Duolingo’s shares rose 15% on Wednesday after the market closed, having hovered around the 6% range for the past year.
Language learning app Duolingo Inc. recently raised its earnings forecast for the year, following a strong quarter for its subscription services, which resulted in the company’s shares surging in post-market trading.
Having projected an expected full-year revenue of $996.5 million, Duolingo has now estimated its revenue to oscillate between $1.01 billion and $1.02 billion, up from the previous $987 million to $996 million.
Duolingo’s shares rose 15% on Wednesday after the market closed, having hovered around the 6% range for the past year. The company also announced that it has geared up for its biggest acquisition to date, taking over NextBeat, a London-based music gaming startup.
This buyout broadens its services, going beyond the language learning games it currently offers. Duolingo currently only offers piano courses, but upon acquiring NextBeat’s 23-member team, the company can develop more music courses. Both parties have refrained from publicly revealing the actual value of the deal.
In a Bloomberg interview, Duolingo Chief Business Officer Bob Meese hinted that the app could offer courses like guitar, voice and rhythm. Meese said that Duolingo is experimenting with various options to offer a distinct music experience for its users.
One of the reasons for this pivot for the language learning partner could be the fall in users. In this year’s second quarter, Duolingo reported a 40% increase in daily active users, the platform’s weakest expansion since 2022. In April, the Pittsburgh-based company drew severe backlash for aggressively pushing artificial intelligence-enabled (AI) courses. Duolingo defended its decision, explaining that AI was helping the platform rapidly expand its language courses. The company planned to launch 148 new courses developed with generative AI, more than doubling its non-English courses.
The company maintained that this latest expansion is the largest thus far and would attract over a billion learners worldwide. Duolingo’s co-founder and Chief Executive Officer, Luis von Ahn, said, despite criticism over the company’s eagerness to replace people with AI to curate the app’s content, the firm would soon employ AI in other parts of the business too. The platform is headed to a point where it could gradually stop hiring contractors to do a job which can be reduced to an AI prompt.
In May, news broke that subscriptions for the platform’s highest-priced tier, Duolingo Max, have been growing due to the AI-powered video call feature. The total number of paid subscribers reached 10.3 million, narrowly surpassing expectations. Daily active users also grew 49% to 46.6 million since the new features were released.
Although the company is in the nascent stages of AI integration, that subscription tier is more popular among users despite the higher costs. Learners who are already subscribed to the Duolingo Super plan are upgrading their subscriptions to Max merely for the AI feature.
The company said that profits were compromised in its attempt to attract new users through its AI features. Gross margins dropped in the past quarter, reaching 72.4%, compared to the 73.4% it was last year during the same period. Duolingo stated that since AI costs were lower than expected, the fall in profitability was smaller than previously expected.
Along with its foray into AI, the platform is also expanding its content services to offer more non-language courses. Along with languages and music, the ‘Super app’ also offers mathematics and added chess earlier this year. It hopes that this diversification will result in more significant offerings from its non-language courses. Duolingo also said in a statement that NextBeat’s mobile gaming suite has generated a revenue of roughly $200 million.
Duolingo started as an interactive language learning platform and is now looking to expand into non-language courses to widen its user base. Despite paid subscription plans, the app is managing to garner more consumers with its innovative approach to learning.