Duolingo's Q2 2025: Unpacking Contradictions in User Growth, Subscription Performance, and AI Efficiency

User growth and engagement, Max subscription performance, AI cost savings and efficiency, DAU growth and market performance, Max's growth and conversion impact are the key contradictions discussed in Duolingo's latest 2025Q2 earnings call.



Strong User Growth and Engagement:
- Duolingo reported 40% year-over-year growth in daily active users (DAUs) for Q2, which was slightly lower than expected, partly due to social media sentiment.
- The reduction in DAU growth was primarily due to a cautious social media approach following backlash from previous edgy posts, mainly affecting the United States and young audiences.

International Growth and China Strategy:
- Duolingo's fastest-growing market is China, with significant contributions from partnerships like the collaboration with Luckin Coffee.
- The company's strategy focuses on increased marketing spend in regions like the U.S. to drive DAU growth and buffer against slower growth in fully penetrated markets.

Product Innovation and New Course Offerings:
- The introduction of new subjects like Chess, Math, and Music has shown promise, with Chess surpassing Math and Music in English user interface growth on iPhones.
- While the impact on revenue is still minimal, the company believes these new subjects broaden appeal, enhancing user retention and driving longer-term growth.

Economies of Scale and Cost Optimization:
- Duolingo's gross margin benefited from reductions in AI costs, including lower API calls and token costs, contributing to profitability improvements.
- The company continues to explore opportunities in pricing and product experimentation as AI costs continue to decrease, affecting both existing and international markets.