For the quarter ending June 2025, Duolingo, Inc. reported a revenue of $252.27 million, which is a 41.5% increase compared to last year. Earnings per share rose to $0.91 from $0.51 in the same period last year. The company’s revenue exceeded expectations, beating estimates by 4.87%. Earnings per share also surpassed forecasts with a surprise of 65.45%. Key figures for the quarter included total bookings of $268 million, higher than the estimated $246.34 million. Daily active users were 47.7 million, slightly below the forecast of 48.37 million, while monthly active users hit 128.3 million, again lower than the anticipated 132.93 million. At the end of the quarter, Duolingo had 10.9 million paid subscribers, close to the projected 10.89 million. Subscription bookings totalled $227.3 million, beating the estimate of $209.76 million. Subscription revenue increased by 46.4% to $210.7 million, surpassing the expected $203.58 million. However, despite this strong performance, Duolingo’s shares have dropped by 12.6% in the past month, while the Zacks S&P 500 composite rose by 0.5%. The stock holds a Rank #4 (Sell), suggesting it may underperform the broader market. This recent quarterly report highlights a conflict between Duolingo’s strong financial results and slowing user growth. While the company beat revenue and earnings estimates, the shortfall in daily and monthly active users is worrying investors. This user growth issue is why the stock has fallen 12.6% in the past month, even as the overall market has risen. Given the ongoing negative sentiment and investor concerns about user acquisition, a bearish approach seems appropriate for the upcoming weeks. A practical strategy would be to buy put options with expiration dates in September or October 2025. This approach could yield profit if the stock price continues to decrease as investors react to the user growth slowdown. However, implied volatility for Duolingo options may be higher following the earnings report and the stock price drop. It is common for post-earnings implied volatility to stay elevated, which could present opportunities for premium sellers. Therefore, a bear call spread could be a wise strategy, allowing us to benefit if the stock moves down, remains stable, or even increases slightly, while managing our risk. We have seen this pattern with high-growth tech stocks before. In the fourth-quarter 2024 report, strong financials but a slight miss in user guidance caused an initial drop, followed by sideways trading. This historic behavior suggests that the stock may struggle to gain momentum in the near future. For those taking a contrarian stance, they might argue that the 12.6% drop is an overreaction to a minor user miss, particularly since paid subscriber numbers were solid. Traders believing the stock has been oversold could set up a bull put spread. This could help collect premium, betting that the stock has hit a near-term bottom and will not drop significantly further. Analysts’ opinions are divided, with some lowering price targets due to the user metrics and others viewing it as a buying opportunity because of strong subscription revenue. This division creates uncertainty, which typically leads to higher option premiums. We believe that selling premium through spreads, rather than buying options outright, is the better strategy for navigating this environment.

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