Duolingo surges as AI-led growth, forecast raise boost investor confidence

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• Duolingo surges as AI-led growth, forecast raise boost investor confidence</p>

<p>Akash SriramAugust 7, 2025 at 9:03 PM</p>

<p>By Akash Sriram</p>

<p>(Reuters) -Duolingo shares surged about 32% on Thursday, after the company's annual forecast increase buoyed investor confidence in its ability to drive user growth through AI features and social engagement, while enhancing monetization.</p>

<p>The company is maintaining user growth by experimenting with app features, using social engagement strategies and optimizing its subscription offerings to retain users and attract new ones.</p>

<p>Duolingo runs experiments to determine which of its subscriptions are shown to which user and when, with the goal of maximizing long-term platform value rather than pushing any single plan.</p>

<p>Average revenue per user grew 6% in the second quarter, driven largely by users migrating to Duolingo's higher-priced Max tier, which offers features such as AI-powered video calls for practicing conversational skills. It also saw growth in its $12.99-per-month Super plan.</p>

<p>"While we maintain a more cautious stance on near-term user growth, we see several sources of upside still in the model, most notably across monetization efforts (price and improving paid conversion) and margins," Raymond James analysts said in a note.</p>

<p>Duolingo's gross margin declined 100 basis points during the quarter, less than the 300-basis-point fall it had anticipated, due to lower-than-expected AI costs and stronger performance in ads business.</p>

<p>"We did better on gross margin, in part because AI costs that power Max were lower than we expected, the cost of calling AI tools has come down a lot," Chief Financial Officer Matt Skarupa told Reuters.</p>

<p>The company posted adjusted profit per share of 91 cents, surpassing analysts' estimate of 58 cents, prompting them to boost earnings expectations.</p>

<p>It is set to add roughly $5 billion to its $15.62 billion market valuation, if current levels hold.</p>

<p>Still, as of Wednesday's close, Duolingo shares traded at 85.21 times profit expectations before the results, above internet services companies such as Uber's 26.54 and DoorDash's 79.38.</p>

<p>(Reporting by Akash Sriram in Bengaluru; Editing by Shilpi Majumdar)</p>

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