Duolingo Q1 2026 Earnings Call - AI Content Velocity and the Monetization Paradox

Operator: Good evening, everyone, welcome to Duolingo’s first quarter 2026 earnings webcast. Today after market close, we released this quarter’s shareholder letter, a copy of which you can find on our IR website at investors.duolingo.com. On today’s call we have Luis von Ahn, our co-founder and CEO, Gillian Munson, our CFO. They’ll begin with prepared remarks before we open the call for questions. Analysts may ask a question by using the Raise Hand feature. Please note this call is being recorded, all participants are currently in listen only mode. Before we begin, please note we’ll make some forward-looking statements regarding future events and financial performance. These statements are subject to risks and uncertainties described in our SEC filings, are based on our assumptions we believe to be reasonable as of today. We undertake no obligation to update them.

We’ll also discuss both GAAP and non-GAAP financial measures. Reconciliations between the two can be found in our earnings materials, and we encourage you to review them when evaluating our performance. Now I will turn it over to Luis.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Thanks, Debbie, and thank you all for joining. Q1 was about execution. We said we were going to prioritize teaching better and changes in the growing users, and that’s exactly what we did. DAUs grew 21% year-over-year, right in line with what we expected as we make this strategic shift. I want to spend a few minutes on what we shipped this quarter related to language learning, because teaching better is the foundation of everything we’re building toward. Speaking practice has historically been the hardest thing to do well on a mobile app. This quarter, we made it a bigger part of the experience for free users and paid subscribers. We introduced spoken tokens, which let learners speak their answers to almost any exercise.

We started rolling out Speaking Adventures, which put learners in real-world conversational scenarios. We launched Flashcards, which help learners build fast recall by saying words aloud. For our paid subscribers, Video Call keeps getting better. Over the past year, we’ve more than doubled the average number of words spoken per user in that feature. We also reached a major milestone on content. We now offer courses up to professional proficiency, which is B2 on the CEFR scale, across all our 9 most learned languages. We got there fast. In Q1 alone, we published 20,500 course units. To put that in context, that’s more than 10 times what we were shipping per quarter just 2 years ago. AI has fundamentally changed what’s possible for us. I believe we’re just scratching the surface.

The product is better than it has ever been, and I couldn’t be more excited about what’s ahead. With that, I’ll turn it over to Jillian.

Gillian Munson, Chief Financial Officer, Duolingo: Thank you, Luis. Q1 was a solid quarter. We achieved double-digit growth in both bookings and revenue, expanded gross margin, and delivered adjusted EBITDA of $83 million, which is about 29% of our revenue. As you consider 2026, it’s worth reiterating how we are thinking about the year. We are investing deliberately to set us up to be a larger, more durable long-term business. This means that for this year we are managing the business towards the targets that we shared on the fourth quarter call. Specifically, 10%-12% bookings growth, 15%-18% revenue growth, and an adjusted EBITDA margin of about 25%. To help with your modeling, we’ve provided point estimates for the full year 2026 based on what we can see today, consistent with those ranges. These are: bookings growth of roughly 10.5%, revenue growth of roughly 16.1%, and an adjusted EBITDA margin of 25.7%.

A few things we wanna make sure are on your radar as you build out your models. On bookings, our expected Q2 bookings growth of about 6% reflects a tough comp. The prior year quarter included the initial rollout of Energy, a price increase on our most popular subscription plan, and exceptional advertising performance. We do expect bookings growth to accelerate through the second half, with about three points of acceleration in Q3 and a further rise in Q4. We expect about 17% growth in Q2 for revenue, after which we expect growth to step down in Q3 before stabilizing in Q4. For gross margin, we expect it to be approximately 71% in Q2, after which it will trend down to roughly 69% by the end of the year as AI-powered feature use in our products expands. adjusted EBITDA margin in Q2 should be roughly 24%.

We expect Q3 adjusted EBITDA margin to be flat to slightly down from Q2 before approaching 27% in Q4. That’s a lot to digest, but the overall message is that 2026 is a key strategic investment year for us, and it is playing out as we expected so far, as demonstrated by the point estimates for our financials that we have shared. We enter Q2 with over $1 billion in cash, no debt, and expect to generate over $350 million in free cash flow this year. We plan to continue executing on our buyback authorization, under which repurchases to date are 514,000 shares, or about 1% of our fully diluted shares outstanding. 2026 is a big year for Duolingo, and I am very excited about what we are building. Now I’ll turn it back to the operator, and we can take your questions.

Operator: We will now begin the question and answer session. If you would like to ask a question, please use the Raise Hand bar, which can be found at the bottom of your screen. You may remove yourself from the queue at any time by lowering your hand. When it is your turn, you will receive a message on your screen asking to be promoted to a panelist. Please accept and wait a moment, and once you have been promoted, you will hear your name called, and you may unmute your video and audio and ask your question.

Alexander Sklar, Analyst, Raymond James3: Your Zoom application may disappear momentarily. This is expected, and your window will reappear. We are allowing analysts one relevant follow-up to their main question, and we will now pause a moment to allow the team to gather and assemble the queue. All right, we are waiting one moment for Wyatt Swanson with D.A. Davidson to accept. Wyatt, please turn on your video and audio and ask your question.

Alexander Sklar, Analyst, Raymond James8: Hey, thanks for the question. Appreciate it.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Hi, Wyatt.

Alexander Sklar, Analyst, Raymond James8: Awesome. Could you talk to some of the different drivers of DAU growth this quarter, and maybe entering two Q? Just talk to, like, whether it’s performance marketing, word of mouth maybe starting to return, or something else. Could you maybe also talk to what regions you’re seeing any particular strength or weakness?

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Thanks for the question. DAU growth, this is very important to us, for, of course, this is the most important thing we’re trying to do this year. We’re growing in every single region, as we have been for several years. Of course, some regions are growing faster than others. Asia, in particular, is the fastest growing region. In terms of the growth drivers, they remain pretty similar. I mean, word of mouth has historically been the main growth driver for us. Most of our users come to Duolingo through word of mouth. We have some amount of marketing, some amount of performance marketing that we’re doing. We’ve increased that budget a little bit, but it’s not massive when, you know, compared to other apps our size.

Generally, I think it’s been pretty similar to the growth drivers. The last thing that I’ll say is, historically, the other place where DAU increases is just a lot of increases in retention to the product, and that’s basically the work of, you know, just making the product stickier, and that has gone really well. We’ve been making a lot of changes to the product, some of which are small, some of which are larger, that just make retention higher. The way you would see that is just an increase in our DAU to MAU ratio, which keeps increasing pretty much every quarter, and it increased again this quarter.

Alexander Sklar, Analyst, Raymond James8: Perfect. Thanks. 1 quick follow-up. Can you maybe provide some color on how you expect DAU growth to look in 2Q, and whether 20% is still the right way to think about, you know, DAU growth going through 2026?

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Yeah. Everything we said in the last call remains. I mean, we expect that it’s going to stay at around 20% throughout the year. Now, there will be some slight ups and downs depending on the comps from last year, et cetera, but it’s around 20% for the rest of the year. Nothing has changed from the last time we spoke.

Alexander Sklar, Analyst, Raymond James8: Perfect. Thanks.

Alexander Sklar, Analyst, Raymond James3: All right, your next question will come from Ross Sandler with Barclays. We are waiting for a moment for him to accept. Ross, please turn on your audio and video and ask your question.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Hi, Ross.

Alexander Sklar, Analyst, Raymond James5: There. Hey, everybody. Think I got this thing to work. Okay. Luis, you had mentioned 2 interesting things, 90 days back as kind of part of the plan this year. One was to kind of, like, revitalize some of the engagement in the free tier, kind of like high engaging free tier, that top 20% of the free tier. Curious to hear any update on that effort. You also had mentioned that you wanted to kinda, like, get inspiration from some of the big, like, mobile gaming companies out there in terms of new things that you could potentially bring into Duolingo. Curious just to hear, you know, what you’ve learned and any new strategies on that front. Thanks.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Yeah. Thanks for the question. Okay, in terms of the free tier, I mean, we’ve basically made it so that the free tier is better than it was 2 months ago. Of course, you know, some of these changes take time. It’s only been 2 months since the last earnings call, it’s not like we’ve done, you know, 1,000 changes. We have made the free tier better. There’s just more things that are available to free users. You know, we’re very happy with that. We think that over time that’s going to really increase word of mouth. Yeah, in terms of getting inspiration from mobile games, we’ve always gotten a lot of inspiration from mobile games.

The idea, ultimately, what we’re trying to do with Duolingo is make a thing that is as good at teaching as a one-on-one human tutor, but it’s also as fun as a mobile game. That’s what we’re trying to do. You know, we keep doing that. I mean, if you look over the last quarter, some of the things that we’ve worked on, very soon you’ll see really cool Avatar costumes that’s directly coming from mobile games. I think users are gonna love that. We are, we’re doing a number of changes in terms of how we show rewards to users. I mean, you know, for example, we’re showing them as cards now, that feels really collectible. We’re doing things like that.

Another thing that is not exactly from mobile game, but that is important, and it is also important for, to mention for the free tier, one of the things that we wanna work on monetization tactics that are not at odds with the free tier, we have been finding some really good ones this quarter. One of them that is good is longer free trials. You know, historically, Duolingo has given a 7-day free trial, and that has worked well for us. We’re finding that giving longer free trials is really good in that not only does it give us more bookings, that’s good, but also it’s good for the user. It’s not, you know, they feel good. They’re like, "Ooh, I have a 1-month free," for example.

That’s something else that we’re finding that we’re pretty happy with.

Andrew Boone, Analyst, Citizens JMP: Thank you.

Alexander Sklar, Analyst, Raymond James3: Our next question will come from Andrew Boone with Citizens JMP. Please unmute your audio and video and ask your question.

Andrew Boone, Analyst, Citizens JMP: Thanks so much.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Hi, Andrew.

Andrew Boone, Analyst, Citizens JMP: taking the questions. I would love to talk about now growth and top-of-funnel at large. Can you just help us understand the deceleration there? Understood the comp and everything from last year, how do we start to think about what has been the deceleration there, and whether that needs to accelerate to support DAU growth?

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: I mean, in terms of growth, the main thing we work on here is DAU growth. That’s the main thing we have worked on for the longest of times. Monthly active user growth, there’s just no team that’s looking at that at, you know, and we do report it, but it’s just no team that’s looking at that. Related to MAU growth is top-of-funnel, and that we do work on. You know, we’re, the reality is that top-of-funnel has been about flat for, you know, certainly for this quarter, and we would like to accelerate it. We are, you know, we’re working on that. There’s a lot of stuff with marketing that I think will be really good, particularly in under-penetrated regions. I think that’s one thing.

The other one is just, you know, making changes to the product to make it teach better and be better for free users, that should accelerate word of mouth. Again, the main thing that has been responsible for our top-of-funnel historically has been word of mouth, and word of mouth is this interesting thing that is, you know, is beautiful because it’s free, but we don’t have that much control over it in terms of being able to measure it the same way that we can measure retention. We’re doing things that we think are gonna be really good for word of mouth, but we don’t have the granularity of control that we have for things like retention.

Andrew Boone, Analyst, Citizens JMP: Luis, just a strategic question in terms of keeping users on platform, right? You guys have always focused on fun.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Mm-hmm.

Andrew Boone, Analyst, Citizens JMP: It seems to me that there’s a change as we think about more of a voice front experience. Just talk to me about keeping the entertainment value and what has to change as you guys do think about in moving towards more of a voice-like experience? Thank you so much, guys.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: I don’t I understand why you say, that you may perceive a change, but internally, there’s no change in terms of fun. I mean, we are humongous believers that the hardest thing about learning something by yourself is staying motivated. Like, we have to, this really is the secret sauce of Duolingo, and what has gotten us so far is that we know that we have to motivate our users to learn something. Because there’s a very big difference between what people say and what people do. People may say they want to learn something, but ultimately, you know, they’ll do what’s most fun. We spend a lot of effort trying to make it fun.

We think that, you know, making voice and speaking be more prominent in the app does not decrease fun, and in fact, you know, our metrics suggest that it does not. It can be a pretty fun experience, we’re gonna continue doing that. Now, one thing that is important to understand about fun, all the things that get shown on the screen, you know, our beautiful animations, et cetera, it just turns out that humans are very visual creatures. You will see us continue having a lot of the, you know, very beautiful animations and kind of more game-like things, even though there’s voice in there. You’re just still gonna see all the graphics and everything that, to keep Duolingo as fun as possible.

Yeah, our teams dedicated to making the app more fun are really firing on all cylinders. You’ll see a bunch of stuff, really, in the next couple of days, for example, you’ll see this really awesome feature, which is avatar costumes. I think it’s a lot of fun. My favorite one, I dress up, and if you look at my account on Duolingo, I don’t know if your app can see it yet, but I’m dressed up as a hot dog, and I love it.

Andrew Boone, Analyst, Citizens JMP: Great. Thank you.

Alexander Sklar, Analyst, Raymond James3: Your next question will come from Eric Sheridan with Goldman.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Hi, Eric.

Eric Sheridan, Analyst, Goldman Sachs: Great to see everybody. Thanks so much for taking the questions. Maybe it’s two-parter, if I can. Luis, for you, what have been the key lessons so far in terms of scaling AI, both in terms of the user experience as well as the scaling of content for the platform over the last couple of months? Jillian, as AI scales on both sides of that equation, how should we think about what that means for margins longer business? Thanks to you both.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Yes, great question. I mean, we’re very excited about AI. In general, if you go to the highest level, what we’re trying to do here is we’re trying to make a thing that is as good as, at teaching as a one-on-one human tutor and as fun as a mobile game. The teaching part, AI is what’s going to get us there. We are really doing, you know, for example, like we said, our Video Call feature that practices conversation has gotten significantly better over the last year. The conversations are way more fluid, That’s making it so that users are basically saying twice as many words on average as they were a year ago. That’s a pretty major improvement. Similarly, like you mentioned, content.

The amount of content that we were able to put out, learning content that we were able to put out in the last quarter, has dwarfed basically everything that we’ve ever done in the past. We put out 20,500 units of content, and that’s in one quarter, and that’s more that we were putting out, like, that’s about what we put out the entire year last year. By the way, last year we already were using AI. We’re just getting better and better at using it. The other thing that I think, you know, we’re working on a lot of things. For example, models picking what exercise to give to you.

We’ve always had a model that picks what exercise to give to each user. We’re working on significantly more personalization because that’s exactly what a one-on-one human tutor does. It basically personalizes very close to you. You know, we’re very excited about that.

Gillian Munson, Chief Financial Officer, Duolingo: From a cost perspective, I think there’s 2 things to think about. One, the adoption of AI, both in terms of customer facing, and you’ll see our gross margin guidance has us landing at about 69% in the fourth quarter, and that assumes we’re going to put a lot more of that ingredient in our product. Our operating expenses, actually, we’ve started to see some pretty big increases in AI costs internally and our guidance would reflect that. We are increasing everywhere, but there’s 2, another thing going on. There are always these waves of efficiency that come with AI, so you might have AI costs come up, and then the team optimizes, and then you move forward.

If you look, for example, at the Q1 gross margin, it was even better than we would’ve expected and pretty good on a year-over-year basis, and yet there’s still a lot of new AI content in our product, and that’s because the, on a per unit basis, the costs have come down a lot. It goes in sort of these waves. The costs come down, we adopt more, and we manage that. I think as you think about the overall margins, I would expect us to be in that 69% range on the gross margin, and then we’ll manage the operating expenses accordingly.

Alexander Sklar, Analyst, Raymond James3: Your next question will come from Bryan Smilek with JPMorgan. Your line is open.

Bryan Smilek, Analyst, JPMorgan: Great, thanks. Hey, great. Thanks for taking the questions. Luis, just going back to last earnings as well, you know, obviously very good to see just overall voice being infused across the ecosystem. Can you just discuss the affiliated impact on Max overall? Right, like, are you seeing Max subscribers cross-grade down to Super? How should we think about the product market, you know, like go-to-market approach on Max now that AI is becoming more, not commoditized, but more available across the broader ecosystem?

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Yeah, thanks for that question, ’cause it helps us clarify. What we said last time was that we wanted to add Video Call to our medium tier, Super Duolingo. It’s important for us to do that because Video Call is such a good feature in terms of teaching, and we just want significantly more people to have access to it, because if they do, they’ll learn better, they’ll tell their friends, et cetera. We really believe this is the right thing to do. We’ve started doing that, so at the moment, we have a number of experiments giving Video Call to Super subscribers, particularly to new users. New Super subscribers are getting Video Call. We have not scaled this to all our existing user base, et cetera. At the moment, there’s no change for Max.

I don’t know what’s going to happen with Max. There’s a lot of possibilities, it remains, you know, again, there’s just only been 2 months since we last spoke, we just haven’t run all the different experiments. There’s some possibilities of what it could be. It could be that we lower the price of Max. It could be that, you know, we do something where we give Max subscribers unlimited Video Call versus Super subscribers, not unlimited. There’s a number of things that it could be, at the moment we’re, you know, in terms of metrics, we’re not seeing a big difference, except for the fact that new users, a cohort of new users at the moment is not even seeing Max. They’re only seeing Super.

That’s just one of the many experiments that we’re running.

Bryan Smilek, Analyst, JPMorgan: Got it. Thank you. That’s helpful. I guess, for Jillian overall, just looking at the guidance here, you know, obviously understand the tougher comp on bookings into 2Q. Can you just help me think about just puts and takes that drives the back half re-acceleration? I know, you have mentioned as well too, about 20% DAU growth was ebbs and flows in between each quarter. So would that back half guidance, you know, intuitively imply that DAUs would improve from early, you know, benefits from these ongoing product initiatives? Thank you.

Gillian Munson, Chief Financial Officer, Duolingo: Yeah. I think as you look at the second half guidance, in general, we are just planning the business based on that 20% growth basis. Really, you’re gonna maybe see some early returns on the investments we’re making, but I wouldn’t be banking on a lot of that. We’re really trying to take the long view this year, and we really wanna allow ourselves to operate in that range of bookings guidance that we gave so that we can make all the investments we wanna make and do what we think is right in terms of the customers.

When you think about the rate of growth, Q2 into Q3, Q2 is a really tough comp because of the release of Energy in particular, and a handful of other features that really made that, bookings a year ago really strong. You’ll see us bounce back from that comp, and then you’ll continue to see those, DAU numbers drive in the bookings.

Bryan Smilek, Analyst, JPMorgan: Great. Thank you both.

Alexander Sklar, Analyst, Raymond James3: Your next question will come from Nathan Feather with Morgan Stanley. Please unmute your audio, video, and ask your question.

Alexander Sklar, Analyst, Raymond James1: Hi. Hey, everyone. Thanks for taking the question. You know, the rapid increase in your ability to do content generation’s really interesting. You know, on one side, now that you have, you know, really a full core set across language learning, at least across the most common languages, are you starting to see the opportunity to kind of A/B test new content for different engagement metrics? I guess historically, have you seen, you know, an increase in, you know, retention, payer rates, you know, whatever it may be, on a higher quality of content? Kind of looking further, how does that impact your thoughts on expanding into additional subjects beyond language learning now that that kind of cost to entry is lower?

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Thanks, Nathan, for the question. Yes, one thing that is exciting about, you know, we’ve been working honestly for years to try to have the top 9 languages have content all the way to Duolingo Score 129, which we now have it. Internally, you know, I kept on going around like, "Oh, we’re almost done. We’re almost done." Somebody said something that stuck with me a lot, said, "No, no, that’s just the beginning." When we finally have all this content, and now we do, we really are in a much better spot to be able to make this content, you know, significantly get better based on how the users are performing.

We’re starting really to do that, and yes, we have seen the changes in content, certainly changes in content quality, but also in the type of contents that you show have interesting impacts on retention, particularly new user retention. We are doing a lot of experiments to see, for example, just what we teach you in the first unit matters a lot. You know, do we teach you greetings? That is one thing. Do we teach you just the words for mom and dad? That’s another possibility. You know, it actually is not as simple as it’s always better to teach you greetings. It’s not as simple as that. It’s a little more complicated than that, but generally, these things do have an impact in retention. We’re very excited about that.

You know, we’re also, you know, likely going to move to something where we have all this content, this is awesome, but we may even start generating content just for you, based on everything that we know about you. We may just be able to generate content just for you, maybe not the immediate next exercise, but, like, 2 exercises from now based on everything. We’ve just generated that sentence just for you, or that piece of content. We’re, we really are getting to that point, and that’s very exciting. In terms of other subjects, each subject has its unique, you know, unique challenges and unique things. For sure, AI is helping us be able to add new subjects faster, and chess is a great example.

I mean, we were able to add chess in about nine months. Each subject has its own types of contents that you need to add. For example, adding math was relatively easy if what you’re trying to do is add math in the way that, like, ChatGPT would show it, which is a wall of text. If you wanna add math with diagrams and, you know, user interaction, et cetera, that is harder, AI’s making it, you know, it’s definitely making it easier, but it’s still a lot harder. You’re not just, like, querying an AI to be like, "Just give me some content." It’s a lot harder to do it with all the diagrams. I guess my answer to that is, yes, it is making it easier to add more subjects.

No, it is not yet trivial to add new subjects. At the moment, we’re pretty happy with the subjects that we have. Particularly, we’re very excited about math. You saw we started this call with a video for math. We really finally got to the point where our math course really has all, pretty much all the content between grades 2 and 12, and it can actually explain things when you got things wrong. We’re very excited about that.

Alexander Sklar, Analyst, Raymond James1: Great. That’s really helpful. Then thinking about the balance sheet, you’ve got a lot of cash on there, you know, high free cashflow. I guess, what are your thoughts on what the right level of buybacks may be, or what are some potential uses of that cash going forward?

Gillian Munson, Chief Financial Officer, Duolingo: As we look at the cash, you saw we returned some level of cash back to shareholders in terms of a buyback in the quarter, and we do have a $400 million authorization, we are willing to spend that money. I think that in general, we’re largely focused on operating the business, we are investing in the business as well as we look at the business this year. Really it’s gonna be a balance of the two. Of course, on a buyback, you buy more when the stock is lower and less when it’s higher. We will look at that and look at where the stock is. We think it’s a great time to buy our stock.

It’s a great way for us to offset dilution from the last couple years as we look at the business. We like doing this, and as you can tell with our free cash flow estimates, we’re going to generate almost as much cash as that buyback is anyway in the year. That’s the balance there. From, I think your other part of capital allocation is of course M&A. We are out there in the market always looking at things, but as you’ve seen, a lot of what we’ve done is fairly small in nature. It’s not going to really hit the balance sheet so badly, or if you will, in terms of, like, a big deal. Obviously, we’ll always look at everything that’s out there, but as you’ve seen, Duolingo’s very focused on growing Duolingo, investing in Duolingo, and going from there.

Alexander Sklar, Analyst, Raymond James1: Thank you.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: GameStop wants to buy eBay. We may want to do that, too. I am kidding.

Alexander Sklar, Analyst, Raymond James3: Your next question will come from Ryan MacDonald with Needham. Please unmute your audio, video, and ask your question.

Alexander Sklar, Analyst, Raymond James6: I’m gonna leave that last comment alone to Luis a little bit.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: We’re not buying eBay, just so you know.

Alexander Sklar, Analyst, Raymond James6: Maybe can we talk about, you obviously rolled out and sort of had the announcement in late April about now that the advanced content being sort of available across all the top subjects. Now, can you talk about, from a marketing perspective, how big of an unlock that is in terms of how you’re either deploying that incremental performance marketing budget, you know, now that you have all the content available, and how we should start to think about, you know, how that maybe sort of can help to sort of replenish the top of the funnel as we go through the back half of the year and into next year?

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Yeah. In terms of, certainly in terms of performance marketing, I mean, this matters, I think, most for English learners, sorry. In terms of trying to find users that are gonna come into the platform, English learners are the ones that are most interested in more advanced content. One of the things that is interesting about Asia is in a number of large Asian markets, we can do profitable performance marketing.

You know, performance marketing at Duolingo has been this interesting thing that because our free version is so good, it has not been easy for us to do profitable performance marketing, because what happens is we acquire people, and then they’re super happy as free users. We are finding that we can do that, particularly, for example, in China, we’re able to acquire profitably. And these are English learners. In that, in that respect, these are, these are a bit related. I would say the main thing with performance marketing for us is that we just historically have under-invested in performance marketing. We are getting just a lot more professional about it in certainly this year, and I think you’ll see the results of that in the next few months.

We’re pretty excited about that, just because we’re finally, you know, building the infrastructure to have the right attribution to send users to the right place after you acquire them, et cetera, that a company our size should have probably built years ago, but we kinda just ignored it. We’re pretty excited about that.

Alexander Sklar, Analyst, Raymond James6: Awesome. Maybe from a, from a follow-up perspective, as you’re testing, Video Call in Super Duolingo for sort of a cohort, that cohort of sort of net new paid subs on Super, can you just talk about what you’re seeing thus far in terms of elasticity on pricing and the potential demand to pay incrementally, for that feature at the Super level? And Jillian, maybe then how is that informing your view on sort of gross margin profile as we move forward?

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: I mean, the main thing that I’ll say there is that we are running some tests on what the price, what the right price should be for Super with Video Call. I cannot tell you all the results because, you know, we started this work 2 months ago, it takes some time. You know, you have to build the A/B test, you have to run the A/B test for a few weeks to, like, get the results, et cetera. It’s just really been 8 weeks since we started this work. I don’t, I just don’t have a lot of results. What I, what I can tell you is that people are willing to pay more for Super with Video Call. That we know. We’ve learned that.

How much more, I, you know, I’ll be able to tell you more in a quarter or two.

Gillian Munson, Chief Financial Officer, Duolingo: Ryan, one of the reasons we’ve been really trying to focus everyone on we’re operating within a set of ranges of financials for the business, is to allow ourselves to do this kind of work, this kind of testing. Check out different ways of approaching the customer on price. All of that’s anticipated in the guidance around here are the ranges that we wanna operate in in 2026. In any given quarter it might be a little bit more, a little bit less. We anticipated that coming into the year and are executing against that. There’s no big surprises in there, and we think that the financials that we’ve laid out for 26 can accommodate that.

Alexander Sklar, Analyst, Raymond James6: Awesome. Appreciate it. Over.

Alexander Sklar, Analyst, Raymond James3: Moving forward, we are allowing analysts one relevant question in order to get through the queue. Thank you. Your next question will come from Ralph Schackart with William Blair.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Ralph.

Alexander Sklar, Analyst, Raymond James4: Luis, hey Gillian. Hopefully this is relevant. I’ll try. Luis, you know, historically, if you kinda think about it, you have a little bit of a paradox. You’ve over-monetized historically. Now maybe we’re in some sort of duration in time where you’re under monetizing the user base. Maybe just kinda stepping back, you know, can you just give us a sense, the signals that you’re looking at today, you know, what are they in terms of informing you you’re on the right path right now? You know, maybe a broader sense, when would be the right time to start monetizing again? I know it’s only been a couple months since the last call, just would love to hear you sort of riff on that. Thanks.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Yeah. It’s a great question because it really allows me to emphasize something that I’ve said before. You used the word paradox, which is, you know, kind of what we feel. We are at the same time under-monetized and over-monetized. It is a weird thing. The reality is that roughly 12% of our monthly active users are paying subscribers. We think that number should be much higher. I mean, if you look at comps of other freemium models, they’re much higher than that. You know, Spotify is close to 50%. We really think there’s a lot of room there. We should be able to get more people.

At the same time, I think, it, you know, certain types of monetization we probably overdid in the sense that, you know, we probably were making the free user experience have too much friction. The, at the crux of it was that most of our monetization tactics were kind of at odds with DAU growth. Many of them were at odds with DAU growth, which were, like, if you make the free user experience have more friction, what happens is that some more people subscribe. That’s good. That makes you money. Also, some more people leave. What we need to do and what we are doing, which I’m very excited about, is finding ways to monetize that don’t put DAU growth at odds with monetization.

Those ways exist, we’re very happy with. I mentioned 1 already, which is longer free trials. We’ve been historically at Duolingo, this is not something we’ve experimented with a lot, the length of our free trial, but if you look at other subscription businesses that are scaled, they have pretty different free trials, usually much longer than the 1 we have. You see 1 month. You’ll sometimes even see 3-month free trials. You’re going to see us experiment with that, and we are definitely seeing, certainly the 1-month experiment we already see. We are seeing that it both increases revenue, which is good, but also is not at odds with daily active users. Like, because when you give somebody, when you say, "Instead of a 7-day free trial, it’s a 1-month free trial," that doesn’t drive any user away.

They’re like, "Oh, that seems like a good thing." We’re, you know, the work that we’re doing is finding ways to monetize that are not at odds with DAU growth. They exist, and they’re just not as quick as, you know, basically adding friction to the free user experience. That’s what we’re experimenting with this year. You know, what Jillian said is exactly right. The ideas that we have this year to be able to experiment with this, we’ll probably experiment with a 3-month free trial. By the way, experimenting with a 3-month free trial is something that we said before. Well, that is something that we could have never done if we didn’t have a year like this one, because in a 3-month free trial, what happens is that your bookings get delayed by a whole quarter.

You’re saying, you know, showing up to without being able to say, "We’re gonna operate with these guidelines," which is what we did for this. Just saying, "Oh, sorry, all our bookings are gonna come next quarter. They didn’t come this quarter," It was a little weird. This is why we’re operating this way.

Alexander Sklar, Analyst, Raymond James4: Okay, great. Thanks, Luis. Appreciate it.

Alexander Sklar, Analyst, Raymond James3: Your next question will come from Mark Mahaney with Evercore. Please unmute your audio, video, and ask your question.

Alexander Sklar, Analyst, Raymond James0: Okay, thanks. I wanna, well, I want to ask about gross margins. Looks like your guidance implies that they’re gonna kind of phase down or whatever to the high 60s% in the fourth quarter. Is there a reason to think that margins hold, gross margins hold at that level? Is there a reason to think that they should recover up higher or lower? Just talk about the trajectory of gross margins after, like, how to think about what drives it higher or lower after this year.

Gillian Munson, Chief Financial Officer, Duolingo: Mark, when we think about any of the margins that have AI content in them, so let’s, you know, take gross margin, what you tend to find is as you start to introduce features, they might be more expensive to us, and then we optimize that cost over time. When you look at Q1, for example, the margin held up really nicely as compared to the year before, and that’s because our per unit AI costs have come down a lot. As we look forward, we really wanna put more and more AI as an ingredient in the product, that’s why we have the margin guidance that goes down to 69%, which is essentially where we were last quarter, too. That just implies a lot more AI content, which we think is great for the business long term.

You know, I think from a positioning perspective, it’s possible we could optimize that more, but we sort of want to be putting that much AI into the product. I think 69 is a good place to think of us exiting the year. If that works, that’s gonna give us nice growth as well. That said, this is a changing environment and, you know, some of the optimizations come faster than you expect, and you could see, you know, both up and down on that one.

Alexander Sklar, Analyst, Raymond James0: Okay. Thanks, Gillian.

Alexander Sklar, Analyst, Raymond James3: Your next question will come from Justin Patterson with KeyBanc. Please unmute your audio, video, and ask your question.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Justin, hello.

Justin Patterson, Analyst, KeyBanc: Thank you very much, and good evening. You know, I think about Duolingo as always having a high pace product philosophy around A/B tests, and the coding has certainly made it easier than ever to do lots of those. Would love to hear about how you’re thinking about just engineer productivity as a whole, the number of tests being run, and how we should think about that, you know, perhaps influencing long-term headcount needs. Thank you.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Yeah, it’s a great question. You are right. We A/B test a lot. We concurrently are running hundreds of A/B tests at all times. That has been our product philosophy, and that is how Duolingo has gotten better over time, because we just are able to increase. As soon as we set our minds on a given metric, if you just give us a few months, usually we’re able to increase that metrics. We just run a lot of A/B tests. We are finding that the number of A/B tests that we can run is increasing. We believe that that is because of AI usage, particularly in our, you know, engineering or product organization. The increase is not humongous, but it’s kinda the first time we’ve seen an increase on a per capita basis in years.

We, we do think that that is helping. I don’t know where this is going to end, but it is an interesting thing. If you look, if you looked last year, for example, like a year ago, and you were to read Twitter would’ve had you think that, you know, you can program anything you want in 5 seconds and it’s done, and why shouldn’t you be running 10,000 A/B tests at once with a single engineer? That is an exaggeration. That is just not the case. Up until very recently, we and companies that are scale like us had not seen a real increase in velocity, like, overall, but we’re starting to see that increase.

It’s still moderate, but we’re starting to see that increase, so I’m assuming that you’re gonna continue seeing that increase. I don’t think we’re gonna be able to run 10 times as many A/B tests per capita, like per engineer, but, you know, it is increasing and that’s something that we’re very happy with.

Justin Patterson, Analyst, KeyBanc: Thank you.

Alexander Sklar, Analyst, Raymond James3: Your next question will come from John Colantuoni with Jefferies.

Gillian Munson, Chief Financial Officer, Duolingo: Hi, John.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: John.

John Colantuoni, Analyst, Jefferies: Hey, great. Thanks for taking my questions. Just wanted to ask about sort of DAU trends. Can you give us a bit of color on how U.S. DAUs are trending relative to international DAUs, and what that relative geographic growth could mean for bookings over time, given U.S. users generally adopt a subscription at a higher rate than international users?

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: DAUs are growing in the U.S., and they’re growing in pretty much every country. It is true that in the U.S. they’re growing less than in many international markets. In particular, Asia is the fastest-growing market that we have, that whole region. In terms of how that affects monetization, you know, that doesn’t seem to affect it that much. It just turns out that, yes, the U.S. monetizes well, but it just turns out that a lot of countries monetize relatively well. A good example is China. China monetizes about as well as Western Europe, so, like, about as well as France, which is not as high as the U.S., but pretty high. Given that the growth rate in China, I don’t know the latest numbers, but, I mean, it’s pretty significant.

I just don’t think that The fact that the growth in the U.S. is very low just means that our bookings growth is implied to be really low. I would say that, you know, growth in the U.S., you know, my hope is that by making the product teach better and also have higher word of mouth. Also investing some in marketing in the U.S., which we historically we had not invested in actual paid marketing in the U.S. My hope is that all of those things combined will allow us to have higher year-over-year growth in the U.S. than we currently have.

John Colantuoni, Analyst, Jefferies: Okay. Thank you.

Gillian Munson, Chief Financial Officer, Duolingo: Your next question will come from Shweta Khajuria with Wolfe Research. Please unmute your audio, video, and ask your question.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Hi, Shweta.

Alexander Sklar, Analyst, Raymond James7: Hello. Thank you for taking my question. With the AI-driven content creation, there was a meaningful increase in content velocity. I guess could you please talk to how you’re managing quality of content as that continues to grow against volume, and engagement? Thank you.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Yeah. I mean, we spend a lot of. The main reason why our content is not growing even faster is because we’re trying to make sure that it is very high quality. We do a number of things. Certainly we do evaluations of our content, both with AI and with humans to try to make sure that the content is very high quality. After that, we try to test it with our own users in small amounts to see if it’s high quality, and if it is, we actually increase the number of people that we give it to. We’re trying to be very careful to make sure that the content is high quality.

It is a good point, because the reality is that as amazing as AI is, if you are not careful about the quality, you can get a lot of slop. We’re trying very hard for that not to happen. The quality of our content, I think certainly over the last 2 quarters, has actually increased. The way we know that is we basically do spot checks, and we kind of rate the quality of all the content, and we know that over the last 2 quarters, the quality has actually increased.

Alexander Sklar, Analyst, Raymond James7: Okay. Thanks, Luis.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Yeah.

Gillian Munson, Chief Financial Officer, Duolingo: Your next question will come from Omar Dessouky with Bank of America. Please unmute your audio, video, and ask your question.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Hi, Omar.

Alexander Sklar, Analyst, Raymond James2: Hi, thanks. Hi, how you doing? Well, I just wanted to get back to performance marketing for a second. You know, glad to hear that the company is treating that with a lot more seriousness. You know, the last time we spoke, I think you gave me the impression that this product would be leaps and bounds better in the future than it is today, you know, and really would change the way that people learn languages. Does the maturity of the product itself, is it a bottleneck to scaling performance advertising spend? Right? Because, you know, performance advertising typically tries to optimize specific types of behaviors, optimize for specific types of behaviors in users. You know? A, is that the case?

B, do you have any sense, like at what point you might be ready to really put the pedal to the metal, you know, assuming your organization has done all of its experiments, like when would the product be ready to really, you know, go full bore on performance marketing?

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Yeah. I mean, I would say the bottleneck for performance marketing for us has been, first of all, building the infrastructure for it to be, again, like a much more serious performance marketing machine. That is something we are doing at the moment. That’s one thing, but there’s another one, and it is not the quality of the teaching, it is mainly the problem with our how good of our free, how good our free tier is. One of the problems we’ve had depending on the region and depending on what we advertise for, et cetera, has been being able to acquire a user, and now they’re here, and actually getting them to subscribe, as opposed to acquiring a user, now they’re here, and they’re very happy users of our free product.

That’s been the main bottleneck, and that’s the thing that we need to get, you know, get over. At the moment, in some geographies we have, you know, profitable performance marketing, but in many geographies we do not.

Gillian Munson, Chief Financial Officer, Duolingo: I think the only thing.

Alexander Sklar, Analyst, Raymond James2: Okay.

Gillian Munson, Chief Financial Officer, Duolingo: I said the only thing I would add to that.

Alexander Sklar, Analyst, Raymond James2: Go ahead.

Gillian Munson, Chief Financial Officer, Duolingo: ... is that we’re making an investment in marketing this year, and it’s not just in performance marketing. Right? The team has a multi-tiered approach to marketing and to stepping up that investment that is really well thought through and has some diversity to it as well.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: A lot of diversity.

Alexander Sklar, Analyst, Raymond James2: I just, I wanna make sure that I’m not thinking about, you know, performance marketing the wrong way because, you know, I thought it would be difficult to performance market a product that isn’t stable or a product that’s not, like, mature and kind of finalized because, you know, users, you don’t actually know what you’re marketing, you know, if it’s changing so much. I just wanna make sure I’m not thinking about it the wrong way.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: I wouldn’t say that. I mean, you know, Duolingo has been around for 15 years. It has never stayed the same, and it never will. I don’t think that that’s, you know, well, that’s not going to change, but I don’t think that’s been the problem.

Alexander Sklar, Analyst, Raymond James2: Thanks.

Gillian Munson, Chief Financial Officer, Duolingo: Your next question will come from Alec Brondolo with Wells Fargo. Your line is open. Please ask your question.

Alec Brondolo, Analyst, Wells Fargo: Yeah. Hey, thanks so much for the question.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Hi.

Alec Brondolo, Analyst, Wells Fargo: I appreciate it. Hey. You mentioned, you know, how fast China’s growing. I think there’s been two really successful brand tie-in deals over the last 12 months, one with Luckin Coffee last year, I think another with Meituan in March. Are there any kind of learnings we can take as with regard to how successful those brand tie-ins have been in China, and ways to kind of extend that success to other markets over the next year? Thanks.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Thank you. I mean, you noticed the brand partnerships. We have had incredible brand partnerships in China. I think some of that is just that our IP and our brand in China are very strong, and that commands some of the largest brands wanting to partner with us. For example, we very soon have a partnership with McDonald’s in China. The very large brands wanting to partner with us, they come to us to do that. I think there’s that part. There’s also the part that I think brands in China, brands like Luckin Coffee, for example, are just a lot more open into partnerships than, you know, for example, brands in the Western world.

You just don’t see, for example, Starbucks changing all their stores every two weeks with a new brand, whereas that’s kind of what Luckin does. There’s some learning. Certainly, that team is You know, our partnerships team in China and our marketing team in China are, you know, very high performing. There’s some learnings of things that we can do in other places, particularly in Asia. I would say, some of that also has to do with the fact that it’s the China market. I will say, the other thing that I’ll say is that China’s not just growing fast because of the great partnerships. I mean, the great I think it’s kind of the other way around. I think the great partnerships are coming in part because we are growing fast and we’re seen as a very cool brand.

I mean, the reality in China is that there’s just a humongous appetite for English learning that just keeps growing and growing, and that’s the main reason why China’s is growing.

Alec Brondolo, Analyst, Wells Fargo: Thanks so much.

Alexander Sklar, Analyst, Raymond James3: Your next question will come from Alexander Sklar with Raymond James. Your line is open. Please ask your question.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Hi, Alec.

Alexander Sklar, Analyst, Raymond James: Hey, Luis. Hey, Jillian. Thanks. On the relationship between DAUs and top-of-funnel growth versus kind of the visibility you’ve talked to on the shape of the bookings inflection this year, what early tests, or maybe it’s tier or geo mix, is out there that’s providing your visibility in terms of that inflection?

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Sorry, in terms of, an inflection of.

Alexander Sklar, Analyst, Raymond James: Of bookings exiting the year.

Gillian Munson, Chief Financial Officer, Duolingo: Yeah, first, on the bookings, I think if you look at the quarterly progression, what we are guiding to as you go Q2 into Q3 into Q4, is fairly on par with where the company has been in the last couple of years. I think one of the things we wanna make sure we remind everyone of is this is, we’re playing a long game here, and the investments we’re making are. We’re gonna maybe see some things from them this year, but we’re really looking out beyond this year. 2026 is much more about operating around that 20% DAU growth and then growing the business. Right now what you’re seeing if that progression is pretty typical seasonality.

There’s been an adjustment here in Q1 and Q2 to our new monetization balance, but then in Q3 and Q4, you’re, what you’re seeing is quite typical for us.

Alexander Sklar, Analyst, Raymond James: All right. Great. Thank you.

Alexander Sklar, Analyst, Raymond James3: I’m showing no further questions. This concludes the Q&A section of the call. I would now like to turn the call back to the host for closing remarks.

Luis von Ahn, Co-founder and Chief Executive Officer, Duolingo: Thank you. Thanks, operator. I’d just like to thank everyone for joining us, and we look forward to seeing you on the next call.