The Business Model (How They Make Money)

Duolingo, Inc. (DUOL) makes money by teaching people new languages and other subjects like math, music, and chess through its popular mobile app. Think of it like a game that helps you learn. They offer a "freemium" model, which means you can use the basic app for free, but they also have ways for you to pay for extra features.

Their main ways of earning money are:

• Paid Subscriptions: The biggest chunk of their revenue comes from users who subscribe to "Super Duolingo" (formerly Duolingo Plus). This subscription removes ads and provides additional features, offering a smoother learning experience. As of December 31, 2025, about 9% of their monthly active users were paid subscribers.
• Advertising: For users who prefer to use the app for free, Duolingo displays advertisements. This generates revenue from companies looking to reach Duolingo's large user base.
• Duolingo English Test (DET): They also offer an online English proficiency test that is accepted by many universities worldwide. People pay a fee to take this test. In 2025, revenue from the Duolingo English Test was $42.006 million.

In 2025, Duolingo achieved a significant milestone, surpassing $1 billion in annual revenue, reaching $1.04 billion for the full year. For the first quarter of 2026, the company reported revenue of $292 million.

The Metrics That Matter Most

For Duolingo, understanding how they grow their user base, convert free users to paying subscribers, and manage their investments in product development and marketing is key. Here are the most important metrics to watch:

1. Revenue: This metric tells you the total amount of money Duolingo brings in from all its sources – subscriptions, ads, and the English test. For a company like Duolingo, which is still focused on expanding its reach and user base, consistent revenue growth shows that more people are using their services and that their monetization strategies are working. Duolingo's full-year 2025 revenue was $1.04 billion.
2. Net Income: This is the company's profit after all expenses, including taxes, have been paid. While Duolingo is investing heavily in growth, a healthy net income indicates that they are managing their costs effectively and can turn their revenue into real profit. In 2025, Duolingo reported a net income of $414.1 million.
3. Free Cash Flow (FCF): Free cash flow shows how much cash a company has left after paying for its operating expenses and necessary investments in its business, like new equipment or software. It's a strong indicator of a company's financial health and its ability to fund future growth, pay down debt, or even buy back its own shares without needing to borrow more money. Duolingo generated $360.4 million in free cash flow in 2025.
4. R&D Expenses (Research & Development Expenses): For a technology and education company like Duolingo, R&D expenses are crucial. This money is spent on creating new courses, improving the learning experience with features like AI, and expanding into new subjects like math and music. High R&D spending suggests the company is innovating and investing in its future product offerings to keep users engaged and attract new ones.
5. S&M Expenses (Sales & Marketing Expenses): Duolingo relies on attracting a large number of users to its free platform, hoping to convert some into paying subscribers. Sales and marketing expenses reflect how much the company is spending to get its app in front of potential learners and encourage them to use it. For a consumer-facing app, effective S&M is vital for user acquisition and brand building.

How to Value This Company

The most relevant valuation metric for Duolingo is the P/Sales (Price/Sales) ratio.

Here's why: The P/Sales ratio compares a company's stock price to its total revenue. You calculate it by taking the company's total market value (stock price multiplied by the number of shares) and dividing it by its total revenue over the last year.

For a company like Duolingo, which is still in a significant growth phase and prioritizing user expansion, the P/Sales ratio can be a very useful tool. While Duolingo is profitable, many growth companies reinvest a lot of their earnings back into the business, which can sometimes make their net income (and therefore P/E ratio) fluctuate. The P/Sales ratio focuses on the "top line" (revenue), which is often more stable and indicative of a growth company's underlying business momentum.

A higher P/Sales ratio generally means investors are willing to pay more for each dollar of the company's sales, often because they expect strong future revenue growth. By looking at Duolingo's P/Sales ratio and comparing it to similar growth companies in the tech or education sector, you can get a sense of whether its stock is considered cheap or expensive relative to its ability to generate sales.