Language learning company Duolingo (NASDAQ: APPROP) priced its 2021 initial public offering (IPO) at $102 per share. It has tripled in value in the short time since then.

Languages ​​have different levels of complexity, but it can take anywhere from 1,000 to 2,000 hours to learn another language well. Duolingo understands that it is important to keep students motivated, considering that they are starting a long journey. But the company is not successful simply by recognizing it; it succeeds because it has figured out how to do it do this

Learning a language can be stressful: you can learn a word, but remembering it at the right time is a challenge. Also, learning grammar rules that differ from the mother tongue is an uphill battle. But Duolingo keeps students on track by including game elements in their language learning app. As students have fun ‘playing’, stress goes down and motivation goes up.

Duolingo also has a system to keep its users engaged. Although it takes a bit more time, the company does A/B test all of its features. This constant refinement allows you to duplicate what works.

The proof is in the pudding. Just look at Duolingo user trends over the past three years:

Data source: Duolingo financial documents.

The growth of paid subscribers is especially important for Duolingo. In the third quarter of 2024, 82% of the company’s revenue came from the sale of subscriptions. Given the incredible growth of this user base, it’s no wonder their revenue has skyrocketed as well. And because the product is digital, the revenue growth has led to incredible gains free cash flowas shown in the chart below:

After three strong years on the stock market, Duolingo is gearing up for 2025. And nine artificial intelligence (AI) tools. it could be another good year.

Duolingo offers paid subscriptions that remove ads and unlock other features. But more recently, the company launched a higher subscription tier called Max that is beefed up with some generative AI features.

Ironically, there are some who actually see AI as a threat to educational enterprises in general and language learning in particular. The idea is that instead of going to a company for help, students can just rely on AI chatbots.

To be fair, the AI ​​space is young, so perhaps this risk simply needs more time to play out. But for now, heading into 2025, AI seems to be a tailwind for Duolingo. Its users can access AI features, such as a new video calling feature with its cartoon character Lily, making it feel much more like a real-life conversation. And it seems that users are willing to pay for things like this.

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