Duolingo Balances AI Ambition With Slower 2026 Growth
Duolingo, Inc. Class A ((DUOL)) has held its Q4 earnings call. Read on for the main highlights of the call.
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Duolingo’s latest earnings call struck a nuanced tone, pairing blockbuster scale and profitability with a candid reset on growth. Management highlighted milestones like 50 million daily active users and more than $1 billion in bookings, but framed 2026 as an investment year, warning of slower user and bookings growth, lower margins and execution risk as AI rolls out more broadly.
Scale Milestones and User Growth Ambitions
Duolingo has crossed 50 million daily active users, more than five times its DAUs at the 2021 IPO, underscoring the platform’s mass-market appeal. Management set an ambitious medium-term target of 100 million DAUs by 2028, but acknowledged that progress from here will be harder won as growth rates normalize from prior hypergrowth levels.
Profitable at Scale After a Strong 2025
The company delivered over $1 billion in bookings and more than $300 million in adjusted EBITDA in 2025, positioning itself as profitable at scale despite heavy product investment. This combination of rapid top-line expansion and solid cash generation gives Duolingo a financial buffer as it ramps spending on AI and user growth initiatives in 2026.
2026 Guidance Points to Slower but Still Solid Growth
For 2026, Duolingo guided to bookings growth of 10%–12%, revenue growth of 15%–18% and an adjusted EBITDA margin around 25%, implying a step-down from 2025’s pace. First-quarter guidance is slightly stronger on revenue at 25% growth with 11% bookings growth and a 25.5% EBITDA margin, but management signaled that subsequent quarters will run below that revenue growth rate.
Buyback Authorization Signals Balance Sheet Confidence
The board approved up to $400 million in share repurchases, a notable move for a still-fast-growing tech company. Management framed the buyback as a flexible capital allocation tool, highlighting confidence in Duolingo’s balance sheet and cash generation while leaving room to keep funding aggressive product and AI investments.
AI at the Core of the Long-Term Strategy
Executives described AI as central to Duolingo’s future, aiming to “teach significantly better” and unlock a larger market opportunity. The company plans thousands of A/B tests and major initiatives across three fronts, improving language teaching quality, enhancing the free experience and expanding into new subjects that can benefit from AI-driven personalization.
New Subjects and Richer Content Drive Expansion
New subject areas are gaining traction, with chess reaching about 7 million DAUs in under a year, showcasing Duolingo’s potential beyond languages. On the core language side, more advanced content, up to a Duolingo score of 129 in the top nine languages that cover over 90% of DAUs, is set to roll out over the next one to two months.
AI Engagement Rising Through Video Call Experiences
AI features are showing improving engagement, highlighted by the “Lily” video call product where words spoken per user are “monotonically increasing” over time. As AI costs decline, Duolingo plans to test expanding access to such video call tools to broader subscription tiers like Super, balancing usage, cost and monetization upside.
Ad Strategy Focuses on Yield, Not Heavier Ad Load
Instead of raising ad load, Duolingo aims to lift ad revenue by improving yield through higher-CPM direct deals and better ad quality. Experiments include serving ads in the language a user is learning, which could both improve user experience and unlock premium pricing without eroding engagement.
DAU Growth Slows as the Base Grows
Management acknowledged that DAU growth decelerated through 2025 and now expects roughly 20% year-over-year growth in daily users throughout 2026. While still healthy by most standards, the slowdown marks a shift from prior years’ faster expansion and raises the bar on product and AI initiatives to reaccelerate growth over time.
Prioritizing User Growth Over Near-Term Profitability
The company warned that 2026 will feature slower bookings growth and lower profitability as resources are redeployed toward user acquisition and engagement. Guidance already bakes in only modest early returns from these investments, underscoring that this is a deliberate trade-off rather than a purely demand-driven slowdown.
AI Rollout Weighs on Gross Margins
As Duolingo expands AI-powered features from niche cohorts to the broader user base, unit costs rise and gross margins are expected to decline. Management flagged that Q2 adjusted EBITDA margin should drop roughly three percentage points sequentially from Q1 before gradually improving in the back half of the year.
Operating Investments to Outpace Revenue Growth
R&D and sales and marketing spend are projected to grow faster than revenue in 2026 as Duolingo leans into its product roadmap and user-growth agenda. That spending ramp should pressure margins in the near term, but management argues it is necessary to sustain product differentiation and expand the company’s long-term addressable market.
Low Payer Mix Highlights Monetization Headroom
Only about 10% of monthly active users currently pay for Duolingo, a low level that underscores both monetization potential and concentration risk. Management admitted that prior strategies leaned too heavily on friction-based monetization and now favors slower, less intrusive experiments that may take longer to scale but should be healthier for retention.
Tough Comparisons and First-Half Growth Headwinds
The company cautioned that Q1 and the first half face particularly difficult comparisons due to last year’s one-time boosts such as product events, price hikes and strong ad bookings. Even though Q1 bookings are tracking above guidance quarter-to-date, these tough comps and the timing of investments will mute reported growth early in the year.
Experimentation Brings Both Upside and Uncertainty
Planned changes to subscription tiers, including potentially moving costly AI features like video calls into the larger Super tier, introduce meaningful uncertainty. While there is clear upside in higher retention and revenue, management also flagged risks of bookings cannibalization or lower ARPU, with outcomes to be decided by extensive A/B testing.
No Clear Signal Yet of DAU Reacceleration
Some enhancements to the free experience are showing encouraging engagement trends, but management was frank that they have not yet seen a decisive reacceleration in DAU growth. As a result, their internal models assume only modest benefits from these initiatives later in 2026, leaving room for upside if experiments overdeliver.
Guidance Frames 2026 as a Foundation-Building Year
Duolingo’s 2026 outlook calls for bookings growth of 10%–12%, revenue growth of 15%–18% and an adjusted EBITDA margin around 25%, with Q2 margins dipping before Q4 peaks. Management expects about 20% DAU growth this year on the way toward a 100 million DAU target by 2028, while accepting lower gross margins and higher R&D and marketing expense to seed future acceleration.
Duolingo’s earnings call painted the picture of a company transitioning from hypergrowth to a more measured, investment-heavy phase while still operating with scale and profitability. For investors, the story hinges on whether the current AI and product bets, funded by solid cash generation and backed by a new buyback, can reignite user growth and monetization over the next few years despite nearer-term margin and growth pressure.
