Duolingo (DUOL)

Language-learning app Duolingo (NASDAQ:DUOL) announced better-than-expected revenue in Q3 CY2025, with sales up 41.1% year on year to $271.7 million. The company expects next quarter’s revenue to be around $275 million, close to analysts’ estimates. Its GAAP profit of $5.95 per share was significantly above analysts’ consensus estimates.

Company Overview

Founded by a Carnegie Mellon computer science professor and his Ph.D. student, Duolingo (NASDAQ:DUOL) is a mobile app helping people learn new languages.

Consumers today expect goods and services to be hyper-personalized and on demand. Whether it be what music they listen to, what movie they watch, or even finding a date, online consumer businesses are expected to delight their customers with simple user interfaces that magically fulfill demand. Subscription models have further increased usage and stickiness of many online consumer services.

Competitors offering language-learning services include Coursera (NYSE:COUR) and private companies Rosetta Stone, Babbel, Busuu, and Lingvist.

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, Duolingo’s sales grew at an incredible 41.7% compounded annual growth rate over the last three years. Its growth surpassed the average consumer internet company and shows its offerings resonate with customers, a great starting point for our analysis.

This quarter, Duolingo reported magnificent year-on-year revenue growth of 41.1%, and its $271.7 million of revenue beat Wall Street’s estimates by 4.3%. Company management is currently guiding for a 31.2% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 26% over the next 12 months, a deceleration versus the last three years. Despite the slowdown, this projection is commendable and implies the market is baking in success for its products and services.

User Growth

As a subscription-based app, Duolingo generates revenue growth by expanding both its subscriber base and the amount each subscriber spends over time.

Over the last two years, Duolingo’s monthly active users, a key performance metric for the company, increased by 33.1% annually to 135.3 million in the latest quarter. This growth rate is among the fastest of any consumer internet business and indicates its offerings have significant traction.

In Q3, Duolingo added 22.2 million monthly active users, leading to 19.6% year-on-year growth. The quarterly print was lower than its two-year result, suggesting its new initiatives aren’t accelerating user growth just yet.

Revenue Per User

Average revenue per user (ARPU) is a critical metric to track because it measures how much the average user spends. ARPU is also a key indicator of how valuable its users are (and can be over time).

Duolingo’s ARPU growth has been strong over the last two years, averaging 6.4%. Its ability to increase monetization while quickly growing its monthly active users reflects the strength of its platform, as its users continue to spend more each year.

This quarter, Duolingo’s ARPU clocked in at $2.01. It grew by 17.9% year on year, slower than its user growth.

A company’s gross profit margin has a significant impact on its ability to exert pricing power, develop new products, and invest in marketing. These factors can determine the winner in a competitive market.

For internet subscription businesses like Duolingo, gross profit tells us how much money the company gets to keep after covering the base cost of its products and services, which typically include customer service, data center and infrastructure expenses, royalties, and other content-related costs if the company’s offerings include features such as video or music.

Duolingo has robust unit economics, an output of its asset-lite business model and pricing power. Its margin is better than the broader consumer internet industry and enables the company to fund large investments in new products and marketing during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an excellent 72.5% gross margin over the last two years. Said differently, roughly $72.47 was left to spend on selling, marketing, and R&D for every $100 in revenue.

Duolingo produced a 72.5% gross profit margin in Q3, in line with the same quarter last year. On a wider time horizon, Duolingo’s full-year margin has been trending down over the past 12 months, decreasing by 1.1 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs.

Consumer internet businesses like Duolingo grow from a combination of product virality, paid advertisement, and incentives (unlike enterprise software products, which are often sold by dedicated sales teams).

Duolingo is extremely efficient at acquiring new users, spending only 16.7% of its gross profit on sales and marketing expenses over the last year. This efficiency indicates that it has a highly differentiated product offering and strong brand reputation, giving Duolingo the freedom to invest its resources into new growth initiatives while maintaining optionality.

Duolingo has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer internet business, boasting an average EBITDA margin of 27.1%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Duolingo’s EBITDA margin rose by 25.3 percentage points over the last few years, as its sales growth gave it immense operating leverage.

In Q3, Duolingo generated an EBITDA margin profit margin of 29.5%, up 4.8 percentage points year on year. The increase was encouraging, and because its EBITDA margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

In Q3, Duolingo reported EPS of $5.95, up from $0.49 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Duolingo’s full-year EPS of $7.90 to shrink by 45.4%.

Although EBITDA is undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Duolingo has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the consumer internet sector, averaging an eye-popping 34.8% over the last two years.

Taking a step back, we can see that Duolingo’s margin expanded by 26.6 percentage points over the last few years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

Duolingo’s free cash flow clocked in at $77.36 million in Q3, equivalent to a 28.5% margin. This result was good as its margin was 1.9 percentage points higher than in the same quarter last year, building on its favorable historical trend.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Duolingo is a profitable, well-capitalized company with $1.12 billion of cash and $93.26 million of debt on its balance sheet. This $1.03 billion net cash position is 8.6% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly Duolingo blew past analysts’ EBITDA expectations this quarter. We were also glad its full-year EBITDA guidance exceeded Wall Street’s estimates. On the other hand, its EBITDA guidance for next quarter missed. This weighing on shares, and the stock traded down 19.1% to $211.46 immediately following the results.

Updated: December 4, 2025 at 9:23 PM EST

Before deciding whether to buy Duolingo or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Duolingo is a cream-of-the-crop consumer internet company. First of all, the company’s revenue growth was exceptional over the last three years. And while its projected EPS for the next year is lacking, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits. On top of that, Duolingo’s impressive EBITDA margins show it has a highly efficient business model.

Duolingo’s EV/EBITDA ratio based on the next 12 months is 25.5x. Looking across the spectrum of consumer internet businesses, Duolingo’s fundamentals clearly illustrate it’s a special business. We like the stock at this price.

Wall Street analysts have a consensus one-year price target of $270.11 on the company (compared to the current share price of $188.25), implying they see 43.5% upside in buying Duolingo in the short term.