Duolingo Q2 Earnings Call Highlights

Key Points

• User growth and retention accelerated: Daily active users rose 23% year over year, slightly exceeding expectations, while user retention reached an all-time high. Duolingo remains focused on reaching 100 million DAUs by 2028.
• Full-year guidance was maintained, with profitability improving: The company kept its outlook for 10%–12% bookings growth and 15%–18% revenue growth, while raising its adjusted EBITDA margin target to 26.5% and gross-margin outlook to about 70%.
• Monetization and AI initiatives are expanding: Duolingo is testing longer free trials, a lower-priced “Super Lite” subscription and increased advertising. Falling AI costs are enabling broader access to its Video Call feature and supporting margin improvements.

Duolingo NASDAQ: DUOL reported accelerating user growth in the second quarter, with daily active users rising 23% year over year, as the language-learning company continued to prioritize product improvements, retention and long-term audience expansion.

Co-founder and CEO Luis von Ahn said the company’s daily active user, or DAU, growth accelerated from the first quarter and came in slightly above expectations. He said the company was encouraged by early trends in the third quarter and remains focused on reaching 100 million DAUs by 2028.

“The vast majority” of growth came from Duolingo’s ongoing product experimentation process, which von Ahn called the “Green Machine.” The company tests hundreds of product changes, measures their performance and expands the initiatives that work, he said. Duolingo releases a new app version weekly, with roughly 350 changes per version, according to von Ahn.

Retention and streak campaign support engagement

Von Ahn said user retention metrics reached all-time highs during the quarter. In particular, the company’s current user retention rate, or CURR, increased by about one percentage point over the past year. He said the improvement was broad-based across regions and user types, reflecting a “stickier” product rather than a single feature or change.

Duolingo also ran a one-time Streak Revival campaign in June, allowing learners who had lost their longest streak to restore it by completing three lessons. More than 15 million learners revived their streaks, von Ahn said, adding that these users have demonstrated stronger retention than a typical re-engaged user cohort.

The company is also working to improve its top-of-funnel user acquisition. Von Ahn said Duolingo’s own social media accounts generated more than 1 billion impressions per quarter. It has also expanded its work with content creators, particularly in China, Indonesia and India, where influencers account for roughly two-thirds of the company’s total social media impressions.

While most growth remains organic, Duolingo has become more active in performance marketing. Von Ahn said the company is seeing traction from both creator partnerships and performance marketing, while CFO Gillian Munson said top-of-funnel growth improved in almost every region during the quarter. The U.S. also posted faster growth, although Asia remained the company’s fastest-growing region.

Guidance maintained as company invests for growth

Munson said second-quarter top-line results were in line with expectations and profitability was modestly ahead of plan. The company maintained its full-year outlook for bookings growth of 10% to 12% and revenue growth of 15% to 18%.

For modeling purposes, Duolingo expects approximately 11% bookings growth and roughly 16% revenue growth for the full year. At constant foreign exchange rates from the prior earnings call, bookings growth would be about half a percentage point higher, Munson said.

For the third quarter, the company forecast:

• Bookings of approximately $307 million, up 9% year over year.
• Revenue of approximately $302 million, up 11% year over year.
• Gross margin of 71%.
• Adjusted EBITDA of roughly $76 million, representing a 25.2% margin.

Duolingo now expects to finish the year with gross margin closer to 70%, compared with an earlier expectation of 69%, citing increased AI content in its products and AI-related cost savings. Munson said the company increased its adjusted EBITDA outlook to 26.5% from 25% at the start of the year, while also providing a point estimate of approximately $320 million in adjusted EBITDA and a roughly 25.5% margin. It expects to generate more than $375 million in free cash flow for 2026.

The company ended the quarter with $1.3 billion in cash and investments and generated $79 million in free cash flow. It repurchased about $44 million of stock during the quarter, bringing cumulative repurchases under its authorization to $72 million, or about 700,000 shares.

Monetization tests include longer trials, lower-priced plan

Von Ahn said stronger user growth will ultimately support revenue, but noted that users in Duolingo’s freemium model do not necessarily monetize immediately. The company is maintaining its planned bookings-growth range while prioritizing DAU expansion and improvements in teaching.

Among the company’s monetization experiments, Duolingo has been shifting many free trials from seven days to one month. Von Ahn said longer trials have increased the number of users willing to begin a trial and, as a result, increased conversions to paying subscribers. Trial users also receive an improved experience with ads and the energy system turned off, which he said supports daily active user growth.

Duolingo is also testing “Super Lite,” an ad-supported subscription offering priced at approximately half the cost of Super Duolingo, depending on geography. The plan provides more energy than the free tier but does not offer unlimited energy. Von Ahn emphasized that the offering remains in early testing and represents only a small share of subscribers.

The company is pursuing ad revenue more actively as well. While von Ahn said subscriptions will remain Duolingo’s larger business for the foreseeable future, he sees a substantial advertising opportunity given the company’s active user base. Duolingo has expanded from minimal ad-revenue resources several years ago to a more developed team focused on improving ad quality and monetization.

Video Call expansion and lower AI costs

Duolingo is broadening access to its AI-powered Video Call feature, which is designed to help users practice conversation. The feature initially cost about $0.30 per call to provide and was placed behind the company’s premium Duolingo Max plan. Von Ahn said the cost has since fallen below $0.01 per call, largely through the use of open-source models.

Most new Super Duolingo subscribers now receive Video Call, and the company expects to extend it to existing Super subscribers over the coming months. Von Ahn said Duolingo is still determining the future of the Max tier, including whether Max could offer unlimited Video Calls while Super subscribers receive limited access, or whether the company could eventually sunset Max.

“Our intent is that we give it to as many users as possible,” von Ahn said, while noting the company is trying to avoid a loss of revenue as it broadens access.

Munson said AI expenses within cost of goods sold are in the tens of millions of dollars, while internal AI-related spending is closer to $10 million. Von Ahn said Duolingo expects its mix of AI models to shift increasingly toward open-weight models where quality is sufficient, though it will continue using proprietary frontier models for some applications.

In China, now Duolingo’s second-largest market by DAUs, the company uses local AI models because U.S. models cannot be used there under local law. Von Ahn said China monetizes at roughly the same level as France and could become Duolingo’s largest market by DAUs within one or two years.

About Duolingo (NASDAQ:DUOL)

Duolingo, Inc NASDAQ: DUOL is a technology-driven education company that operates a widely used language-learning platform. Founded in 2011 by Luis von Ahn and Severin Hacker, Duolingo offers a freemium service featuring bite-sized lessons, gamified exercises and adaptive learning algorithms. The company's core product is its mobile and web application, which supports instruction in more than 40 languages, ranging from widely spoken tongues such as English and Spanish to lesser-taught options including Irish and Swahili.

In addition to its flagship language courses, Duolingo has expanded its product suite to include the Duolingo English Test, an on-demand, computer-based English proficiency exam designed for academic and professional admissions.

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