Executive Summary

Strong quarter on top-line and engagement: revenue grew 41% YoY to $271.7M and DAUs reached 50.5M (+36% YoY), with record Adjusted EBITDA of $80.0M (29.5% margin) . Q3 revenue beat S&P Global consensus by ~4% ($271.7M vs. $260.4M*) while EPS massively exceeded due to a one-time $222.7M tax valuation allowance release .
Management is rebalancing toward long-term product efficacy and user growth over near-term monetization; expects some bookings growth deceleration in Q4 as experiments favor growth over conversion .
FY25 guidance raised modestly at the midpoint: revenue to $1.0275–$1.0315B and Adjusted EBITDA to $296.9–$300.2M; Q4 guide set at revenue $273–$277M and Adj. EBITDA $75.4–$78.8M .
Strategic product momentum: “Energy” pacing drove increases in bookings, DAUs and time spent; Chess is the fastest-growing course with PvP rolling out; guided Video Calls aim to expand Max adoption .
Potential stock-reaction catalysts: quality of EPS beat (non-recurring tax benefit), long-term product/DAU prioritization, Q4 promo variability, Asia/China growth (6% of business) and Max trajectory (9% of subscribers, bookings doubled YoY but under expectations) .

What Went Well and What Went Wrong

What Went Well

Scale and profitability: “More than 50 million people now use Duolingo every day,” with record Adjusted EBITDA of $80.0M (29.5% margin), underscoring operating leverage despite AI/hosting costs .
Product-led engagement and monetization mix: Energy increased bookings, DAUs, and median time spent; ARPU rose 7% YoY driven by mix shift to higher-priced tiers (Max, family plan) .
Asia momentum and brand partnerships: 26,000+ Luckin stores sold >10M Duolingo-branded drinks in two weeks; Asia is the fastest-growing region, with China now the second-largest DAU country and 6% of business .

Quotes:

“We’re on track for nearly $1,200,000,000 in bookings this year with 33% growth and an adjusted EBITDA margin of 29%.”
“Energy…increased bookings and also increased DAUs… and increased the median time spent using the app.”
“China…is our second largest country in terms of DAUs…about 6% of our business at the moment, but it is growing very fast.”

What Went Wrong

Gross margin pressure: down ~40 bps YoY to 72.5% due to higher generative AI and hosting costs .
Max underperformed lofty expectations despite growth (now 9% of subscribers; bookings doubled YoY); guided Video Calls and beginner-friendly formats are intended to improve adoption .
Near-term growth trade-off: management is prioritizing user growth and teaching efficacy over monetization; Q4 bookings growth guided to 21–24% YoY and revenue growth to 30–32%, reflecting this shift .

Financial Results

P&L and Margins (chronological: older → newer)

Metric	Q3 2024	Q2 2025	Q3 2025
Revenue ($M)	$192.6	$252.3	$271.7
Gross Margin (%)	72.9%	72.4%	72.5%
Net Income ($M)	$23.4	$44.8	$292.2
Diluted EPS (GAAP)	$0.49	$0.91	$5.95
Adjusted EBITDA ($M)	$47.5	$78.7	$80.0
Adjusted EBITDA Margin (%)	24.7%	31.2%	29.5%

Notes: Q3’25 net income and EPS include a one-time $222.7M tax valuation allowance release .

KPIs and Operating Metrics

KPI	Q3 2024	Q2 2025	Q3 2025
DAUs (M)	37.2	47.7	50.5
MAUs (M)	113.1	128.3	135.3
Paid Subscribers (M, period end)	8.6	10.9	11.5
Subscription Revenues ($M)	—	$210.7	$229.5
Total Bookings ($M)	$211.5	$268.0	$281.9
ARPU YoY Change	—	+6%	+7%

Q3 2025 Actuals vs S&P Global Consensus

Metric	Actual	Consensus	Beat/(Miss)
Revenue ($M)	$271.7	$260.35*	+$11.36
Primary EPS	6.80*	0.76*	+6.04

Values with asterisks are retrieved from S&P Global. The EPS beat was driven primarily by a one-time tax valuation allowance release of $222.7M in Q3 .
Values retrieved from S&P Global.

Guidance Changes

Metric	Period	Previous Guidance (Q2 release)	Current Guidance (Q3 release)	Change
Bookings ($M)	FY 2025	$1,149–$1,157	$1,151–$1,157	Raised at midpoint
Revenue ($M)	FY 2025	$1,011–$1,019	$1,027.5–$1,031.5	Raised
Adj. EBITDA ($M)	FY 2025	$288.1–$295.5	$296.9–$300.2	Raised
Adj. EBITDA Margin (%)	FY 2025	28.5%–29.0%	28.9%–29.1%	Raised
Gross Margin (YoY change)	FY 2025	~−100 bps	~−80 bps	Improved
Bookings ($M)	Q4 2025	—	$329.5–$335.5	New
Revenue ($M)	Q4 2025	—	$273–$277	New
Adj. EBITDA ($M)	Q4 2025	—	$75.4–$78.8	New
Adj. EBITDA Margin (%)	Q4 2025	—	27.6%–28.4%	New

Management notes Q4 variability due to the annual New Year’s promotion and experiments around pricing/“Energy” mechanics .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2)	Current Period (Q3)	Trend
AI/Teaching efficacy	Max video call scaling; optimizing words spoken per session; AI costs trending lower; content generation acceleration	Guided Video Calls (bilingual) to better serve beginners; continued AI cost decline; willing to invest for long-term efficacy	Positive efficacy focus; investment elevated; costs easing
Energy pacing	Early rollout increased DAUs, time, conversion on iOS	Fully launched to most users; increased bookings and DAUs and time spent	Broadening impact; durable
Product expansion (Chess/Math/Music)	Chess fastest-growing launch; music team acquisition; multi-subject strategy	Chess PvP rolling out (iOS 50% now); retention slightly higher than languages; music revamp; math K–12 coverage ramp	Engagement tailwinds; TAM expansion
Monetization mix vs growth	Max adoption rising; pricing experiments; focus on platform LTV	Rebalance toward user growth over monetization in A/B judgments; minor near-term bookings impact	Long-view pivot
Regional trends (Asia/China)	China fastest-growing market; Luckin partnership planned/ongoing	Asia fastest-growing region; China second-largest DAU country; ~6% of business; Max testing pending approvals	Strong and accelerating
Gross margin	Q2 GM 72.4% aided by lower AI costs QoQ; YoY -100 bps	Q3 GM 72.5% YoY -40 bps (AI/hosting); FY GM YoY decline improved to ~−80 bps	Stabilizing
Regulatory/legal	Payments tests (web checkout) reduce app store fees; DET headwinds from international student flows	Max approvals required in China for local LLMs; DET softness persists	Mixed

Management Commentary

“We decided to shift the balance towards longer-term initiatives… investing proportionally more in teaching better, and… prioritizing user growth over monetization in the A/B tests that get launched.”
“Max is now 9% of our subscribers… it doubled in Q3 year over year in terms of bookings… [but] underperforming our lofty expectations.”
“We passed a major milestone this quarter: more than 50 million people now use Duolingo every day.”

Q&A Highlights

Strategy and prioritization: Management emphasized durable shift to long-term growth (teaching efficacy, user growth) with limited near-term financial impact; expects some persistence into 2026 but framed as “relatively small” financial impact .
Max trajectory: 9% of subscribers; bookings doubled YoY but below expectations; guided Video Calls (bilingual) targeting beginners to improve conversion; early renewal signs slightly better than Super but still early .
Energy and pricing dynamics: Energy increased bookings, DAUs, and time; Q4 promo experiments (pricing/discount mechanics) and US marketing tests can influence variability .
Regional update: Asia is fastest-growing; China ~6% of business, high engagement/retention; Max in testing pending approvals .
Family plan and mix: Family plan ~29% of subscribers; mix shift to higher-priced tiers drove ARPU +7% YoY .

Estimates Context

Q3 2025 results vs Street (S&P Global): Revenue $271.7M vs $260.35M*, beat ~4%; Primary EPS 6.80* vs 0.76*, beat driven by $222.7M one-time tax valuation allowance release (non-core) . Values retrieved from S&P Global.
Q4 2025 outlook vs Street: Revenue guide $273–$277M brackets consensus $275.68M*; company does not guide EPS, while Q4 EPS consensus is 0.81*; mix shift and investments may temper near-term monetization metrics . Values retrieved from S&P Global.
FY 2025: Revenue guidance $1.0275–$1.0315B slightly above the $1.0305B* consensus midpoint; management raised FY Adj. EBITDA and margin; consensus EPS will likely be noisy due to the Q3 tax item . Values retrieved from S&P Global.

Values with asterisks are retrieved from S&P Global.

Key Takeaways for Investors

Quality of EPS beat matters: GAAP EPS surge was tax-driven; core health better gauged by revenue (+41% YoY), DAUs (+36% YoY), and record Adjusted EBITDA (29.5% margin) .
Narrative shift to long-term: Expect experiments to favor DAU and learning efficacy over near-term conversion; near-term bookings growth moderated in Q4 guide (21–24% YoY) .
Product catalysts: Energy mechanic broad-based uplift; Chess PvP rollout; guided Video Calls targeting beginners could re-accelerate Max adoption and platform LTV .
ARPU and mix: Continued mix shift to higher-tier plans (Max, family) driving ARPU; family plan ~29% of subs; Max at 9% with room for improvement .
Regional optionality: Asia/China momentum (China ~6% of business) offers upside, though regulatory approvals (Max) and geopolitical risk warrant caution .
Margin trajectory: GM headwinds from AI/hosting easing vs prior guide; FY GM decline improved to ~−80 bps; FY Adj. EBITDA margin raised to ~29% midpoint .
Near-term trading setup: Q4 promo/US marketing experiments add variability; Street may recalibrate EPS due to the one-off tax benefit; focus likely on DAU trajectory, Max adoption signals, and Q4 execution .

Duolingo, Inc. (DUOL)·Q3 2025 Earnings Summary