While an A.I. pivot has spurred unprecedented user growth at Duolingo, the popular language learning app’s costly new strategy has received a frostier embrace from investors. The company exceeded Wall Street’s expectations yesterday (Feb. 27) with a record quarterly revenue of $209.6 million between October and December, up 39 percent increase year-over-year. However, Duolingo shares plummeted 17 percent today, its biggest drop in 10 months, after earnings per share came in lower than expected and gross margin narrowed for the quarter.
Most of Duolingo’s A.I. costs are tied to an OpenAI-powered video call feature introduced last year, CEO Luis von Ahn told analysts yesterday. Offered to subscribers of Duolingo Max, the company’s most expensive subscription offering, it allows users to practice their language skills in virtual conversations with a fictional character known as Lily.
The tool has been a “key driver” of Duolingo’s success with its premium tier, which now accounts for 5 percent of all paying users, the CEO said. The company’s paid subscriber base, which includes Duolingo Max and a more affordable option, has shot up by 43 percent year-over-year to 9.5 million.
Von Ahn, who co-founded the language-focused company in 2011, currently has an estimated net worth of $1.2 billion. He broke into Silicon Valley by creating the CAPTCHCA verification system that determines whether computer users are human and which was sold to Google in 2009. Duolingo, meanwhile, went public in 2021 and has since soared in popularity, counting more than 40.5 million daily active users at the end of 2024.
Subscriptions soar with A.I.
Duolingo’s adoption of A.I. was a major driver of user growth in recent months, according to von Ahn, who defended his company’s tech spending during Duolingo’s earnings call. “We know that these costs can be optimized in a lot of ways,” he said. But for the time being, Duolingo is “trying to go as fast as possible in generating the best possible features,” given the “unique opportunity” presented by the emerging technology, he added.
Elevating Duolingo’s video call feature remains a key priority for the 2025. “At the moment, Lily is not necessarily your best friend yet,” said von Ahn, who hopes to eventually offer a more personalized chatbot that will remember past conversations and “ask you about your problems.”
The app’s video call feature is now available across most of its international customer bases—with the notable exception of China, which blocks access to OpenAI’s technology. It has been especially successful amongst users looking to learn English, noted von Ahn. “This is the only feature we have ever put in the app that gets used twice as much by English learners vs. non-English learners,” he said.
‘Unhinged’ marketing stunts
A.I. alone isn’t solely responsible for Duolingo’s growth. The app has made a name for itself with its “unhinged and viral marketing campaigns,” noted the company in its recent earnings report. Promotional strategies like a fake ice-skating musical and a partnership with Netflix (NFLX) that riffed on the popular Squid Games series have boosted the company’s user and brand growth, according to Duolingo.
The company’s recent quarter was also marked by a media marketing ploy surrounding its beloved owl mascot Duo. Duolingo’s social media posts declared the character faked his own death earlier this month—although he remained alive for users in Japan since “joking about death is not as kosher” there, according to von Ahn. After users completed daily lessons to revive Duo, the mascot was brought back to life two weeks later.
“He’s back to doing what he does best: pestering everyone to keep up their lessons,” said von Ahn.
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