In the often-crowded field of
education-technology stocks, Duolingo (NASDAQ:DUOL) stands out as a company
that is delivering both top-line growth and improving profitability which is a
rare combination. With its Q3 2025 results showing a 41 % year-over-year
revenue increase, and a dramatic jump in earnings per share, the market is
beginning to take note. Yet the stock has been punished, creating what may be
an interesting entry point. In this article we will dive into Duolingo recent
earnings, stock performance & valuation, growth potential, and the risks
investor should consider.
About Duolingo
Duolingo is a U.S.-based
ed-tech company founded in 2011 by Luis von Ahn and Severin Hacker. It operates
globally through its flagship Duolingo app, offering language learning as well
as newer verticals like math, music, and chess. The company uses a freemium
model, with free users supported by ads and paid subscribers receiving
enhanced, ad-free features. With a large and growing user base, Duolingo
monetizes through subscriptions, ads, and tests, fulfilling its mission to make
education fun and accessible.
Duolingo Financial Performance
Duolingo delivered exceptionally
strong financial results in Q3 2025, with revenue reaching $271.71 million, up
from $192.59 million in Q3 2024, a 41.08% increase. EPS surged to $5.95
compared to $0.49 last year. On a TTM basis, revenue grew 39.86% from $689.46
million to $964.27 million, while EPS climbed 338.81% from $1.83 to $8.04. Free
cash flow per share (TTM) rose 45.28% to $7.38 from $5.08. Profitability
remained strong with a 71.99% gross margin, 40.03% net margin, and 36.77% free
cash flow margin. Returns were solid, with 4.49% ROA and 36.25% ROE, supported
by a low 0.07 debt-to-equity ratio.
Over the past five years,
Duolingo has grown its revenue at a 45.6% CAGR, while free cash flow increased
97.3%, and net income turned positive with high margins. Duolingo has
transitioned from an unprofitable company into a tech company with strong profitability,
delivering high margins in both net income and free cash flow, which is truly
exceptional.
Duolingo Fiscal 2025 Financial
Forecast
Looking ahead, analysts expect
2025 revenue to reach $1.03 billion, up 37.76% from $748.02 million in 2024,
and forecast 2025 EPS of $8.40, a 346.67% increase from $1.88. Wallstreet analysts
rate the stock a Buy with a price target of $289.81 suggesting potential upside
of 62.57% and the highest price target of $590, representing 230.96% potential
upside.
DUOL Stock Price Performance
and Valuation
At the time this article was written Duolingo stock was trading at $178.27 per share. Over the past year the stock was down 41.9%, significantly underperforming the S&P 500’s 13.1% gain. Since its IPO in July 2021, the stock is up 27.1%, but still underperform the S&P 500’s 51.8% increase during the same period. But because of these underperformance, valuation levels become very attractive for a high-growth, profitable tech company.
Duolingo stock has price to sales P/S ratio (TTM) of
8.36 and forward P/S of 8. The price to earnings P/E ratio (TTM) is 22.18, forward
P/E is 21.23. While the price to free cash flow P/FCF (TTM) is 23.24.
Based on Fiscal.ai data, the
forward P/S, forward P/E, and P/FCF ratios have all been below their historical
averages since 2024. This indicates potential undervaluation, especially as
Duolingo’s financial performance continues to grow rapidly, with revenue
increasing above 40% and free cash flow rising significantly.
Duolingo Growth Potential
Duolingo growth potential remains
robust driven by several factors.
- Massive Daily Active User
Growth and Scale Achievement
Duolingo reached a major milestone in Q3 2025, surpassing 50 million daily active users, a 36% increase year-over-year. This growth highlights Duolingo’s ability to scale globally while keeping strong user engagement. Monthly active users rose to 135.3 million, up by 22.2 million from the previous year, demonstrating constant user acquisition across diverse regions. The large user base strengthens Duolingo's competitive edge by providing richer data for AI model enhancement, boosting community features like competitive leagues, and driving word-of-mouth referrals.
Maintaining high engagement at this scale is challenging, yet consistent 36-40% DAU growth indicates effective retention strategies. Duolingo’s gamification elements, such as streaks, leagues, and the new Energy pacing system, have enhanced user retention. This solid base of daily active learners creates substantial opportunities for growth, as even small gains in monetization could yield significant revenue increases. - AI-Driven Subscription
Monetization Excellence
Duolingo showcased outstanding subscription growth in Q3 2025, with subscription revenue rising 45.6% year-over-year to $229.5 million, comprising 84% of total revenue. The premium AI-powered Max tier is expanding rapidly, now comprising 9% of total subscribers and reaching profitability thanks to reduced AI infrastructure costs. The average revenue per user is increasing through natural subscription mix improvements rather than sharp price hikes, indicating strong premium feature monetization.
The Max tier’s core feature, AI chatbot Video Calls for conversational practice, is proven to enhance speaking skills. The Family Plan now accounts for 29% of paid users, strengthening retention with household adoption. With about 11 million paid subscribers (8.5% of users), Duolingo has considerable room to boost monetization. The company is focused on long-term learner value over immediate monetization, prioritizing user growth and conversion as the free user base expands. - Successful Product Expansion
Beyond Language Learning
Duolingo expanded beyond language learning in 2025 by launching its fastest-growing subject, the Chess course, which surpassed one million daily active users on iOS in English alone. The company also launched Math and Music courses as part of its multi-subject education ecosystem, broadening its total addressable market and cross-engagement. This expansion is powered by AI-driven content generation, producing 7,500 units in 2025 versus 425 in 2021, demonstrating scalability.
Acquiring music-gaming startup NextBeat accelerated product development in entertainment skill-building, showing a commitment to education beyond languages. These new subjects address retention by diversifying learning options, preventing plateaus after intermediate proficiency. Chess, in particular, offers a strong new user acquisition channel. These adjacent offerings create multiple monetization paths and increase switching costs, embedding users in a broad educational ecosystem rather than a single-purpose language app.
Risks to Consider
While Duolingo looks like a
compelling stock, we should be mindful of potential risk.
- Competitive Threat from
Real-Time AI Translation
Emerging AI technologies now offer seamless, real-time translation, such as Apple’s new Live Translation in Messages, FaceTime, and Phone, and Google’s AI-powered speech translation. These tools provide instant, privacy-focused translations on-device without internet access. As users increasingly rely on such instantaneous translation features integrated into popular products, the demand for language learning apps like Duolingo may decline, potentially shrinking the market and impacting Duolingo's long-term growth prospects. - Intense Competition in EdTech
The edtech space is crowded, with rivals like Babbel, Rosetta Stone, and Big Tech incursions (e.g., Google's AI tutor) chipping away at Duolingo's moat. While Duolingo expanded into chess and music in 2025 to diversify engagement, competitors like Coursera and Udemy spend 30-40% of revenue on marketing (vs. Duolingo's 10%), enabling aggressive user acquisition. Its weak economic moat with reliant on brand virality rather than proprietary tech exposes it to share erosion, especially as AI lowers barriers for new entrants. - Data Privacy Concerns
Duolingo collects a wide range of user data, including personal information, usage patterns, and device details. This data is used to improve its services, personalize user experiences, and target advertisements. However, concerns exist about privacy as Duolingo shares data with third parties for marketing and analytics, raising risks of tracking and data misuse by external entities. User consent and transparency around data use remain areas of scrutiny.
Read More: Advanced Micro Devices Stock (AMD) Strong Growth and Good Value in Q3 2025
Conclusion
Duolingo’s strong financial
performance, robust margins, and rapid EPS growth highlight a company executing
exceptionally well. Despite the recent share price decline, its valuation
remains attractive relative to its growth prospects, supported by low debt,
high returns, and expanding global demand for digital learning. With analysts
projecting significant upside and continued revenue and earnings momentum,
Duolingo appears well positioned for long-term success. For investors seeking a
high-quality growth story at a discounted price, DUOL remains a compelling
opportunity.
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