that is probably the most important criterion for a true growth stock. Let's first take a look at the categories in which the company scored particularly well.
Source: HGI Score
The full three points were awarded for the Rule of 40 score, a growth-oriented metric that attempts to classify the efficiency of growth. Mathematically speaking, the free cash flow margin is added to revenue growth. The more profitable a company is and the faster it grows, the higher the score. At Duolingo, it is more than 75 percent, which is extremely good. This is due to revenue growth of almost 40 percent and a free cash flow margin of over 36 percent. It also received full marks for its low level of debt. Duolingo has no interest-bearing debt. On the contrary, the company has cash reserves of almost US$1 billion, demonstrating that it is extremely flexible and crisis-proof – precisely because it also generates strong free cash flow.
In terms of valuation, the PEG ratio received full marks. Although the P/E ratio – based on the last twelve months – is an impressive 138, this is offset by the extremely strong growth in EBIT of over 141 percent. The picture is different for the revenue multiple. Here, not a single point was awarded for the EV/Sales ratio of over 15.
On the other hand, at least two points were awarded for the high gross margin. This stands at over 72 percent, demonstrating that the company operates efficiently and can scale cost-effectively in the digital education sector – typical for a software company. However, 75 percent would have been necessary to achieve full marks. There is therefore room for improvement. The same applies to revenue growth, which, at almost 40 percent in the last twelve months, remained high but declined steadily compared to previous years. Looking at the dynamics of the growth rates, it is clear that revenue growth is continuing to normalize. This may be a sign of saturation and emerging competition. In any case, it is a serious warning signal for investors that needs to be monitored closely.
Duolingo stock valuation
As already indicated in the previous chapter, the valuation of Duolingo stock can be described as ambitious. The current P/E ratio of 170 or 111 needs no further discussion – it is very expensive. However, this figure is simply not practical for high-growth companies. Since Duolingo has already achieved high profitability, however, the figure should at least play a small role.
Source: key metrics
The revenue multiplier paints a similar picture. An EV/sales ratio of 15.6, or an expected ratio of 14, is still beyond good and evil. However, the only argument in favor of the stock is its sustained high growth. And here, Duolingo impresses with figures of almost 40 percent in the last twelve months and 35.8 percent in the outlook. It is particularly interesting to note that earnings are skyrocketing. This is due to the high scalability of the platform. While net profit rose by 77 percent in the last twelve months, a further 58 percent increase is expected for the future. It is precisely this strong improvement in profitability that puts the current high valuations in a different light.
Source: EV/Sales vs. EV/FCF
Historically speaking, the stock has always been expensive. A look back shows that it is currently trading more than 25 percent above its historical average. However, measured in terms of free cash flow, it is more than 9 percent below this level.
Conclusion on Duolingo stock
Duolingo stock is an attractive investment in the high-growth EdTech sector. The company impresses with a high gross margin, strong revenue growth, an excellent Rule of 40 score and a debt-free balance sheet. The PEG ratio also indicates that the current earnings growth justifies the valuation. Continuous scaling, a solid subscription model, and additional sources of revenue such as advertising and language tests provide stable growth drivers for the coming years.
However, the stock is highly valued with an EV/sales ratio of almost 17. The stock is therefore vulnerable to price setbacks, especially in market phases with an interest rate environment that is hostile to growth or if Duolingo fails to achieve its growth targets. Increasing competition from AI-powered language tools also poses a medium-term risk that I would not underestimate.
Source: Duolingo target price
Looking at analysts' opinions, a certain skepticism is also evident here. Although 67 percent recommend buying the stock, the remaining 33 percent advise holding. The high price potential of over 47 percent within a year is likely to make investors particularly skeptical, especially since the data pool of 30 analysts is not exactly small.
However, the industry is also aware that the risks lie particularly in the dynamic competitive environment. Similar to gaming stocks, a steep rise can also be accompanied by a sharp fall. And looking at current developments in the AI environment, this stock could also be affected in the long term. The latest quarterly figures did not signal anything of this nature.
The author and/or persons or companies associated with StocksGuide own or may own shares of Duolingo. This article represents an expression of opinion and does not constitute investment advice. Please note the legal information.
