Duolingo Charms Wall Street With Viral Surge, AI Power, Soaring Subscriptions

Duolingo Inc DUOL stock traded higher on Friday after the company reported better-than-expected first-quarter financial results on Thursday.

Wall Street analysts raised their price targets on the stock.

Needham analyst Ryan MacDonald maintained Duolingo with a Buy and raised the price target from $400 to $460.

Also Read: Duolingo’s AI Investments Set The Stage For Long-Term Growth—Analyst Sees Stock Hitting $400

The company reported quarterly revenue growth of 38% to $230.74 million, beating the analyst consensus estimates of $222.98 million. EPS of $0.72 beat the analyst consensus estimate of $0.51.

This quarter’s top-line outperformance was mainly driven by Subscriptions, which topped estimates, driven by better-than-expected subscriber count and revenue per subscriber. Paid subscribers came in at 10.3 million for the quarter, above the consensus of 10.12 million. Gross margins exceeded the analyst estimate of 70.0% at 71.1% but were down from 73.0% a year ago.

The decline was expected and due to a combination of lower subscription margins from increased generative AI costs associated with increased Duolingo Max adoption. However, management noted they benefited from some earlier-than-expected cost optimization and higher than anticipated advertising gross margin in other revenue.

Daily active users (DAUs) were 46.6 million, an increase of 49%, and monthly active users (MAUs) were 130.2 million, an increase of 33%.

A viral campaign helps drive record MAU adds, while Max adoption continues at a similar rate to the fourth quarter. Subscription bookings were strong in the quarter, with Y/Y growth at 43.8% versus the analyst’s 35% growth estimate, resulting in subscription bookings of $232.2 million, above the consensus of $218.5 million.

Duolingo expects second-quarter revenue of $238.50 million-$241.50 million versus the $233.76 million analyst consensus estimate. MacDonald expects quarterly revenue of $240.12 million.

Duolingo raised its fiscal 2025 revenue outlook from $962.50 million-$978.50 million to $987.00 million-$996.00 million versus the $977.16 million estimate. MacDonald expects fiscal revenue of $991.51 million.

Duolingo stock continued its strong run to start 2025, with shares up 23.4% year-to-date and 79.4% in the past year. While the stock is trading at a premium multiple to the comp group, and MacDonald’s new price target represents a 22.1 times EV/sales multiple on his fiscal 2025 estimates, the analyst noted that the strong year-end subscription bookings likely translate into subscription revenue growth in the mid-40s range for fiscal 2025 versus the current consensus of 38.3%.

Price Action: DUOL shares traded higher by 18.5% at $474.13 at last check Friday.

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