Duolingo: A Mispriced Growth Story in 2026

In the ever-evolving EdTech landscape, Duolingo (DUOL) has emerged as a paradox: a company whose stock price has underperformed despite robust user growth and financial metrics that suggest a compelling long-term narrative. As of late 2025, the stock trades at a forward P/E ratio of 23x and an EV/Revenue multiple of 6.9x, significantly below its historical averages and those of peers. This valuation dislocation, coupled with user retention rates that outpace AI disruption fears, positions Duolingo as a compelling case study in undervalued growth.

User Retention: The Bedrock of Sustainable Growth

Duolingo's ability to retain users is a cornerstone of its success. By mid-2025, the platform reported and 50.5 million daily active users (DAUs), representing 24% and 36% year-over-year growth, respectively. These figures are underpinned by a Current User Retention Rate (CURR) that has improved by 21% over four years. For context, a CURR of 80% means 80% of users active today were also active yesterday-a metric Duolingo has consistently optimized through AI-driven personalization. Features like Explain My Answer and Roleplay provide real-time feedback, while the introduction of 148 new language courses in Q1 2025 expanded engagement avenues.

Critics argue that AI chatbots like ChatGPT-5 could commoditize language learning. However, Duolingo's data tells a different story: its chess course, a non-language offering, achieved higher retention rates than traditional language courses, and the addition of player-vs-player (PVP) features is expected to further boost social engagement. Even as AI tools proliferate, Duolingo's gamified, bite-sized learning model-optimized for mobile-first users-remains unmatched in converting casual learners into long-term subscribers.

Financial Performance: Profitability Meets Scalability

Duolingo's financials underscore its scalability. For the twelve months ending September 30, 2025, revenue reached , a 39.86% year-over-year increase. Subscription revenue, which accounts for over 80% of total revenue, grew to in 2025. This monetization success is reflected in a 73% gross margin and a 14.69% net profit margin for the full year.

The company's AI-driven efficiency has further amplified profitability. By automating content creation and personalization, Duolingo has reduced unit economics costs, enabling it to scale without sacrificing margins. For instance, the Q3 2025 earnings report highlighted a , demonstrating that growth and profitability are not mutually exclusive.

Valuation Dislocation: A DCF-Driven Case for Undervaluation

Despite these fundamentals, Duolingo's stock has declined 42.9% year-to-date in 2025. This disconnect between performance and price is stark when viewed through a discounted cash flow (DCF) lens. A DCF analysis estimates Duolingo's intrinsic value at $477.73 per share, nearly 61% above its late-2025 price of $185. This suggests the market is underappreciating the company's long-term cash flow potential, particularly as it transitions to a "Max" subscription model, which offers premium AI tutoring and has driven a 34% year-over-year increase in paid subscribers.

Valuation multiples also highlight dislocation. While the company's forward P/E of 23x aligns with the S&P 500, its EV/Revenue of 6.9x is significantly lower than the 7.52x average for competitors. This discount is further justified by Duolingo's superior user base scale-500 million registered users-which creates a formidable moat against rivals like Babbel and Rosetta Stone, whose smaller datasets limit their ability to personalize.

Competitive Landscape: AI as a Force Multiplier, Not a Threat

Duolingo's AI strategy has not only insulated it from disruption but also accelerated its lead. Competitors like Italki and Busuu rely on human tutors, incurring higher costs and scalability limitations. Meanwhile, AI-native platforms, while innovative, lack Duolingo's network effects. For example, while ChatGPT-5 can generate language exercises, it cannot replicate Duolingo's 130 million MAUs or its data-driven insights into user behavior.

The company's focus on AI-powered "conversational practice" and Duolingo Max-which offers live tutoring and adaptive learning-has further differentiated it. These features, combined with a in Q1 2025, position Duolingo to capture a larger share of the $12 billion global language-learning market.

Conclusion: A Mispriced Moat in a Disrupted World

Duolingo's valuation dislocation is a function of short-term market skepticism, not long-term fundamentals. Its user retention rates, driven by AI-enhanced personalization and gamification, have outpaced disruption risks. Financially, the company is scaling profitably, with a DCF model suggesting significant upside. While competitors struggle with scalability or AI integration, Duolingo has weaponized AI to strengthen its moat. For investors, this represents a rare opportunity to capitalize on a growth story mispriced by current market dynamics.