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DATE
Monday, May 4, 2026 at 5 p.m. ET
CALL PARTICIPANTS
- Chief Executive Officer — Luis von Ahn
- Chief Financial Officer — Gilian Munson
- VP, Investor Relations — Deborah Belevan
TAKEAWAYS
- Daily Active Users (DAUs) -- Grew 21% year over year, led by faster expansion in Asia and supported by rising DAU-to-MAU retention ratios.
- Revenue Growth -- Reported double-digit growth, with Q1 aligning to a full-year target of 15%-18% and point estimate for 2026 at 16.1%.
- Bookings Growth -- Achieved double-digit increase, management reaffirms a 10%-12% full-year growth range and provides 10.5% point estimate for 2026.
- Adjusted EBITDA -- Delivered $83 million, equal to approximately 29% of revenue for the quarter.
- Gross Margin -- Expanded year over year, with Q1 outperforming internal expectations; Q2 guidance is 71%, trending down to 69% by year's end due to increasing AI-driven product adoption.
- Adjusted EBITDA Margin Guidance -- Targeted at 25% for the year; point estimate given at 25.7% for 2026, expecting Q2 at roughly 24% and a rise to 27% in Q4.
- Free Cash Flow -- Expected generation of over $350 million in 2026, supported by a cash position exceeding $1 billion and no debt.
- Share Repurchases -- 514,000 shares reacquired under buyback authorization, representing about 1% of fully diluted shares outstanding.
- AI-Generated Content -- Published 20,500 course units in the quarter, more than tenfold the historical rate two years ago, enabled by AI acceleration.
- Professional Proficiency Courses -- All nine most learned languages now supported up to B2 level on the CFR scale.
- DAU Growth Outlook -- Management reiterates 20% expected annual growth, with minor quarterly fluctuations anticipated based on prior-year comparables.
- Performance Marketing Investment -- Increased budget, especially in underpenetrated regions and Asia, where profitable user acquisition is notably occurring in China.
- Product Feature Innovation -- Rolled out spoken tokens, speaking adventures, expanded flashcards, improved video call, and gamified avatar costumes; focus on enhancing both free and paid user experiences.
- Segment Monetization Rate -- Approximately 12% of monthly active users are paying subscribers, with management targeting material uplift over time.
- Guidance for Q2 Bookings and Revenue -- Bookings growth expected at about 6% due to a tough comp, while revenue is forecast to grow 17%, with sequential bookings acceleration projected in the second half.
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RISKS
- Gilian Munson said, "we have started to see some pretty big increases in AI costs internally," with margin pressure expected as gross margin trends down to 69% by year-end from expanded AI feature usage.
- Top-of-funnel growth for monthly active users was described as "about flat." Management is working to accelerate user acquisition, notably in underpenetrated regions.
- Bookings growth in Q2 is expected to decelerate to about 6%, attributed to "a tough comp" from the prior year, including the initial rollout of energy and a price increase on the most popular subscription plan.
- Gross margin compression is anticipated as AI-powered features increase. Per-unit costs are declining, but aggregate costs are rising alongside adoption.
SUMMARY
Duolingo (DUOL 0.36%) reported 21% daily active user growth, double-digit increases in both revenue and bookings, and an adjusted EBITDA margin reaching 29% in Q1, exceeding the full-year target of about 25%. The company accelerated product delivery, publishing 20,500 new course units and achieving professional proficiency coverage for its nine most learned languages, all driven by AI advancements. Management reaffirmed annual growth expectations, outlined sequential acceleration in second-half bookings, and emphasized investments in marketing and monetization experiments. The company is preparing for increased AI-related operating expenses moderating gross margin to 69% by year-end.
- Duolingo is piloting longer free trial durations to support revenue growth without constraining daily user metrics, departing from earlier monetization tactics that added user friction.
- Asia, particularly China, leads the company's regional DAU expansion. Profitable performance marketing is now possible in select geographies due to improved infrastructure and advanced content for English learners.
- Ongoing experiments target maximizing subscriber conversion, notably by expanding video call features to the Super tier. A/B testing is scaling through enhanced engineer productivity enabled by AI.
- Management highlighted a sustained investment approach for 2026, balancing share repurchases, product innovation, and possible M&A, leveraging strong free cash flow and high cash reserves.
- Quality control in AI-generated content production combines automated and human evaluation. Internal metrics indicate a rise in content quality alongside output volume.
INDUSTRY GLOSSARY
- CFR scale (Common European Framework of Reference for Languages): An international standard used to describe language proficiency levels, with B2 indicating upper intermediate proficiency.
- DAU-to-MAU Ratio: A metric representing daily active users as a percentage of monthly active users, indicating user engagement and retention.
- Spoken Tokens: Interactive features allowing users to speak responses in platform exercises and receive instant feedback during language practice.
Full Conference Call Transcript
Luis von Ahn: 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 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 are 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 that let learners speak their answers to almost any exercise. We started rolling out speaking adventures, which put learners in real-world conversational scenarios. And we launched flashcards, which help learners build fast recall by saying words aloud. And for our paid subscribers, video call keeps getting better. Over the past year, we have 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 CFR scale, across all our nine most learned languages. And we got there fast. In Q1 alone, we published 20 thousand five hundred course units.
To put that in context, that is more than 10 times what we were shipping per quarter just two years ago. AI has fundamentally changed what is possible for us, and I believe we are just scratching the surface. The product is better than it has ever been, and I could not be more excited about what is ahead. And with that, I will turn it over to Gilian Munson.
Deborah Belevan: Thank you, Luis von Ahn.
Gilian Munson: 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 is 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% to 12% bookings growth, 15% to 18% revenue growth, and an adjusted EBITDA margin of about 25%.
To help with your modeling, we have 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 want to 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 expect about 17% growth in Q2 for revenue, after which we expect growth to step down in Q3 before stabilizing in Q4. 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. 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.
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 thousand shares or about 1% of our fully diluted shares outstanding. 2026 is a big year for Duolingo, Inc., and I am very excited about what we are building.
And now I will turn it back to the operator, and we can take your questions.
Operator: We will now open the call for questions. 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. 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. Alright. We are waiting one moment for Wyatt J. Swanson with DA Davidson to accept. Wyatt J. Swanson, please turn on your video and audio and ask your question. Good.
Wyatt J. Swanson: Thanks for the question. Appreciate it. Hi, Wyatt J. Swanson. Awesome. Could you talk to some of the different drivers of DAU growth this quarter and maybe entering Q2? Just talk to whether it is performance marketing, word-of-mouth maybe starting to return, or something else. And could you maybe also talk to what regions you are seeing any particular strength or weakness?
Luis von Ahn: Yeah. Thanks for the question. So, DAU growth, this is very important to us for, of course, this is the most important thing we are trying to do this year. We are growing in every single region, as we have been for several years. But, of course, some regions are growing faster than others. Asia in particular is the fastest growing region. And 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, Inc. through word-of-mouth. We have some amount of marketing, some amount of performance marketing that we are doing.
We have increased that budget a little bit, but it is not massive when compared to other apps our size. But, generally, I think it has been pretty similar to the growth drivers. And the last thing that I will say is, historically, the other place where DAU increases is just a lot of increases in retention to the product. And that is basically the work of just making the product stickier. And that has gone really well. We have 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.
Wyatt J. Swanson: Perfect. Thanks. And then one quick follow-up. Can you maybe provide some color on how you expect DAU growth to look in Q2 and whether 20% is still the right way to think about DAU growth going through 2026.
Luis von Ahn: Yeah. Everything we said in the last call remains. I mean, we expect that it is 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, etcetera, but it is around 20% for the rest of the year. Nothing has changed from the last time we spoke.
Wyatt J. Swanson: Perfect. Thanks.
Operator: Your next question will come from Ross Adam Sandler with Barclays. We are waiting for a moment for him to accept. Ross Adam Sandler, please turn on your audio and video and ask your question. Hi, Ross Adam Sandler. Hey, everybody. Think I got this thing to work? Okay.
Ross Adam Sandler: Luis von Ahn, you had mentioned a couple interesting things ninety days back as kind of part of the plan this year. One was to kind of revitalize some of the engagement in the free tier, kind of high-engaging free tier, that top 20% of the free tier. So curious to hear any update on that effort. Then you also had mentioned that you wanted to get inspiration from some of the big mobile gaming companies out there in terms of new things that you could potentially bring into Duolingo, Inc. So, yeah, curious just to hear what you have learned and any new strategies on that front? Thanks.
Luis von Ahn: Yeah. Thanks for the question. Okay. So in terms of the free tier, we have done a few things. We basically made it so that the free tier is better than it was two months ago. Of course, some of these changes take time. It is only been two months since the last earnings call, so it is not like we have done a thousand changes. But we have made the free tier better. There are just more things that are available to free users, and we are very happy with that. We think that over time, that is going to really increase word-of-mouth.
In terms of getting inspiration from mobile games, we have always gotten a lot of inspiration for mobile games. And the idea, ultimately, what we are trying to do with Duolingo, Inc. is make a thing that is as good at teaching as a one-on-one human tutor but it is also as fun as a mobile game. That is what we are trying to do. And we keep doing that. I mean, if you look over the last quarter, some of the things that we have worked on, very soon you will see really cool avatar costumes that is directly coming from mobile games. I think users are going to love that.
We are doing a number of changes in terms of how we show rewards to users. For example, we are showing them as cards now and that feels really collectible. We are doing things like that. Another thing that is not exactly from mobile games, but that is important, and it is also important to mention for the free tier. One of the things that we mentioned last time is that we want to work on monetization tactics that are not at odds with the free tier. And we have been finding some really good ones this quarter, and one of them that is good is longer free trials. Historically, Duolingo, Inc. has given a seven-day free trial.
That has worked well for us. We are finding that giving longer free trials is really good in that not only does it give us more bookings, that is good, but also it is good for the user. They feel good. They are like, oh, I have one month free, for example. So that is something else that we are finding that we are pretty happy with.
Operator: Thank you.
Operator: Our next question will come from Andrew M. Boone with Citizens JMP. Please unmute your audio and video and ask your question.
Andrew M. Boone: Thanks so much for taking the questions. I would love to talk about MAU growth and top of funnel at large. Just help us understand the deceleration there, understood the comp and everything from last year. But 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: Yeah. I mean, it is not just my team that is looking at that. Now related to MAU growth is top of funnel, and that we do work on. The reality is that top of funnel has been about flat for certainly for this quarter, and we would like to accelerate it. And we are working on that. There is a lot of stuff with marketing that I think will be really good, particularly on underpenetrated regions. I think that is one thing. And then the other one is just 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 top of funnel historically has been word-of-mouth. And word-of-mouth is this interesting thing that is beautiful because it is free, but we do not have that much control over it in terms of being able to measure it the same way that we can measure retention. So we are doing things that we think are going to be really good for word-of-mouth. But we do not have the granularity of control that we have for things like retention.
Andrew M. Boone: And then, Luis von Ahn, just a strategic question in terms of keeping users on platform. Right? You all have always focused on fun. It seems to me that there is 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 all do think about moving towards more of a voice-like experience? Thank you so much.
Luis von Ahn: I understand why you say that you perceive a change, but internally, there is no change in terms of fun. I mean, we are humongous believers that the hardest thing about learning something by yourself is staying motivated. This really is the secret sauce of Duolingo, Inc. What has gotten us so far is that we know that we have to motivate our users to learn something. There is a very big difference between what people say and what people do. People may say they want to learn something, but ultimately, they will do what is most fun. So we spend a lot of effort trying to make it fun.
We think that making voice and speaking be more prominent in the app does not decrease fun. And, in fact, our metrics suggest that it does not. It can be a pretty fun experience. So we are going to continue doing that. Now one thing that is important to understand about fun: all the things that get shown on the screen, our beautiful animations, etcetera, it just turns out that humans are very visual creatures. So you will see us continue having a lot of the very beautiful animations and more game-like things even though there is voice in there. You are still going to see all the graphics and everything to keep Duolingo, Inc. as fun as possible.
Our teams dedicated to making the app more fun are really firing in all cylinders. And you will see a bunch of stuff really in the next couple of days. For example, you will see this really awesome feature, which is avatar costumes. I think it is a lot of fun. My favorite one, I dress up in—if you look at my profile on Duolingo, Inc., I do not know if your app can see it yet—but I am dressed up as a hot dog, and I love it.
Deborah Belevan: Great. Thank you.
Operator: Your next question will come from Eric Sheridan with Goldman. Please unmute your audio video and ask your question.
Eric Sheridan: Hi, great to see everybody. Thanks so much for taking the questions. Maybe a two-parter if I can. Luis von Ahn, 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 scale of content for the platform over the last couple of months? And, Gilian Munson, as AI scales on both sides of that equation, should we think about what that means for margins longer term? Thanks to both.
Luis von Ahn: Yes. Great question. We are very excited about AI. In general, if you go to the highest level, what we are trying to do here is we are trying to make a thing that is as good at teaching as a one-on-one human tutor and as fun as a mobile game. The teaching part, AI is what is going to get us there. We are really doing—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, and that is making it so that users are basically saying twice as many words on average as they were a year ago.
So that is a pretty major improvement. Similarly, like you mentioned, content, the amount of learning content that we were able to put out in the last quarter has dwarfed basically everything that we have ever done. We put out 20 thousand five hundred units of content, and that is in one quarter, and that is about what we put out the entire year last year. And, by the way, last year we were already using AI. So we are just getting better and better at using it. And the other thing that I think, you know, we are working on a lot of things, for example, models really picking what exercise to give to you.
We have always had a model that picks what exercise to give to each user, but we are working on significantly more personalization because that is exactly what a one-on-one human tutor does. It basically personalizes very close to you. So we are very excited about that.
Gilian Munson: And then from a cost perspective, I think there are two things to think about. One, the adoption of AI both in terms of customer facing, and you will see our gross margin guidance has us landing at about 69% in the fourth quarter, and that assumes we are going to put a lot more of that ingredient in our product. And then our operating expenses: we have started to see some pretty big increases in AI costs internally, and our guidance would reflect that. But 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.
So if you look, for example, at the Q1 gross margin, it was better than we would have expected and pretty good on a year-over-year basis. And yet there is still a lot of new AI content in our product. And that is because on a per-unit basis, the costs have come down a lot. So it goes in these waves. The costs come down, we adopt more, and we manage that. But 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 will manage the operating expenses accordingly.
Operator: Your next question will come from Bryan Michael Smilek with JPMorgan. Your line is open. Unmute your audio video and ask your question. Great. Thanks. Hey. Great. Thanks for taking the questions.
Bryan Michael Smilek: Luis von Ahn, 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? Are you seeing Max subscribers cross-break down to Super? Or how should we think about the product-market, go-to-market approach on Max now that AI is becoming more—not commoditized—but more available across the broader ecosystem?
Luis von Ahn: Yeah. Thanks for that question because it helps us clarify. So what we said last time was that we wanted to add video call to our medium tier, Super Duolingo. It is 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 will learn better, they will tell their friends, etcetera. So we really believe this is the right thing to do. We started doing that. 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, etcetera. So at the moment, there is no change for Max. I do not know what is going to happen with Max. There are a lot of possibilities, and it remains that there has only been two months since we last spoke, so we just have not run all the different experiments. But there are some possibilities of what it could be. It could be that we lower the price of Max. It could be that we do something where we give Max subscribers unlimited video call versus Super subscribers not unlimited.
There are a number of things that it could be, but at the moment, in terms of metrics we are not seeing a big difference except for the fact that a cohort of new users at the moment is not even seeing Max. They are only seeing Super. And that is just one of the many experiments that we are running.
Bryan Michael Smilek: Thank you. That is helpful. And I guess, for Gilian Munson overall, just looking at the guidance here, you know, obviously understand the tougher comp on bookings into Q2. Can you just help me think about the puts and takes that drive back-half reacceleration? I know you have mentioned as well about 20% DAU growth with ebbs and flows in between each quarter. So would that back-half guidance, intuitively, imply that DAUs would improve from early benefits from these on-couple product initiatives? Thank you.
Gilian Munson: 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. So, really, you are going to maybe see some early returns on the investments we are making, but I would not be banking on a lot of that. We are really trying to take the long view this year. And we really want to allow ourselves to operate in that range of bookings guidance that we gave so that we can make all the investments we want to make and do what we think is right in terms of the customers.
So 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. And so you will see us bounce back from that comp, and then you will continue to see those DAU numbers drive into bookings.
Operator: Great. Thank you both. Your next question will come from Nathaniel Jay Feather with Morgan Stanley. Please unmute your audio, video and ask your question.
Nathaniel Jay Feather: Thanks for taking the question. You know, the rapid increase in your ability to do content generation is really interesting. On one side, now that you have really a full course set across language learning, at least across most common languages, are you starting to see the opportunity to A/B test new content for different engagement? And I guess, historically, have you seen an increase in your retention, pay rates, whatever it may be, on a higher quality of content? And then kind of looking further, how does that impact your thought on expanding into additional subjects beyond language learning now that cost to entry is lower?
Luis von Ahn: Yeah. Thanks, Nathaniel Jay Feather, for the question. So, yes, one thing that is exciting about—you know, we have been working honestly for years to try to have the top nine languages have content all the way to Duolingo score 129, which we now have. Internally, I kept on going around like, oh, we are almost done, we are almost done. And somebody said something that stuck with me a lot. They said, no, no, no. That is just the beginning. Because 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 significantly get better based on how the users are performing.
So we are starting to do that. And, yes, we have seen that changes in content—certainly changes in content quality, but also in the type of content that you show—have interesting impacts on retention, particularly new user retention. So we are doing a lot of experiments to see, for example, just what we teach you in the first unit matters a lot. Do we teach you greetings? That is one thing. Do we teach you just the words for mom and dad? That is another possibility. And it actually is not as simple as it is always better to teach you greetings. It is not as simple as that. It is a little more complicated than that.
But generally, these things do have an impact in retention. And so we are very excited about that. And we are also 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, two exercises from now. Based on everything, we have just generated that sentence just for you, or that piece of content. So we really are getting to that point, and that is very exciting. In terms of other subjects, each subject has its unique challenges and unique things.
So, 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. But each subject has its own types of content that you need to add. So, for example, adding math was relatively easy if what you are trying to do is add math in the way that ChatGPT would show it, which is a wall of text. But if you want to add math with diagrams and user interaction, etcetera, that is harder, but AI is making it easier. It is still a lot harder than just querying an AI to be like, just give me some content.
It is a lot harder to do it with all the diagrams. So I guess my answer to that is yes, AI is making it easier to add more subjects; no, it is not yet trivial to add new subjects. And at the moment, we are pretty happy with the subjects that we have. Particularly, we are 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 pretty much all the content between grades two and twelve. And it can actually explain things when you got things wrong. So we are very excited about that.
Nathaniel Jay Feather: Great. That is really helpful. And then thinking about the balance sheet, you have got a lot of cash on there, high free cash flow. What are your thoughts on what the right level of buybacks may be? Or what are some central uses of that cash going forward?
Gilian Munson: 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. We do have a $400 million authorization, so we are willing to spend that money. I think that in general, we are largely focused on operating the business. So we are investing in the business as well as we look at the business this year. So, really, it is going to be a balance of the two. And, of course, on a buyback, you buy more when the stock is lower and less when it is higher. So we will look at that and look at where the stock is.
We think it is a great time to buy our stock. It is a great way for us to offset dilution from the last couple of years as we look at the business. So we like doing this, and as you can tell with our free cash flow estimates, we are going to generate almost as much cash as that buyback is anyway in the year. So that is the balance there. From 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 have seen, a lot of what we have done is fairly small in nature.
It is not going to really hit the balance sheet so badly, if you will, in terms of a big deal. Obviously, we will always look at everything that is out there. But as you have seen, Duolingo, Inc. is very focused on growing Duolingo, Inc., investing in Duolingo, Inc., and going from there.
Operator: Thank you.
Luis von Ahn: GameStop wants to buy eBay. We may want to do that too. I am kidding.
Operator: Your next question will come from Ryan Michael MacDonald with Needham. Please unmute your audio, video, and ask your question.
Deborah Belevan: I am going to leave that last comment alone a little bit. We are not buying eBay, just so you know.
Ryan Michael MacDonald: Maybe can we talk about—you obviously rolled out and had the announcement in late April about now the advanced content being available across all the top subjects. Can you talk about, from a marketing perspective, how big of an unlock that is in terms of how you are either deploying that incremental performance marketing budget now that you have all the content available? And how we should start to think about how that may help to replenish the top of the funnel as we go through the back half of the year and into next year?
Luis von Ahn: In terms of performance marketing, this matters, I think, most for English learners. In terms of trying to find users that are going to come into the platform, English learners are the ones that are most interested in more advanced content. And some of our performance marketing, some of the main places we are using is in underpenetrated markets, in particular Asia. One of the things that is interesting about Asia is in a number of large Asian markets we can do profitable performance marketing.
Performance marketing at Duolingo, Inc. 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 are super happy as free users. But we are finding that we can do that, particularly, for example, in China. We are able to acquire profitably, and these are English learners. So in that respect, these are a bit different. But I would say the main thing with performance marketing for us is that we have historically underinvested in performance marketing, and we are getting just a lot more professional about it certainly this year.
And I think you will see the results of that in the next few months. We are pretty excited about that, just because we are finally building the infrastructure to have the right attribution to users, to the right place after you acquire them, etcetera, that a company our size should have probably built years ago, but we kind of just ignored it. So we are pretty excited about that.
Ryan Michael MacDonald: Awesome. And then maybe for a follow-up perspective. As you are testing video call in Super Duolingo for that cohort of net new paid subs on Super, can you just talk about what you are seeing thus far in terms of elasticity on pricing and the potential demand to pay incrementally for that feature at the Super level? And, Gilian Munson, maybe then how is that forming your view on the gross margin profile as we move forward?
Luis von Ahn: The main thing that I will say there is that we are running some tests on what the right price should be for Super with video call. I cannot tell you all the results because we started this work a couple of months ago. And it takes some time. You have to build the A/B test, you have to run the A/B test for a few weeks to get the results, etcetera. So it has really been eight weeks since we started this work. So I just do not have a lot of results. But what I can tell you is that people are willing to pay more for Super with video call. That we know.
How much more I will be able to tell you in a quarter or two.
Gilian Munson: And, Ryan Michael MacDonald, one of the reasons we have been really trying to focus everyone on we are 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. So all of that is anticipated in the guidance around the ranges that we want to operate in for 2026. And in any given quarter, it might be a little bit more, a little bit less. But we anticipated that coming into the year and are executing against that. So there are no big surprises in there.
And we think that the financials that we have laid out for 2026 can accommodate that.
Deborah Belevan: Awesome. Appreciate the color.
Operator: Moving forward, we are allowing analysts one relevant follow-up in order to get through the queue. Thank you. Your next question will come from Ralph Edward Schackart with William Blair. Please unmute your audio, video, and ask your question.
Ralph Edward Schackart: Hi. Hey, Luis von Ahn. Hopefully, this is relevant. I will try. You know, historically, if you think about it, you have a little bit of a paradox. You were over-monetized historically. Now maybe we are in some sort of duration of time where you are under-monetizing the user base. But just stepping back, can you give us a sense of signals that you are looking at today? What are they in terms of informing you that you are on the right path right now? And maybe a broader sense, when would be the right time to start monetizing again? It is only been a couple months since the last call, but would love to hear your thoughts on that.
Thanks.
Luis von Ahn: It is a great question because it really allows me to emphasize something I have said before. And you used the word paradox, which is 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 are much higher than that. Spotify is close to 50%. So we really think there is a lot of room there. We should be able to get more people.
At the same time, I think certain types of monetization we probably overdid in the sense that we probably were making the free user experience have too much friction. And at the crux of it was that most of our monetization tactics were kind of at odds with DAU growth. Not all of them, but 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 is good. That makes you money, but also some more people leave.
And what we need to do, and what we are doing, which I am very excited about, is finding ways to monetize that do not put DAU growth at odds with monetization. Those ways exist and we are very happy with them. I mentioned one already, which is longer free trials. Historically at Duolingo, Inc., this is not something we have 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 one we have. You see one month. You sometimes even see three-month free trials.
So you are going to see us experiment with that, and we are definitely seeing with the one-month experiment we already see that it both increases revenue, which is good, but also that it is not at odds with daily active users. Because when you give somebody—when you say instead of a seven-day free trial, it is a one-month free trial, that does not drive any user away. They are like, oh, that seems like a good thing. So the work that we are doing is finding ways to monetize that are not at odds with DAU growth. They exist. And they are just not as quick as basically adding friction to the free user experience.
And that is what we are experimenting with this year. So what Gilian Munson said is exactly right. The idea is that we have this year to be able to experiment with this. We will probably experiment with a three-month free trial. And, by the way, experimenting with a three-month trial is something that we said before is something that we could have never done if we did not have a year like this one, because in a three-month free trial, what happens is that your bookings get delayed by a whole quarter.
And so showing up without being able to say we are going to operate with these guidelines, which is what we did for this year, and just saying, oh, sorry, all our bookings are going to come next quarter, they did not come this quarter, it was a little weird, but this is why we are operating this way.
Operator: Okay. Good.
Ralph Edward Schackart: Thanks, Luis von Ahn. Appreciate it.
Operator: Your next question will come from Mark Stephen Mahaney with Evercore. Please unmute your audio video and ask your question.
Mark Stephen Mahaney: Okay. Thanks. I want to ask about the gross margins. It looks like your guidance implies that they are going to phase down to the high sixties in the fourth quarter. Is there a reason to think that gross margins hold at that level? Is there a reason to think that they should recover higher? Just talk about the trajectory of gross margins after this year, and how to think about what drives it higher or lower after this year.
Gilian Munson: Mark Stephen Mahaney, when we think about any of the margins that have AI content in them—so let us 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. So when you look at Q1, for example, the margin held up really nicely as compared to the year before, and that is because our per-unit AI costs had come down a lot. Now as we look forward, we really want to put more and more AI as an ingredient in the product.
And so that is why we have the margin guidance that goes down to 69%, which is essentially where we were last quarter too. And that just implies a lot more AI content, which we think is great for the business long term. So from a positioning perspective, it is possible we could optimize that more. But we sort of want to be putting that much AI in the product. So I think 69% is a good place to think of us exiting the year. And if that works, that is going to give us nice growth as well.
That said, this is a changing environment, and some of the optimizations come faster than you expect, and you could see both up and down on that one.
Mark Stephen Mahaney: Okay. Thanks, Gilian Munson.
Operator: Your next question will come from Justin Tyler Patterson with KeyBanc. Please unmute your audio video and ask your question. Hi, Justin Tyler Patterson. Hello?
Justin Tyler Patterson: Thank you very much, and good evening. I think about Duolingo, Inc. as always having a high pace of product velocity around A/B tests. Synthetic coding has certainly made it easier than ever to do lots of those. So would love to hear about how you are thinking about engineer productivity as a whole, the number of tests being run, and how we should think about that perhaps influencing long-term headcount needs? Thank you.
Luis von Ahn: That is a great question. You are right. We A/B test a lot. We concurrently are running hundreds of A/B tests at all times. And that has been our product philosophy, and that is how Duolingo, Inc. has gotten better over time because we just are able to increase. As soon as we set our minds on a given metric, you just give us a few months, usually we are able to increase that metric. 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 is because of AI usage, particularly in our engineering and product organization.
The increase is not humongous, but it is kind of the first time we have seen an increase on a per-capita basis in years. So we do think that is helping. I do not know where this is going to end, but it is an interesting thing because if you look a year ago and you were to read Twitter, Twitter would have had you think that you can program anything you want in five seconds and it is done, and why should you not be running 10,000 A/B tests at once with a single engineer? That is an exaggeration. That is just not the case.
And up until very recently, we and companies at scale like us had not seen a real increase in velocity overall, but we are starting to see that increase. It is still moderate, but we are starting to see that increase. So I am assuming that you are going to continue seeing that increase. I do not think we are going to be able to run 10 times as many A/B tests per capita, per engineer. But it is increasing. And that is something that we are very happy with.
Justin Tyler Patterson: Thank you.
Operator: Your next question will come from John Colantuoni with Jefferies. Please unmute your audio, video, and ask your question.
John Colantuoni: Great. Thanks for taking my questions. So I just wanted to ask about 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: Yeah. So DAUs are growing in the U.S., and they are growing in pretty much every country. But it is true that in the U.S., they are 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, that does not seem to affect it that much. It just turns out that yes, the U.S. monetizes well, but it turns out that a lot of countries monetize relatively well. A good example is China. China monetizes about as well as Western Europe, so about as well as France, which is not as high as the U.S., but pretty high.
And given that the growth rate in China—I do not know the latest numbers—but it is pretty significant. So I just do not think that the fact that the growth in the U.S. is very low means that our bookings growth is implied to be really low. But I would say that growth in the U.S.—my hope is that by making the product teach better and also have higher word-of-mouth, and also investing some in marketing in the U.S., which 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 what we currently have.
John Colantuoni: Okay. Thank you.
Operator: Your next question will come from Shweta R. Khajuria with Wolfe Research. Please unmute your audio video and ask your question.
Shweta R. Khajuria: Hello. Thank you for taking my question. With the AI-driven content creation, there was a meaningful increase in content. Could you please talk to how you are managing quality of content as that continues to grow against volume and engagement? Thank you.
Luis von Ahn: We spend a lot of effort—this is the main reason why our content is not growing even faster—because we are trying to make sure that it is very, 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. And then after that, we try to test it with our own users in small amounts to see if it is high quality. And if it is, we increase the number of people that we give it to. So we are trying to be very careful to make sure that 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. And we are trying very hard for that not to happen. So the quality of our content, certainly over the last couple of quarters, has actually increased. And the way we know that is we basically do spot checks, and we rate the quality of all the content. And we know that over the last two quarters, the quality has actually increased.
Shweta R. Khajuria: Okay. Luis von Ahn.
Operator: Your next question will come from Omar [Analyst] with Bank of America. Please unmute your audio video and ask your question.
Analyst: Hi. Thanks. How are you doing? I just want to get back to performance marketing for a second. Glad to hear that the company is treating that with a lot more seriousness. The last time we spoke, I think you gave me the impression that the product would be leaps and bounds better in the future than it is today 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? Because performance advertising typically tries to optimize for specific types of behaviors in users. So, a) is that the case?
And then, b) do you have any sense at what point you might be ready to really put the pedal to the metal, assuming your organization has done all of its experiments? When would the product be ready to really go full bore on performance marketing?
Luis von Ahn: I would say the bottleneck for performance marketing for us has been, first of all, building the infrastructure for it to be a much more serious performance marketing machine. That is something we are doing at the moment. That is one thing, but there is another one. It is not the quality of the teaching. It is mainly the problem with how good our free tier is. One of the problems we have had, depending on the region and depending on what we advertise for, has been being able to acquire a user—and now they are here—and actually getting them to subscribe, as opposed to acquiring a user—now they are here—and they are very happy users of our free product.
And so that has been the main bottleneck, and that is the thing that we need to get over. At the moment, in some geographies, we have profitable performance marketing, but in many geographies, we do not. I think the only thing I guess I am just saying—
Gilian Munson: The only thing I would add is that we are making an investment in marketing this year, and it is not just in performance marketing. 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.
Analyst: A lot of diversity. I want to make sure that I am not thinking about performance marketing the wrong way because I thought it would be difficult to performance market a product that is not stable or a product that is not mature and finalized because you do not actually know what you are marketing. It is changing so much. I just want to make sure I am not thinking about it the wrong way.
Luis von Ahn: Oh, I would not say that. Duolingo, Inc. has been around for fifteen years. It has never stayed the same, and it never will. So I do not think that is going to change, but I do not think that has been the problem.
Operator: Thanks. Your next question will come from Alex [Analyst] with Wells Fargo. Your line is open. Please ask your question.
Analyst: Yeah. Hey. Thanks so much for the question. I appreciate it. You mentioned how fast China is growing. I think there have been two successful brand tie-in deals over the last twelve months—one with Luckin Coffee last year, I think another with Meituan in March. Are there any learnings we can take with regard to how successful those brand tie-ins have been in China that we could use to extend that success to other markets over the next year? Thanks.
Luis von Ahn: Thank you. 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. Very large brands wanting to partner with us come to us to do that. I think there is that part. There is also the part that I think brands in China—brands like Luckin Coffee, for example—are just a lot more open to partnerships than, for example, brands in the Western world.
You just do not see, for example, Starbucks changing all their stores every two weeks with a new brand, whereas that is kind of what Luckin does. So there are some learnings. Certainly, our partnerships team in China and our marketing team in China are very high performing. So there are some learnings of things that we can do in other places, particularly in Asia. But I would say some of that also has to do with the fact that the China market is different. The other thing that I will say is that China is not just growing fast because of the great partnerships. I think it is kind of the other way around.
I think the great partnerships are coming in part because we are growing fast and because we are seen as a very cool brand. The reality in China is that there is a humongous appetite for English learning that just keeps growing and growing. And that is the main reason why China is growing.
Analyst: Thanks so much.
Operator: Your next question will come from Alexander James Sklar with Raymond James. Your line is open. Please ask your question.
Alexander James Sklar: Hey, Luis von Ahn. Hey, Gilian Munson. Thanks. So on the relationship between DAUs and top-of-funnel growth versus the visibility you have talked to on the shape of the bookings inflection this year, what early tests—or maybe it is tier or geo mix—is out there that is providing your visibility in terms of that inflection in bookings exiting the year?
Luis von Ahn: Sorry. In terms of an inflection of—
Alexander James Sklar: Bookings exiting the year.
Gilian Munson: First, on the bookings, I think if you look at the quarterly progression, what we are guiding to as you go Q2 into Q3, Q3 into Q4 is fairly on par with where the company has been in the last couple of years. So one of the things to make sure we remind everyone of is we are playing a long game here, and the investments we are making—we are going to maybe see some things from this year, but we are really looking out beyond this year. So 2026 is much more about operating around that 20% DAU growth and then growing the business. And right now, what you are seeing in that progression is pretty typical seasonality.
There has been an adjustment here in Q1 and Q2 to our new monetization balance. But then in Q3 and Q4, what you are seeing is quite typical for us.
Alexander James Sklar: Alright. Great. Thank you.
Operator: I am 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: Thank you. Thanks, operator. I would just like to thank everyone for joining us. And we look forward to seeing you on the next call.
