Delve into the fascinating world of Duolingo’s AI transformation, which has ignited impressive user growth while encountering a lukewarm reception from investors. This language learning app defied expectations by generating a record $209.6 million in revenue from October to December, showcasing a 39% increase from the previous year. Despite this achievement, Duolingo’s shares faced a setback, dropping 17% as earnings per share fell short of projections and gross margin tightened for the quarter.

A significant portion of Duolingo’s AI expenses can be attributed to a video call feature powered by OpenAI, unveiled by CEO Luis von Ahn last year. Available exclusively to Duolingo Max subscribers, this feature allows users to practice their language skills through virtual conversations with a fictional character named Lily.

Lily has been instrumental in driving the success of Duolingo’s premium tier, now accounting for 5% of all paying users. The company’s paid subscriber base, encompassing Duolingo Max and a more affordable option, has surged by 43% year-over-year, reaching 9.5 million.

Von Ahn, the co-founder of Duolingo, boasts an estimated net worth of $1.2 billion. He gained recognition in Silicon Valley for creating the CAPTCHA verification system, which was later acquired by Google in 2009. Since going public in 2021, Duolingo has gained immense popularity, with over 40.5 million daily active users by the end of 2024.

AI integration has been a key driver of Duolingo’s recent user growth, as highlighted by von Ahn during the earnings call. While acknowledging the potential for optimizing tech costs, Duolingo is currently focused on delivering exceptional features to capitalize on the opportunities presented by emerging technology.

One of the company’s priorities for 2025 is enhancing the video call feature, with von Ahn envisioning a more personalized chatbot that can recall past conversations and address users’ queries. Although the feature is accessible to most international users, it is unavailable in China due to restrictions on OpenAI’s technology. It has resonated particularly well with English learners, who utilize it twice as much as non-English learners.

In addition to AI advancements, Duolingo’s growth can be attributed to its unconventional and viral marketing campaigns. From a faux ice-skating musical to a collaboration with Netflix inspired by the popular series “Squid Games,” the app has captured attention with its ‘unhinged’ marketing strategies.

The latest quarter featured a marketing stunt centered around Duolingo’s iconic owl mascot, Duo. Social media posts hinted at Duo’s demise, prompting users to complete daily lessons to revive him. This playful approach not only engaged users but also motivated them to stay committed to their language learning journey.