Executive Summary

Duolingo delivered a high-quality quarter: revenue grew 41% YoY to $252.3M, Adjusted EBITDA margin expanded ~4 pts YoY to 31.2%, and net income rose 84% YoY to $44.8M .
Results beat Wall Street consensus: revenue topped by ~4.8% and S&P normalized EPS by ~188%; management raised FY25 bookings, revenue, and Adjusted EBITDA margin guidance midpoints (to 32% bookings growth, 36% revenue growth, and ~28.75% margin) . Revenue/EPS consensus comparisons are shown below with S&P Global values*.
Positive gross margin mix/timing: gross margin improved sequentially by 130 bps to 72.4% on lower-than-expected AI costs and ads strength; FY25 gross margin YoY decline now seen at ~100 bps vs ~150 bps previously .
Near-term catalysts: Energy pacing rollout (boosting DAUs, time spent, conversion), continued Max enhancements (Video Call engagement, bilingual options), Asia/China momentum (Luckin partnership), and potential payment cost tailwinds from web checkout testing .

What Went Well and What Went Wrong

What Went Well

Broad-based outperformance: total bookings and revenue up 41% YoY; subscription revenues up 46% YoY; Adjusted EBITDA up 64% with margin at 31.2% .
Engagement and conversion tailwinds: Energy pacing “increased DAUs, median time spent learning and subscriber conversion” on iOS, a rare multi-metric move per management .
Strategic product momentum: Chess DAUs surpassed 1M on iOS/UI-English; Max share grew to ~8% of subs; ARPU up 6% YoY on mix shift to higher-priced tiers .

Quotes:

“We exceeded our own high expectations for bookings and revenue this quarter, and did it while expanding profitability.” — CEO Luis von Ahn
“We expanded gross margin by 130 basis points to 72.4% from Q1 to Q2, due to lower-than-expected AI costs and strength in our ads business.” — Shareholder letter

What Went Wrong

Max mix grew less than expected: Max penetration increased to ~8% but under plan due to Super growing faster; beginner users find Video Call too difficult—driving focus on bilingual/engagement improvements .
U.S. growth deceleration tied to social sentiment: DAU growth landed at the low end (40%) after pausing “edgier” social posts to restore sentiment, mainly impacting U.S. youth cohorts .
DET macro headwinds: Duolingo English Test softer given reduced international student applications to U.S./U.K.; management embedded this in guidance .

Financial Results

Metric	Q2 2024	Q1 2025	Q2 2025
Revenue ($USD Millions)	$178.3	$230.7	$252.3
GAAP Diluted EPS ($)	$0.51	$0.72	$0.91
Gross Margin (%)	73.4%	71.1%	72.4%
Net Income ($USD Millions)	$24.4	$35.1	$44.8
Adjusted EBITDA ($USD Millions)	$48.1	$62.8	$78.7
Adjusted EBITDA Margin (%)	27.0%	27.2%	31.2%
Subscription Revenues ($USD Millions)	$143.9	$191.0	$210.7

KPI trends

KPI	Q2 2024	Q1 2025	Q2 2025
DAUs (Millions)	34.1	46.6	47.7
MAUs (Millions)	103.6	130.2	128.3
Paid Subscribers (Millions, period-end)	8.0	10.3	10.9

Consensus vs Actual (S&P Global)*

Metric	Q1 2025	Q2 2025
Revenue Actual ($USD Millions)	$230.7	$252.3
Revenue Consensus ($USD Millions)	$223.1*	$240.8*
Revenue Surprise (%)	+3.4%*	+4.8%*
Primary EPS Actual ($)	1.2618*	1.6979*
Primary EPS Consensus ($)	0.5169*	0.5895*
EPS Surprise (%)	+144%*	+188%*

*Values retrieved from S&P Global.

Additional detail (Q2 2025 income statement highlights):

Other (expense) income, net: +$1.66M
Interest income: +$11.43M
Provision for income taxes: $1.67M

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Bookings ($M)	FY 2025	$1,117.5–$1,126.5	$1,149–$1,157	Raised
YoY Bookings Growth (%)	FY 2025	28.4%–29.4%	32.0%–32.9%	Raised
Revenue ($M)	FY 2025	$987–$996	$1,011–$1,019	Raised
YoY Revenue Growth (%)	FY 2025	31.9%–33.2%	35.2%–36.2%	Raised
Adjusted EBITDA ($M)	FY 2025	$271.4–$283.9	$288.1–$295.5	Raised
Adjusted EBITDA Margin (%)	FY 2025	27.5%–28.5%	28.5%–29.0%	Raised
Gross Margin (YoY change)	FY 2025	~–150 bps	~–100 bps	Less negative
Bookings ($M)	Q3 2025	N/A	$268.5–$272.5	Newly provided
YoY Bookings Growth (%)	Q3 2025	N/A	27.0%–28.9%	Newly provided
Revenue ($M)	Q3 2025	N/A	$257–$261	Newly provided
YoY Revenue Growth (%)	Q3 2025	N/A	33.4%–35.5%	Newly provided
Adjusted EBITDA ($M)	Q3 2025	N/A	$69.4–$73.1	Newly provided
Adjusted EBITDA Margin (%)	Q3 2025	N/A	27.0%–28.0%	Newly provided
Fully Diluted Shares	FY 2025	~+1%	~+1% (unchanged)	Maintained

FX commentary: Over half of bookings come from outside the U.S.; a 1% change in USD vs basket ≈ ~$3M bookings impact for remainder of year .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2024 and Q1 2025)	Current Period (Q2 2025)	Trend
AI costs and margin trajectory	FY25 gross margin expected ~–50 to –150 bps YoY; Max dilutive to margin but accretive to gross profit dollars; planned cost optimizations; Q1 decline ~200 bps better than expected	Q2 sequential GM +130 bps to 72.4% on lower AI costs; FY25 GM YoY decline improved to ~–100 bps; unit costs (API tokens, latency/pricing) trending down	Improving
Duolingo Max (Video Call)	Max ~5–7% subs; dilutive margin but accretive dollars; rolling out features (3D Lily, practice tab); higher adoption among English learners; price sensitivity in low-GDP markets	Max at ~8% subs; beginner difficulty; enhancements planned (bilingual conversations, engaging backgrounds); renewal data forthcoming; LTV focus	Mixed to improving
Energy mechanic (replacing Hearts)	N/A	Increased DAUs, time spent, and conversion; rollout >50% iOS DAUs, Android behind; cohort backlash expected, mostly impacts heavy free users; targeting completion in coming months	Positive engagement
Marketing and U.S. growth	Viral/social-led (Dead Duo 1.7B impressions) with minimal spend; U.S. historically slower growth; minimal marketing in U.S.	Temporary slowdown from social sentiment; plan to resume edgier content; incremental U.S. marketing tests to re-accelerate	Normalizing
Regional dynamics (Asia/China)	Broad global growth; adding courses for more base/interface pairs	China fastest-growing; Luckin Coffee partnership boosted brand; Max not yet in China pending local LLM approvals	Strong momentum
Payments (App Store/web checkout)	Post-Epic optionality discussed; experiments anticipated	Web purchase flow tests show minimal bookings loss with materially lower fees (≈2% vs 30%); accounting means limited FY25 impact	Optionality building
DET/macro	Strong FY24; no macro changes observed Q1; DET as other revenue	DET headwind embedded (fewer international applicants)	Headwind

Management Commentary

“We expanded gross margin by 130 basis points to 72.4% from Q1 to Q2, due to lower-than-expected AI costs and strength in our ads business.” — Shareholder letter
“Energy… increased DAUs, median time spent learning well, and subscriber conversion. We have rarely seen a feature move more than one of these metrics, let alone all three.” — Shareholder letter; Luis elaboration
“The percentage of subscribers that are Max… grew to 8% in Q2… Max grew a little less than we expected, but Super grew even more.” — Luis
“China… is our fastest growing market… partnership with Luckin Coffee… was a pretty big boon.” — Luis
“We can send people to a web purchase flow… minimally lose bookings… significantly increases our profit because… Stripe… ~2% vs Apple 30%.” — Luis
“We’re raising our full-year Adjusted EBITDA margin guidance to 28.75%… incremental margin of 37.4%.” — Shareholder letter
Music strategy: acquired NextBeat team to make Music course “as fun and joyful as the best mobile games.” — Press release

Q&A Highlights

DAU moderation and social sentiment: 40% YoY DAU growth at lower end of guided range due to pausing edgier social content; impact concentrated in U.S. youth cohorts; sentiment now positive; expect stability near term .
Max trajectory: penetration ~8% subs; beginner difficulty in Video Call addressed by bilingual flows and engagement improvements; renewal analytics forthcoming; LTV optimization drives tier surfacing .
Gross margin drivers: AI unit costs trending down; ad pricing contributed; web checkout impact limited near term due to revenue recognition .
Energy rollout: >50% of iOS DAUs; Android behind; targeting broad completion in “couple of months”; designed to monetize high-usage free cohorts .
Regional growth: Asia fastest, China above expectations; Max in China pending local LLM approval; small incremental marketing in U.S. planned .
DET headwinds: weaker international student applications pressuring DET within “Other” revenues .

Estimates Context

Revenue beats and raised guide: Q2 actual $252.3M vs consensus $240.8M (+4.8%)*; FY25 revenue guide raised to $1,011–$1,019M .
EPS beats on S&P normalized basis: Q2 Primary EPS 1.6979 vs 0.5895 consensus (+188%)*; note normalization differences vs GAAP diluted EPS $0.91 .
Implications: Street likely to raise FY25 revenue/EBITDA estimates on improved margin trajectory (AI costs) and higher top-line guide; monitor DET and Max mix in models .