Aug 5 (Reuters) - Duolingo forecast third-quarter revenue below Wall Street expectations on Wednesday, tempering optimism from its stronger user growth forecast as the language-learning company prioritizes boosting engagement over near-term monetization.
Its shares slumped more than 10% in extended trading.
The company has been putting user growth ahead of near-term monetization this year, testing ways to increase subscription revenue without adding friction for its large base of free users.
CEO Luis von Ahn said Duolingo now expects daily active user (DAU) growth to remain above 20% for the rest of the year, reflecting product improvements, stronger retention and marketing efforts.
DAU, a key measure of engagement, grew 23% to 58.7 million during the second quarter, ahead of Visible Alpha estimates, although paid subscribers came in slightly below consensus.
"We're enabling our teams to do more to grow DAU and not be as primarily focused on monetization in this moment because we think it can set us off on a much healthier plane to get to 100 million DAUs," Chief Financial Officer Gillian Munson told Reuters.
The company also pointed to lower AI costs, which helped lift gross margins. Munson said Duolingo is increasingly using open-source AI models for some features that do not require its most advanced systems, helping drive costs down.
Second-quarter revenue rose 18% to $298.5 million, beating analysts' average estimate of $295.6 million, according to data compiled by LSEG. Its adjusted core profit also topped expectations.
The company said product improvements, broader rollout of AI-powered features such as Video Call, and more disciplined performance marketing boosted engagement during the quarter.
It also cited a one-time "Streak Revival" campaign that brought millions of inactive users back to the platform, though the management said sustained growth would be driven primarily by improvements in retention and learning outcomes rather than temporary promotions.
The company projected third-quarter revenue of about $302 million, below analysts' estimate of about $304 million. It reaffirmed its full-year revenue forecast.
(Reporting by Akash Sriram in Bengaluru; Editing by Shilpi Majumdar)
