Duolingo: Can AI Keep the Learning Giant Competitive?

After releasing its Q3 earnings report earlier this month, the language learning platform Duolingo (NASDAQ:DUOL) experienced a significant valuation drop. Over the past month, DUOL shares have lost 43% of their value. However, despite a 39% decline over the past year, investors could’ve capitalized on the heavy gains in February and May, when DUOL stock reached its all-time high of $540 per share.

Currently priced at $192, DUOL shares are barely above their 52-week low of $182 and significantly below the average 52-week price of $359 per share. The question for investors is whether this latest decline in the DUOL price represents a buy-the-dip opportunity or foreshadows a long-term trend.

First, let’s examine what happened with Q3’s earnings report.

Examining Duolingo’s Q3 Earnings

On a trailing twelve-month (TTM) basis, Duolingo’s price-to-earnings (P/E) is 24.86, marking it a high-growth stock. With that perception, however, come high expectations. In Q3 earnings posted last Wednesday, for the period ending September 30th, Duolingo’s guidance was softer than expected.

Specifically, from the previous guidance for full-year revenue of $1.01-$1.02 billion, Duolingo raised it to the $1.0275-$1.0315 billion range. In terms of yearly bookings, FY2025 is expected to grow by 32.2% to 32.9%, beating estimates this quarter at $280 million. Having crossed the 50 million daily users milestone in Q3, the company increased its year-over-year revenue by 41% to $271.7 million, which surpassed the LSEG revenue estimate of $260 million.

Overall, Duolingo’s net income increased drastically, from $23.4 million in Q3 2024 to $292.2 million this quarter, with a 36% growth in daily active users (DAU). With that said, the company’s gross margin decreased by 40 bps, yet it remained high at 72.5%.

In a shareholder letter, the company noted its focus on three core long-term improvements: monetization, user growth, and more effective teaching. Of those three, Q3 represents a shift to user growth over monetization, as the company A/B tests various teaching methods.

These long-term experimentations are also the reason why some analysts decided to downgrade the stock, contributing to its drop this month.

Examining Duolingo’s Business Model

Examining Duolingo’s revenue and DAU growth numbers, one could conclude that the company’s business model will continue to deliver; however, is that really the case?

At its core, the company relies on converting free users into paid subscribers. In this process, profitability is achieved by reducing the operational costs of running the platform on Amazon Web Services (AWS) and lowering the costs of deploying new gamified programs that teach not only language but also music and math.

Interestingly, Amazon recently inked a $38 billion deal with OpenAI, which indirectly affects Duolingo due to interlinked dependencies.

Year-over-year, Duolingo increased its paid subscription base by 34% to 11.5 million, with a subscriber penetration raised by 0.5% to 9%. Having fully embraced artificial intelligence with the “AI first” strategy in April, Duolingo began reducing expenditures on paid contractors.

At the same time, the company expanded its capacity to deploy new initiatives, as CEO Luis von Ahn noted:

“With the same number of people, we can make four or five times as much content in the same amount of time.”

Duolingo CEO Luis von Ahn at the Fast Company Innovation Festival 2025

Case in point, if it weren’t for AI, it wouldn’t have been possible to launch 148 new language courses in late April. For comparison, to develop its first 100 courses, it took Duolingo 12 years.

In other words, it’s not a matter of whether Duolingo increases or decreases its workforce for the shareholders’ benefit, but how much employees can leverage AI.

Potential Pitfalls to Duolingo’s Business Model

Duolingo’s decreased gross margin in Q3 may foreshadow long-term erosion of its moat. Specifically, the company’s Duolingo Max subscription tier, which enables conversation practice, is powered by OpenAI’s ChatGPT model.

This essentially means that Duolingo is providing its potential competitor with all the data it needs to build its own language-learning wrap—a layer positioned between the user and the foundational large language model (LLM).

Top LLMs are already multimodal, able to listen to users’ speech, translate, explain grammar, correct pronunciation, and converse in real-time with contextual understanding. Moreover, users may begin to feel they are paying double if they are already paying for one of the LLM subscriptions.

Over time, this could lead to a plateau in paid subscription penetration for Duolingo. Lastly, if the company continues to leverage AI to deploy a gamified curriculum, its branding could suffer. After all, the user experience then becomes a stylized interface for the same underlying artificial intelligence.

In the long run, this could degrade Duolingo’s differentiation, as its platform becomes little more than a colorful skin on top of models that users can already access directly, be it ChatGPT, Grok, Gemini, or Claude.

Duolingo’s Price Targets

Keeping Duolingo’s long-term vulnerability in mind, it is also likely that DUOL stock will resurge, as it did previously. Presently, the platform does offer a comprehensive and engaging learning ecosystem. It is a blend of gamified content, retention mechanics, and a loyal global user base that is not easily replicated.

Accordingly, a present entry at $192.45 is likely optimal. Wall Street Journal’s DUOL price target forecasting puts the average at $298 with the low-end not that far off at $185. The high-end expectation for DUOL stock is poised to be exceptionally profitable, if realized, at $600 per share.

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