In the AI Era, Duolingo Is Betting on Humans

Duolingo (DUOL) just made another move to strengthen what keeps its users coming back. The company recently acquired Animade, a London-based animation and motion design studio known for character animation and playful, interactive design. The deal folds Animade into Duolingo’s growing Design Studio. On its own, a small animation acquisition might not seem like much. But it fits neatly with how Duolingo believes it continues to grow. The company’s whole model runs on engagement. Its cast of characters, streaks, and animations are what make lessons feel like a game rather than a chore. Buying a studio built around exactly that kind of work feeds directly into the product experience that keeps users hooked on Duolingo. 

The Timing Lines Up With a Strong Quarter

The purchase comes barely a week after Duolingo reported earnings, and the deal is in line with what management focused on in its earnings call transcript. Management linked the 23% year-over-year (YoY) growth in daily active users to product improvements. CEO Luis von Ahn reinforced the point, saying the results back the company’s strategy to improve the product and prioritize user growth. Current-user retention also hit an all-time high, with von Ahn noting that a better product is both bringing learners back and keeping them there. 

So the Animade deal is more of a continuation of what the company has spent years building. Duolingo has made user growth its clear priority, even at the cost of near-term margins, and it’s now buying the creative talent that supports that goal. The company also framed the deal as a bet on human creativity at a time when AI is making software faster and cheaper to build. Its view is that as the functional side of products becomes easier to replicate, the craft that makes them feel delightful is what sets them apart. As the company’s head of design, Mig Reyes, put it, motion design “has become a core part of how we help learners understand, enjoy, and return to Duolingo every day.”

About DUOL Stock 

Duolingo is an online learning company that offers a mobile app for learning languages. It offers 250 language courses, such as Spanish, English, French, German, Italian, Portuguese, Japanese, and Chinese. The company also provides an English proficiency test that can be taken online. Founded in 2011, the company is based in Pittsburgh, Pennsylvania. 

Over the last 12 months, DUOL stock has lost around 60% of its value, significantly underperforming the S&P 500’s ($SPX) 21% gain during the same period. The decline was driven by a strategic shift. Duolingo decided to prioritize user growth and engagement rather than maximizing monetization. As a result, the company saw slower bookings growth and lower profitability in 2026. The stock was also down 26% on a year-to-date (YTD) basis.

Duolingo’s valuation looks far more reasonable than it did during its hypergrowth years. The forward GAAP price-to-earnings (P/E) of 48.15x doesn’t have a meaningful 5-year average to compare against, since the company’s GAAP profits are relatively recent. The forward price-to-sales (P/S) ratio of 5.15x paints a clearer picture, sitting about 60% below its 5-year average of 12.89x. That PS ratio indicates the stock is trading at a steep discount to its historical norms. The EPS outlook falls in line with the company’s own strategy. As Duolingo spends on user growth at the expense of near-term profit, analysts expect earnings to fall around 68% in 2026. In the following years, though, the growth is expected to recover, with analysts projecting an increase of 23% in 2027 and 21% in 2028. 

The balance sheet gives the company room to invest without leaning on borrowing. Duolingo holds $1.31 billion in cash against just $86 million in debt, leaving it essentially debt-free, and it still generates healthy free cash flow. For investors, this is a company trading well below its historical multiple while it invests through a softer patch. If the user growth pays off, today’s discount could end up looking like an opportunity. 

Duolingo Targets 16% Revenue Growth in 2026

Duolingo reported its second-quarter fiscal 2026 earnings on Aug. 5. It reported revenue of $298.45 million, up 41% from a year earlier. The earnings per share came in at $0.66, comfortably beating the Wall Street consensus of $0.58. The company’s daily active users were up 23% year-over-year (YoY). Its free cash flow stood at $79 million in the quarter. Another highlight of the quarter was Streak Revival. The company noted more than 15 million learners revived their streaks in the month of June. 

Looking forward, for full-year 2026, Duolingo expects booking growth of about 11% and revenue growth of roughly 16%. The company expects a gross margin of about 70%, while adjusted EBITDA is expected to be $320 million. For the third quarter, it guided for bookings of about $307 million, revenue of $302 million, a gross margin of 71%, and adjusted EBITDA of about $76 million, implying a 25.2% margin. Management also expects Video Call to roll out to more Super subscribers over the next few months.

What Do Analysts Expect for DUOL Stock?

The analysts remain divided on DUOL stock. Needham analyst Ryan MacDonald reiterated a “Buy” rating on the stock and set a price target of $145. His “Buy” rating is based on the company’s strong second quarter performance, highlighted by a notable acceleration in daily active user growth to 23%. Moreover, he believes new revenue sources such as an ad-supported subscription tier could help the company generate more revenue. Lower AI costs could reduce demand for the company’s premium Max tier and put pressure on revenue. He believes the company’s long-term growth opportunities and product innovation efforts outweigh those concerns. In contrast, Wells Fargo analyst Alec Brondolo maintained a “Sell” rating with a price target of $80. 

Based on 23 Wall Street analysts covering the stock, DUOL holds a consensus “Hold” rating. Out of those, two have a “Strong Buy” rating, one has a “Moderate Buy,” 18 have a “Hold,” one has a “Moderate Sell,” and one has a “Strong Sell” rating. The mean price target of $119.23 sits below the current share price. The high price target of $150 reflects investor confidence in the long-term growth prospects of the company.