AI drives a surge in user subscriptions, Duolingo's daily active users in Q2 soar 40% year-on-year, raises full-year revenue guidance | Earnings Report Insights

With the significant enhancement of user engagement and subscription conversion through AI features, language learning platform Duolingo's second-quarter performance exceeded expectations. The financial report released on Wednesday showed that Duolingo's second-quarter revenue and profit both surpassed expectations, and the company raised its full-year guidance. The daily active users (DAU) surged by 40% year-on-year, with DAU growth far outpacing MAU growth, indicating a significant increase in user stickiness. Specifically: Financial performance beats expectations: The company's second-quarter revenue reached $252.3 million, a 41% year-on-year increase, far exceeding Wall Street's expectation of $240.7 million; net profit soared to $44.8 million, or $0.91 per share, significantly surpassing the expected $0.59, nearly doubling from the same period last year. Raised full-year revenue guidance: The company raised its full-year revenue guidance to a range of $1.01 billion to $1.019 billion, breaking the $1 billion mark for the first time, higher than the previous forecast of $987 million to $996 million. Core business data strong: Daily active users (DAU) surged 40% year-on-year to 47.7 million, with growth far outpacing the 24% increase in monthly active users (MAU). Total bookings skyrocketed 84% year-on-year, indicating improved paid conversion efficiency. AI strategy shows significant results: AI has become the core driver of the company's growth and profit. The AI-enhanced subscription service (Duolingo Max) has become key to attracting users to pay, while the company revealed that the cost of using AI tools is far lower than expected, directly boosting gross margins. Additionally, AI is being used to efficiently generate course content, greatly enhancing expansion efficiency. Boosted by the strong financial report, Duolingo's stock price surged nearly 19% in after-hours trading. AI Features Become Subscription Growth Engine Duolingo's financial report showcases an almost perfect growth story: the flywheel effect driven by user stickiness has formed, and AI not only generates revenue at the front end but also optimizes costs at the back end, bringing profits that exceed market expectations. According to the company, AI-driven product differentiation is key to paid conversion. The AI features integrated into the Duolingo Max subscription service, such as video call practice with chatbots, personalized error analysis, and reinforcement feedback tools, attract users to upgrade from "Super" to "Max." Meanwhile, AI has also brought unexpected margin expansion to Duolingo, which is a huge expectation gap. The market typically believes that integrating advanced AI features will erode margins due to the high costs of calling large language models. However, Duolingo's Chief Financial Officer Matt Skaruppa stated that the cost of using AI tools this quarter has "significantly decreased," far below the company's initial expectations. This means that while Duolingo enjoys revenue growth brought by AI, its cost pressures are decreasing, directly driving improvements in gross margins Performance Guidance Upgraded, Business Landscape Expanded Based on strong performance, Duolingo has raised its full-year booking guidance, now expecting a year-on-year growth of 32%. The company anticipates a 28% increase in bookings for the third quarter, with a median growth of 27% at constant exchange rates. The revenue guidance range for the third quarter is set at $257 million to $261 million, exceeding Wall Street's expectation of $253 million. The full-year revenue expectation has been upgraded to $1.01 billion to $1.019 billion, surpassing analysts' previous expectation of $996.6 million. While the core business is thriving, Duolingo announced the acquisition of the team from music game startup NextBeat and stated that it has seen "encouraging early signals" from its newly launched chess course. These moves signify a significant evolution in the company's strategy: transitioning from a vertical language learning tool to a broader, gamified online learning platform, aiming to build a comprehensive "gamified learning platform" covering music, mathematics, and more, which is expected to expand the potential market space (TAM) and lay the groundwork for future long-term growth narratives