For the quarter ending June 2025, Duolingo, Inc. reported revenue of $252.27 million, marking a 41.5% increase from the previous year. Earnings per share were recorded at $0.91, a rise from $0.51 in the same period last year.
The company’s revenue surpassed expectations, beating the consensus estimate by 4.87%. Earnings per share also exceeded estimates with a 65.45% surprise compared to expectations.
Key performance metrics in the quarter included total bookings of $268 million, higher than the estimated $246.34 million. Daily active users totalled 47.7 million, slightly under the forecasted 48.37 million, while monthly active users reached 128.3 million compared to an expected 132.93 million.
At the end of the period, Duolingo had 10.9 million paid subscribers, aligning closely with the projected 10.89 million. Subscription bookings were $227.3 million, exceeding the estimate of $209.76 million. Subscription revenue saw a 46.4% increase to $210.7 million, surpassing the expected $203.58 million.
Despite these numbers, Duolingo’s shares have decreased by 12.6% over the past month, contrasting with a 0.5% rise in the Zacks S&P 500 composite. The stock has a Rank #4 (Sell), indicating potential underperformance against the broader market.
Based on the recent quarterly report from this past June, we are seeing a classic conflict between strong financial performance and weakening user growth. While Duolingo beat revenue and earnings estimates soundly, the miss on both daily and monthly active users is what the market is focusing on. This user growth concern is the primary reason the stock has fallen 12.6% over the last month, even as the broader market edged up.
Given this negative momentum and the market’s clear anxiety over user acquisition, we believe a bearish stance is warranted in the coming weeks. The most direct play would be to purchase put options with expirations in September or October 2025. This strategy would profit from a continued slide in the stock price as the market digests the user growth slowdown.
However, implied volatility for Duolingo options is likely elevated following the earnings announcement and subsequent price drop. Looking at data, it is common for post-earnings IV to remain higher than the baseline, creating an opportunity for premium sellers. Therefore, a bear call spread could be a more prudent strategy, allowing us to profit if the stock moves down, sideways, or even slightly up, while defining our risk.
We have seen this pattern before with high-growth tech stocks. Looking back to the fourth-quarter 2024 report, a similar beat on financials but a slight miss on user guidance led to an initial dip, followed by a period of sideways trading. This historical behavior supports the idea that the stock may struggle to find upward momentum in the near term.
For those with a contrarian view, the argument is that the 12.6% drop is an overreaction to a minor user miss, especially when paid subscriber numbers were solid. A trader believing the stock has been oversold could establish a bull put spread. This would allow us to collect premium with the thesis that the stock has found a near-term bottom and will not fall significantly further.
Online chatter among analysts seems to be split, with some lowering price targets due to the user metrics and others calling it a buying opportunity based on strong subscription revenue. This division creates uncertainty, which typically keeps option premiums rich. We feel that selling premium through spreads, rather than buying options outright, is the superior approach to navigate this environment.
