Duolingo's AI-Powered China Surge Impresses Bullish Analyst

Zinger Key Points

Duolingo’s AI-driven video calls and premium Max subscriptions are boosting engagement and revenue growth.
U.S.-based Chinese learners surged 216% YoY, driven by seasonal trends and Duolingo’s strong marketing push.
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Duolingo Inc DUOL just delivered another masterclass in keeping learners hooked, and Wall Street is taking notes. Shares surged as much as 7% on Thursday, and JPMorgan's Bryan M. Smilek sees plenty of upside, reiterating an Overweight rating and a $400 price target.

Enter Lily: Video Calls & AI = A Winning Formula

So, what's driving the rally? Enter Lily, Duolingo's AI sidekick, which can now initiate video calls—not just on iOS but also on Android and five new languages. With Japanese and Korean set to join the mix, Duolingo is tapping deeper into a Google Play-powered revenue stream that accounted for 19% of bookings last quarter. The broader video call rollout, complete with transcripts and expressive animations, isn't just a novelty—it's a calculated move to boost engagement and monetization.

Duolingo Max, the company's GenAI-driven premium tier, is also gaining traction. Smilek estimates Max subscriptions will jump from 450,00 in 2024 to 1.37 million in 2025, generating $153 million this year—nearly one-fifth of subscription revenue. A well-timed New Year's campaign offering 20% off Max has further sweetened the deal for language learners looking to level up.

US-Based Chinese Learners Surge – But Why?

Adding another twist to the story is an unexpected surge in U.S.-based Chinese learners, up 216% year-over-year. Speculation swirls around RedNote, a Chinese learning app some see as a TikTok alternative amid potential U.S. bans.

However, Smilek isn't buying RedNote as a game-changer for Duolingo. Instead, he points to seasonal trends—New Year's resolutions and the upcoming Chinese New Year on Jan. 29 – along with Duolingo's own marketing firepower, which has seen impressions rise 80% over the past year.