Stock Deep Dive - Duolingo
The EdTech giant with high growth, strong returns, and a long runway ahead
Welcome to another edition of Deep Dives.
I’m sure you’ve heard of Duolingo—the wildly popular language-learning app was named “Marketer of the Year” in 2024, and millions of people use the app on a daily basis to improve their linguistic skills.
The company is growing fast, with revenue surpassing $740 million in 2024. In this deep dive, we’ll explore what makes Duolingo unique and whether it’s a compelling investment opportunity. (Spoiler: it probably is)
What You’ll Read Today
Duolingo’s History
Duolingo’s Business
Products
Moat
Key Financials
Management
Conclusion
Risks
Valuation
Duolingo’s History
Duolingo began as an academic project at Carnegie Mellon University in 2009, founded by professor Luis von Ahn and his graduate student Severin Hacker. Both wanted to work on something related to education and saw a clear opportunity in language learning. Recognizing that most language learners often lack the financial resources, they saw a gap in the market—traditional language learning was expensive, leaving many people without access.
Von Ahn grew up in Guatemala and witnessed firsthand how access to high-quality education could change lives. That belief became the foundation of Duolingo and remains central to the company’s mission today:
“Our mission is to develop the best education in the world and make it universally available.”
The Duolingo app launched in 2012 with a waiting list of around 500,000 people. A year later, it had grown to 5 million users and became the No. 1 free education app on the Google Play Store. Over the following years, Duolingo went through multiple rounds of funding before going public in 2021.
Today, Duolingo has over 116 million active users and offers courses in over 40 languages. The company has since expanded beyond languages, introducing subjects like math and music. Its iconic mascot, Duo the Owl—symbolizing knowledge and given the color green to tease Hacker, who hated green—has evolved alongside the company.
Both Von Ahn and Hacker remain at the company today, with Von Ahn as CEO and Hacker as CTO.
Duolingo’s Business
Products
Duolingo operates through a single business segment—its flagship app—where users can learn languages, math, and music in over 40 languages. Language courses, however, are by far the most important product, with math and music as new initiatives. The following product overview will focus on the language courses, and I’ll briefly talk about math and music later.
The company follows a freemium business model, generating revenue through subscriptions, advertising, in-app purchases, and more. All of Duolingo’s courses, however, remain completely free. Users can access and complete courses without any paywalls, a strategy used for two key reasons:
The more users on the platform, the greater the word-of-mouth effect, fueling organic growth with minimal marketing costs.
Over a billion exercises are completed daily, providing Duolingo with massive amounts of data to refine engagement and enhance learning experiences.
Free users still contribute to revenue through ads and in-app purchases.
For those who choose to subscribe, Duolingo offers two premium options:
Super Duolingo
This subscription enhances the learning experience with:
No ads
Unlimited “Hearts” (removing restrictions on making mistakes)
Mistake review
Additional features to support learning
Duolingo Max
Duolingo Max includes all the benefits of Super Duolingo, plus AI-driven features:
Personalized feedback on answers
Roleplay with Duolingo characters to practice real-world conversations
Video call with Lily to engage in on-demand video conversations with one of Duolingo’s characters, Lily.
Beyond its app, Duolingo also offers the Duolingo English Test (DET)—a low-cost, internet-based language proficiency exam. The test is accepted by over 5,600 educational programs worldwide, including top schools such as Yale, Stanford, and MIT, which is what makes it valuable for learners in the first place.
Finally, Duolingo offers Duolingo for Schools, a web-based tool making it easier for teachers to use Duolingo in a structured learning environment, and Duolingo ABC, an app that teaches young children early literacy skills.
The courses are created through a combination of in-house experts and volunteer contributions. The fact that volunteers contribute to a multibillion-dollar company highlights the strength of Duolingo’s mission-driven culture.
All Duolingo courses align with the Common European Framework of Reference for Languages (CEFR), ensuring learners progress through recognized proficiency levels.
A key differentiator of Duolingo’s courses is its gamification approach. Unlike traditional courses, Duolingo is designed to feel more like a mobile game than a strict educational product. Lessons are bite-sized, engaging, and structured to keep learners coming back.
Key features that set Duolingo apart from traditional methods:
Personalization
The app adjusts lesson difficulty based on each learner’s progress. Duolingo always aims to strike a balance between the familiar and more challenging content, as research shows giving learners the right level of difficulty—right at the edge of what they know—pushes them.
Interactivity
Duolingo is designed with interactive exercises, allowing learners to immediately use what they are learning. Learning-by-doing is Duolingo’s approach.
Friendly Competition
Leaderboards and streaks—part of the platform’s gamification—encourage a return to learning and give a sense of accomplishment.
Humor & Joy
The app is filled with joyful experiences and lighthearted content. Duolingo characters are cheerful, each with their own personality and backstories.
One might believe that Duolingo is a much less effective learning method, but that’s generally not true. There are many studies—both internal and independent—highlighting the effectiveness of Duolingo, some even showing the app is comparable to university-level learning, which is particularly impressive given that learners use Duolingo for just 5-20 minutes per day.
Duolingo’s subscriptions generate the majority of revenue (81% in 2024), while other revenue consists mainly of advertising, the DET, and in-app purchases.
Moat
Duolingo’s competitive advantage is built on brand strength, a data-driven network, and accessibility.
Language learning comes in different forms—traditional offline classes, self-study, online platforms, and more. While Duolingo faces competition from other online services, no single competitor matches its scale. Offline alternatives are significantly more expensive and require greater commitment, while most online options either lack a free version or limit access to a trial period.
Duolingo stands out as the most accessible option, both in price and flexibility.
As a result, the company has over 116 million active users, with which it has the largest collection of language-learning data in the world. Duolingo uses its vast amounts of data to continuously improve the product.
“We leverage this data by developing novel AI models at the intersection of machine learning, natural language processing, and cognitive science, which enable personalized instruction and power new product features that drive both engagement and efficacy.”
Duolingo’s scale allows it to conduct relentless A/B testing, constantly optimizing its features.
The platform’s learner network fuels two self-reinforcing flywheels: the learning flywheel and the investment flywheel. The learning flywheel works as more learners generate more data, improving engagement and efficacy. A better experience leads to more word-of-mouth growth, further expanding the user base. The investment flywheel is more straightforward—growth enables Duolingo to reinvest in product improvements, which attracts even more users, continuing the cycle.
Duolingo’s third competitive advantage is its brand. Duolingo’s brand has quickly become one of the most recognizable brands in the world. Its playful, often unhinged marketing on social media, has cemented its place in pop culture. Duo the Owl, the company’s mascot, is infamous for its “aggressive” yet humorous approach to motivating users.
As of this writing, Duolingo has 16.7 million followers on TikTok, one of the largest brand accounts on the platform.
But brand awareness alone isn’t enough. A strong brand must also attract users. Duolingo has done exactly that—its app is ranked #1 in education in both the App Store and Google Play Store.
Through its data-driven approach, viral marketing, and powerful flywheels, Duolingo has built a unique moat—one that should only widen over time.
Key Financials
Revenue
As a relatively young company with a recent IPO, Duolingo has only six years of financial data available. It will have to do.
Revenue growth has been strong, reflecting its status as a high-growth company. In 2024, revenue grew 41% year-over-year, with a five-year CAGR of 60%.
This top-line expansion is driven by user growth, especially paid subscribers. Duolingo’s user growth has been phenomenal, reaching over 116 million monthly active users (MAUs) by the end of 2024—up from just 27 million in 2019. Daily active users (DAUs) are at 40.5 million, while nearly 10 million users have subscribed to a paid plan.
Importantly, DAU and paid subscriber penetration, as a percentage of MAUs, have increased consistently. Users are more engaged than they were six years ago, and a growing percentage are opting for paid subscriptions. Today, over 34% of MAUs use the app daily, while more than 8% are paying subscribers. Sustaining this trend will be important for long-term revenue growth.
How will Duolingo continue to grow revenue? There are several growth drivers and tailwinds that should support continued growth:
Language Courses
Duolingo’s core product remains its language courses. With an estimated 1.5 billion people learning a new language worldwide, Duolingo’s 116 million users represent just a fraction of this market. As the most accessible language-learning platform, the company has significant room for further user growth.
Beyond expanding the user base, improving the product itself is key to growing paid conversions. One common criticism, for instance, has been Duolingo’s lack of conversational practice. However, the introduction of Duolingo Max, powered by generative AI, now addresses this issue. Features like these should help drive further adoption and increase revenue.
Expansion Beyond Languages
Duolingo’s mission is to develop the best education in the world, not just language learning. The company has recently expanded into math and music courses, which are still in their early stages but growing rapidly. Combined, these courses already have 3 million DAUs and are scaling faster than the language courses.
CEO Luis von Ahn recently shared insights about Duolingo’s math course:
“We have the equivalent of probably third to the fifth-grade roughly of content. But of course, there's a lot more we want to put. We want to have all of K-12 and maybe even some college math in there.”
AI is accelerating Duolingo’s ability to expand these courses. And this is just the beginning—if Duolingo eventually offers a full suite of academic subjects, its total addressable market could be enormous.
Secular Trends
Several long-term trends work in Duolingo’s favor:
Digitalization & mobile-first preferences
Rising smartphone adoption in emerging markets
Globalization driving demand for language learning
Profitability
Duolingo recently turned profitable, with 2024 marking the first year of positive operating income. The company posted an operating profit of $62.6 million, or an 8.4% operating margin.
Operating expenses are largely R&D, which could be considered an intangible investment to some extent. A portion of SG&A (excluding R&D) could also be capitalized, potentially revealing a much more profitable business.
Duolingo’s free cash flow consistently exceeds operating income, because of high stock-based compensation, high interest income, and efficient working capital management. Based on 2024 free cash flow, Duolingo trades at a 2.2% free cash flow yield or a 1.2% adjusted free cash flow yield.
Calculating ROIC is tricky, as most of Duolingo’s investments run through the income statement. Excluding excess cash, invested capital is negative, due to negative working capital and minimal long-term assets.
Working capital is negative because of high deferred revenue, as users prepay for subscriptions, creating a liability that smooths revenue recognition over time.
Even after capitalizing R&D and SG&A as intangible investments, Duolingo’s ROIC remains exceptionally high. The company operates with minimal physical assets and requires little reinvestment to grow.
Financial Health
Duolingo’s balance sheet is strong, with no debt and over $870 million in cash and equivalents. Interest income from this cash position has been meaningful in recent years, and the company’s cash reserves continue to grow.
With strong cash flow generation and minimal reinvestment needs, returning cash to shareholders could be a future possibility.
Management
Duolingo is still led by its founders, Luis von Ahn as CEO and Severin Hacker as CTO. Their track record is the company’s entire history, which speaks for itself.
I think both Von Ahn and Hacker stand out because of their backgrounds. Von Ahn is a professor, and while he had entrepreneurial experience before founding Duolingo, this venture is a different scale entirely. Hacker was a graduate student when they co-founded the company. You could say the two are outsiders. Von Ahn’s background gives him meaningful knowledge to shape Duolingo into an effective learning platform—something that’s also useful as the company looks to expand beyond its core language courses.
Both founders have considerable skin in the game. Duolingo’s shares are split into Class A and Class B shares, with the Class B shares—which carry 20 votes per share—owned entirely by the founders, split almost evenly. Together, Von Ahn and Hacker control nearly 80% of the total voting rights, and their shares can be converted into Class A shares, which are publicly traded, at any time.
Von Ahn owns 3,547,231 shares, worth around $1 billion
Hacker owns 3,558,147 shares.
These shares make up the majority of their net worths.
Conclusion
Risks
Competition
Duolingo faces competition from a wide range of players. While other online educational tools may offer similar quality, they tend to be more expensive. Traditional education obviously remains a competitor, but is far less accessible. Duolingo also competes with less obvious players, such as AI chatbots and educational content via social media, podcasts, games, news, and even real-life interactions. These are all methods to learn a language.
Duolingo, however, is stronger than many of its peers. It has the largest network of learners, a strong brand that drives word-of-mouth marketing, and the most accessible platform.
AI
Some argue that AI will make language learning obsolete. Real-time translation and AI-powered assistants could reduce the need for learning a language, particularly for casual use. While AI may address such needs, language learning is deeply tied to culture, human connection, and personal enjoyment. It will also remain important for things like career advancement and citizenship.
Branding
Duolingo benefits greatly from its strong brand. However, brands are fragile and can be hard to maintain. If Duolingo fails to nurture its brand image, its growth could slow, and marketing costs may increase to sustain awareness and user engagement.
Recession
The potential for a recession poses a significant risk. Since its founding in 2012, Duolingo has never been in a recession, and it’s likely that subscription churn would rise in a recession, even though the platform is relatively low-cost. That said, most of Duolingo’s content is free, so users might continue using the app even in tough economic times.
Valuation
Duolingo’s stock has dropped over 33% in the past month, with the price now hovering below $270 (updated yesterday). At a 2.2% free cash flow yield, it doesn’t appear overly expensive given the company’s growth prospects.
Using a 10-year reverse DCF with a 10% discount rate, Duolingo would need to grow its free cash flows 19% annually, which seems more than achievable in the early years but could be difficult later.
For 2025, the company expects 30% revenue growth with moderate margin expansion, suggesting that 19% free cash flow growth is much too conservative. Say Duolingo achieves 33% free cash flow growth in 2025, the company would only need to grow free cash flow by 17% in subsequent years—achievable, though likely still low in the early stages. This growth level seems feasible but might not provide a strong margin of safety.
When solving for the discount rate, assuming an initial 33% growth that slows to 10% by year 10, we could expect an annual return of 11.5%—not bad at all.
However, both calculations don’t factor in dilution from stock-based compensation. And as Duolingo is still a young and relatively unproven company, I would prefer a larger margin of safety. While the growth story and opportunities are exciting, at this price, the risk seems just too high for me.
I'll be keeping an eye on Duolingo from the sidelines for now. It has the potential to be a strong addition to the portfolio, and with the current market weakness, a buying opportunity could come soon.
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Disclaimer: the information provided is for informational purposes only and should not be considered as financial advice. I am not a financial advisor, and nothing on this platform should be construed as personalized financial advice. All investment decisions should be made based on your own research.
Nice writeup. Have you ever heard of Language Transfer? It's the best language learning tool I have ever come across and it's free.
Thanks so much for this. Duolingo is a cool story, but it's sticker shock when I see it at 100x forward earnings, no?