11/05/2025

Duolingo (DUOL) Q3-2025 Results $210 Post Earnings

Duolingo exceeded estimates on revenue and earnings for Q3-2025, and also increased guidance, but its stock got hammered 19% overnight on decelerating growth. 

Let’s look at the metrics.

EPS $1.4 V 0.76 expected a growth of 297%

Revenue 271.7 V 260.5 V, growth of 40%

Guidance was also strong with revenue revised 2% higher than previous estimates.

What then is spooking investors?

Decelerating revenue:

As we can see the deceleration below, Q4 is slower than the full year's revenue growth.

Q4- Revenue growth is 31.2% at mid point slowing from a Q3 growth of 40%, bringing the full year to a still very impressive 37.6% at mid-point.

Decelerating User growth:

DAUs - Daily Active Users grew only 36% in Q3, this is the first time Duolingo’s DAU has grown less than 40%. 

MAUs - Monthly Active Users grew only 20% - the lowest in the last 12 quarters and paid subscribers grew 34% - a far cry from the 40% growth in 2024, but not unexpected as Duolingo crosses over $1Bn in revenues this year.

Management will provide guidance for 2026 growth in February 2026, at their next quarter, and analyst estimates still forecast a revenue growth of 24% to 26% in the next 3 years. However, just 3-6 months back these forecasts were around 26% to 28%

Analysts and investors were aware of the deceleration in growth, but it has increased uncertainty, which means institutional investors will likely assign a lower multiple. 

My takeaways from the results and the call:

The selloff is overdone - there is a 9% short interest in the stock, which means bears/short sellers had a field day after hours. However, I don’t expect this grip to loosen anytime soon.

What are the catalysts that can re-accelerate growth or factors that can justify a buy?

1. Duolingo has just increased its presence in the Chinese market for English language learning, but it hasn’t started offering its Max tier with the best features, highest price and margins, which will help growth from 2026, once they get all their approvals.
2. Chess has turned out to be their fastest product launch, beating language learning.
3. Duolingo Max has now reached 9% of revenue, and is primarily responsible for improved margins - I can see Duolingo becoming a strong buy as an earnings story not just revenue growth. 
4. Profits will improve much faster than earnings in the mid thirties with reduced product development costs and the larger scale of operations.
5. Major emphasis on user growth - I believe that analysts were more concerned about the decelerating user base, and management's response has been to keep users engaged at the expense of monetization. I think this is the right approach. An engaged user will eventually increase monetization.
6. Duolingo beats the rule of 40 handily at 36% revenue growth for 2025, and operating profit margin of 29% = 65.

At $209 - Duolingo is selling for just 8x 2026 sales, and 42x earnings. I’m in the company for the long term and I’ll add some, but the volatility, decelerating growth and the short interest likely means that the stock could remain range bound for a long time. I don't expect another heady rise from $200 to over $500 in less than a year - that will never happen again - those days are over, my expectations are for a 20-22% return per year. I expect the street to also lower targets to more realistic levels.