Duolingo Shares Fall as Weak Revenue Forecast Overshadows User Growth

Duolingo (NASDAQ: DUOL) shares slumped more than 10% in extended trading after the language-learning platform issued a third-quarter revenue forecast that fell short of analyst expectations, overshadowing a solid second-quarter performance and an upgraded forecast for user growth.

Soft Guidance Hits Shares

Duolingo projected third-quarter revenue of approximately $302 million, which is below the Wall Street consensus estimate of about $304 million, according to LSEG data. The weaker-than-expected outlook prompted a negative reaction from investors, despite the company reaffirming its full-year revenue forecast.

The guidance tempered an otherwise strong report for the second quarter, in which Duolingo's key metrics surpassed expectations:

• Q2 Revenue: Rose 18% to $298.5 million, beating the average analyst estimate of $295.6 million.
• Adjusted Core Profit: Also topped market expectations.
• Daily Active Users (DAUs): Grew 23% to 58.7 million, ahead of estimates compiled by Visible Alpha.

A Strategic Shift to User Growth

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Company executives attributed the conservative revenue outlook to a strategic decision to prioritize user growth and engagement over immediate monetization. Chief Financial Officer Gillian Munson told Reuters the company is empowering its teams to focus more on growing its user base. "We think it can set us off on a much healthier plane to get to 100 million DAUs," Munson said.

Reflecting this focus, CEO Luis von Ahn said Duolingo now expects DAU growth to remain above 20% for the rest of the year, an upgrade from previous projections. However, the company noted that paid subscriber numbers for the second quarter came in slightly below consensus, aligning with its current strategy of reducing friction for its large base of free users.

Operational Drivers and AI Efficiencies

Duolingo's second-quarter engagement was boosted by product improvements, the rollout of AI-powered features like Video Call, and disciplined marketing efforts. The company also cited a one-time "Streak Revival" campaign that successfully brought millions of inactive users back to the platform.

Furthermore, Duolingo reported improved gross margins, partly due to lower artificial intelligence costs. CFO Gillian Munson said the company is increasingly using open-source AI models for certain features, which has helped drive down expenses.