Prepared remarks
Good evening, everyone, and welcome to Duolingo's Second Quarter Earnings Webcast. Today after market closed, 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; and Gillian Munson, our CFO. They'll begin with prepared remarks before we open the call for questions. And please note, this call is being recorded. Before we begin, please note that we'll make forward-looking statements regarding future events and financial performance. These statements are subject to risks and uncertainties described in our SEC filings and are based on assumptions we believe to be reasonable as of today, and we undertake no obligation to update them. We'll also discuss both GAAP and non-GAAP financial measures. Reconciliations of the two can be found in our earnings materials, and we encourage you to review them when evaluating our performance. And now I will turn it over to Luis.
Thanks, Debbie, and thank you all for joining. Q2 was a strong quarter. DAUs grew 23% year-over-year, accelerating from Q1 and coming in slightly ahead of our expectations. And we're encouraged by what we're seeing so far in Q3. The vast majority of that growth came from the work we do every day through what we call The Green Machine. We test hundreds of product changes, measure their impact and double down on what works. Most changes are small, but they compound over time. As I discussed in our shareholder letter, that's also what's driving CURR, a measure of user retention, to an all-time high. Another highlight of the quarter was Streak Revival, a one-time campaign we ran in June. The idea was simple: give learners who lost their longer streak a chance to earn it back by completing three lessons. More than 15 million learners revived their streaks. And what's particularly encouraging is that these users are also showing better retention than a typical reengaged cohort. We brought learners back to a product that keeps getting better at teaching languages, chess, Math and Music, and they're staying. We're still early in executing our strategy of prioritizing user growth and teaching better, but Q2 gave us more confidence that we're on the right track. With that, I'll turn it over to Gillian.
Thanks, Luis. Welcome, everyone. As Luis said, Q2 was a strong quarter. In addition to the DAU acceleration Luis just mentioned, topline results were in line with our expectations and profitability was slightly ahead of our plan. As we look at the remainder of 2026, I want to reiterate how we're managing the business. We are investing deliberately in the opportunities that we believe can make Duolingo a significantly larger business over the long term. At the same time, our team continues to operate with discipline. We continue to execute to our full year bookings and revenue target ranges of 10% to 12% bookings growth and 15% to 18% revenue growth. We have increased our target adjusted EBITDA outlook to 26.5% from the 25% we outlined at the start of the year. As for point estimates to help you build your models, please keep in mind the following: for the full year, we expect bookings growth of approximately 11% and revenue growth of roughly 16%.
At constant foreign exchange rates, from our last call, the bookings growth rate would be about 0.5 point higher. For gross margin, we now expect to end the year closer to 70% as compared to the 69% we initially expected as we drive more AI content into our products offset by AI cost savings. We expect adjusted EBITDA to be approximately $320 million at the margin of roughly 25.5% I just mentioned. And we expect to generate over $375 million of free cash flow this year. While it is not included in our 2026 guidance, we do want you to know that the company has a bonus plan that will trigger if Q4 DAU growth is 25% or higher and would be paid out during Q1. Since it's currently uncertain whether that threshold will be met, we have not included it in our 2026 guidance. If it were achieved, we would expect the payout to be roughly $10 million in cash, potentially higher if DAU growth is higher.
For Q3 itself, we expect bookings of approximately $307 million or growth of 9%. Revenue of $302 million, representing growth of 11%. We expect gross margin to be 71% and adjusted EBITDA of roughly $76 million, representing a margin of 25.2%. Our balance sheet and cash flow potential remains strong. We ended the quarter with $1.3 billion in cash and investments and generated $79 million in free cash flow. We repurchased about $44 million of stock during the quarter, bringing cumulative repurchases under our authorization to $72 million or approximately 700,000 shares. Putting it all together, our user momentum is strong, our business model continues to generate significant cash flow, and our team is executing well in an important investment year. We remain focused on reaching 100 million DAUs in 2028, and we believe the path there can create a significantly more valuable business for our shareholders. And now I'll turn it back to the operator, and we're happy to take your questions.
Questions and answers
Your first question comes from Wyatt Swanson with D.A. Davidson.
Given DAUs are now expected to be above that 20% year-over-year growth in the second half of the year, could you maybe give some color as to why the full year bookings guide wasn't raised more? Like I realize you're in experimentation mode, but shouldn't a larger amount of users on the platform technically translate to increased bookings even if you're not pushing for monetization?
Yes, I think that's a great question. The first thing to note is that our users don't monetize immediately. Some of them monetize—it takes a while for them to monetize because we have this premium model. We do expect that higher DAUs will imply higher revenue, but it's going to take some time. And the second reason is exactly what you said. We said at the beginning of this year that we were going to operate in this box in terms of revenue, and we are going to continue within this box. Basically, roughly 11% year-over-year bookings growth and then the rest of the efforts are in increasing DAUs and in teaching better.
Got it. Okay. That's helpful. And then you noted with the extension of free trials that helps improve both engagement and monetization. Could you just talk to some of the underlying mechanics as to how exactly that works going from one month to two months?
So, to put it into context, our monetization team's goal this year is to find things that monetize that are not at odds with user growth. Historically, some of the ways that we have monetized have been by adding friction to the free use of the product and that is at odds with user growth. One of the things that has worked the best is longer free trials. In particular, the main one that we're trying historically was a seven-day free trial. We are now shifting most of our free trials, though not all of them yet, to a one-month free trial. The way that works is that significantly more people decide to take that trial because it's a better deal, and because of that, we get a larger number of people actually converting to payers. The other nice thing is that as soon as they agree to go on the free trial, the experience just gets better because we turn off energy limits and we turn off the ads. So this actually increases daily active users as well. So we like it very much, and it's having a lot of good traction.
Your next question comes from the line of Andrew Boone with Citizens.
I wanted to ask about just your role in terms of influencers, how do we think about international marketing and kind of the changes that you guys highlighted in the letter? And then secondly, as we think about the U.S., Luis, understood the strength in the quarter and kind of resurrected users. Can you talk about top of funnel though? How do you feel about trends there and kind of the broader opportunity of attracting new users that may be new to Duolingo?
So, to put it in historical context, most of our growth has been organic through word of mouth. For the first several years, it was 100% organic. Then we added mainly one form of marketing, which was our own social media accounts, and that's still going really well. We are getting more than one billion impressions per quarter on our own social media accounts, which is incredible. Our marketing team is starting to expand to having other important tools. One of them is creators, like groups of creators, and that's working quite well specifically in certain countries like China, Indonesia and India. About two-thirds of our total social media impressions come from influencers. What we're finding is that we are able to not spend a ton of money on this and these people have different audiences than us, which brings in a lot of new users. We use influencers differently in different countries; some countries rely on them more than others.
That's working really well. I should also mention that our marketing team has become significantly more sophisticated on performance marketing. While still the majority of our growth is organic, we're getting good traction on both influencers and performance marketing. We are seeing that in the top of funnel, which is increasing. We feel pretty good about top of funnel. The U.S. growth has increased quite a bit in the last quarter, and that's something we're happy with. By the way, our DAU growth is broad-based—basically, all regions are growing faster than they were before. Asia is still the fastest growing but the U.S. has increased.
One thing I might add to that, Andrew, is the top of funnel is part of the story of the quarter. It got better. As you know, that's been a focus area of ours. We've talked about how we want to get better there. In almost every region, the rate of growth in top of funnel improved in the quarter, which is a great accomplishment for the team.
Your next question comes from the line of Nathaniel Feather.
My end, both of them on the monetization angle. I'm interested to hear with the learnings you've seen so far from giving video call to new Super subscribers? And how is that influencing your plans for video call and Max generally as we go from here?
Video call is an interesting feature. We love it—it works well for practicing conversation. We have research that shows if you use video call, you get better at conversation. When we first started adding video call, the team estimated it would cost about $0.30 per call to give to users, which was expensive. That is why we initially put it behind our most expensive plan, Max. But we said if we could decrease the cost, we'd try it in different places because our aim is to give video call to as many people as possible since it really helps in learning a language. The good news is that through a lot of hard work, we've been able to bring down the cost of video call to under $0.01 per video call. The main reason for that is a move towards open-source models; it's much cheaper to do that and we don't see a loss in quality. So we're very happy with that. Because of this, we're now able to give video call to Super subscribers.
Most new Super subscribers get video calls. We expect over the next few months to roll video call out to existing Super subscribers as well. That will allow more people to practice conversation. This raises the question of what we do with Max. There are a few possibilities. One is Super subscribers get a limited version of video call—like a limited number of calls—and Max subscribers get unlimited calls. Another possibility is that we may sunset Max. We will have an answer in the next couple of quarters. We also want to do this without a loss of revenue, which is partly why we are not moving super fast—we're figuring out how to expand access without losing much revenue. But our intent is to give it to as many users as possible.
Okay. Great. That's really helpful. And then one thing we've seen reports that you're testing an ad-supported tier. So help us think through, do you see any opportunity for maybe a lower priced tier, something in between Super and the free model and from a user segmentation perspective, what are you really going after there?
We are testing a tier called Super Lite. I emphasize the word 'tested'—we don't know what will happen with Super Lite in the end. It is cheaper than Super, about half the price depending on the geography. It is ad-supported, so you get ads, and you don't get unlimited energy; you get twice as much energy instead. At the moment, only a small fraction of our subscribers are in Super Lite because we're early in testing and not advertising it widely. The idea is if we're pretty sure you're not going to buy Super, we should try to sell you Super Lite. You'll see us experiment with that over the next few months. I don't know what will end up happening, but it's something we're trying.
Your next question comes from the line of Bryan Smilek with JPMorgan.
Luis, good to see CURR at an all-time high. Just curious, could you share more color on overall retention by cohort? Are these new free trial users that are engaging on a daily basis exhibiting higher engagement trends? Anything you can add there from a retention perspective going forward? And building on Nathan's question around Max overall, more from the speaking angle as well, can you share more color in terms of overall engagement with more intermediate and advanced learners, which would likely start to take on more speaking practice within the app?
As we mentioned in the letter, our user retention metrics are at an all-time high. The one we look at most is CURR—current user retention rate. We're very happy that it is at an all-time high and has increased by about a percentage point in the last year. Tiny changes to CURR imply large changes in daily active users over time because it compounds. This improvement is broad-based across regions and user types. It's hard to pinpoint a single change because we release a new version of the app every week and each version has approximately 350 changes. But generally, the product is just stickier, and that's the best type of growth—it's a better product. Regarding speaking and intermediate/advanced learners: when you have access to video call, engagement is very good. That feature has gotten significantly better. One of our main metrics for this feature is the number of words spoken by DAUs who have access to it.
That metric has trended consistently upward over the last couple of years. Every month it improves. Ultimately, this translates into people learning better and being more engaged. We're also making people speak more in the free tier—there are more speaking exercises and more ways to answer exercises with voice rather than tapping. This is particularly important for intermediate and advanced users and should help monetization and word of mouth over time because if people learn better, they'll tell their friends.
Your next question comes from the line of Ryan MacDonald with Needham.
Maybe just to ask on the bonus incentive comment sort of at the end of the prepared remarks. Obviously, the team internally is operating towards trying to get to that 25% rate. How should we think about that translating to the pace of new experimentation between now and the end of the year and if that picks up, are there any features or initiatives that you'd call out that you're most excited about? Or is this really about letting the changes in the experiments you've already made continue to mature within the market and produce results?
It's a bit of both. Our rate of experimentation will continue and is pretty high this year. The number of experiments we're putting up per week has grown over the last year and has increased faster than our head count, so per person we're putting out more experiments every week. You'll see a lot of experimentation throughout the rest of the year. The focus is on teaching better and daily active user growth, but you'll also see experimentation in monetization and other areas. This is related to the bonus in some way, but mainly this year our goal was to direct our experimentation machine to grow daily active users because we think reaching 100 million DAUs would create a much larger business. So you'll see a lot of experiments as usual from us.
Excellent. And then maybe on Max. You obviously are sort of working on a lot of things with Max right now and then one being voice being rolled out more to Super. Is there any new feature product development that's aimed towards Max at this point that could potentially extend the life of that tier? Or is everything more focused at the lower tier experimentation right now?
I won't rule that out. It may happen that we develop something that we end up putting behind Max. We're developing a lot of features, and because of cost or other reasons we may put some behind Max. But that is not the primary goal. The goal is to provide speaking features—which are the most expensive to provide—to as many users as possible because the more people have access, the more word of mouth and the larger the business becomes. So the intent is to give speaking features broadly. That said, it could be that Max gets something new and I might come back in a couple of months and say, 'Hey, Max got a new feature.' I don't know what will end up happening in terms of cost of certain features we're developing.
Your next question comes from the line of Shweta Khajuria with Wolfe Research.
First, on attention span: as attention spans decrease, how is engagement and session time across the app trending? How are you addressing that? Second, on Math and Music: could you talk about the product roadmap as you see Math and Music developed through the year and how that could drive contribution to DAU growth?
Part of your question touches on a trend we've discussed before: attention spans in general are decreasing. People use social apps in short bursts; Duolingo lessons are around two minutes on average. That's something we need to address. We're actively experimenting to make the minimum session length longer and to encourage people to come back multiple times per day so the behavior compounds. We haven't released anything definitive yet but are testing multiple approaches. Regarding Math and Music: we're excited about both. They have single-digit millions of DAUs and are much smaller than chess, so even a 50% growth won't drastically change the overall DAU number given we have around 60 million DAUs today, but we expect them to grow. Math is the easiest to describe strategically: originally I thought we could get the average person addicted to learning math; I was wrong. Our strategy now is to teach math to the people who need to learn math—primarily K through 12 students. We may not sell to schools, but our user base for Math is mainly under 18. That reframed our approach and helped us make more progress. Music is earlier stage; we're working on it and should have more to say in a quarter or two.
Your next question comes from the line of Mark Mahaney with Evercore.
Your comment about video call functionality—were you saying that you could make it available to all Duolingo users or all Super subscribers?
Our goal is to make it available to all Super subscribers. I would love to make it available to all Duolingo users, but I don't think we can do that right now.
Okay. And the gating factor is price or cost? If you bring it down another 90%, you could do it?
Cost is a big factor, yes. But there's another consideration: video call is one of the main things that drives people to buy. If all users have it, there's less incentive to buy and we'd have to find other reasons for users to purchase Super. So it's both cost and the role it plays in monetization.
Okay. I want to switch gears and ask about advertising. You've maybe changed a bit over the last couple of years in terms of your view on both advertising revenue and ad spend. Where are you on that journey? Has something made you more constructive on marketing spend and the desirability of advertising revenue?
You're right that my view has evolved on both ad revenue and ad spend. In terms of ad revenue, for the foreseeable future we will remain a subscription-first business—subscriptions are much larger than ads and will continue to be. However, we see a large opportunity with ads. Most apps our size or larger make much more from ads than we do, and we have a lot of active users. A few years ago our investment in ads was minimal; now we have a much more professional team that knows what they're doing. Over the next few quarters you should see improvements in our ads business as we deliver higher-quality ads in our product that also generate more revenue. Regarding ad spend and performance marketing: I used to be allergic to performance marketing, but now I see it as a complementary tool. We don't want to get addicted to it, but it can complement organic and creator-driven growth. Our marketing team is now using performance marketing in a sophisticated way and we're seeing results in top of funnel.
Your next question comes from the line of Ygal Arounian with Wedbush.
As I listened, it feels like you're starting to focus a bit more on monetization—ads and new tiers—while not moving away from DAU optimization. Is that fair? How do you think about that transition? When is the right time and what's involved?
That's perceptive. This year we've concentrated on expanding our active user base because more users is better for everything and we have an aggressive goal to reach 100 million DAUs by 2028. Early in the year we paused monetization moves that were counter to DAU growth. As we've learned and understood the levers better, we're more comfortable selectively pursuing monetization initiatives that are DAU-aligned. For example, longer free trials monetized and are DAU-friendly, and ads, if done with higher quality, are also DAU-aligned. So you'll see an increased focus on monetization compared to six months ago, but it's gradual and we're still very focused on DAU growth. There's not going to be a flip where we stop focusing on DAUs and only focus on monetization.
Okay. That's helpful. On the open-source models and how that's driven down AI compute cost: how should we think about that opportunity in terms of margin structure over time? And how does that change product velocity given AI has been a big component in driving product velocity?
At a high level, compared to a year ago there are significantly better open-source options. For many applications the quality of open-source models is close enough to proprietary models that the difference is a few months at most. For many of our uses—like serving conversation practice to learners with limited vocabularies—you don't need the absolute top-tier model. We can switch to open-source models for many use cases, which reduces cost per usage. Internally, we still use some proprietary models where necessary. It becomes a trade-off: if open-source provides roughly the same quality, we'll use it because it's much cheaper. I expect our AI cost per usage to continue to decline as we move more to open-source, and that will allow us to offer more AI features to more users.
To add to that, we set out the year to be patient about the business model and to invest in growth. We planned for adjusted EBITDA margin of about 25% with room to invest. By increasing our target adjusted EBITDA margin by about 1.5 points, we're seeing AI cost savings that will structurally improve margin even as we roll out voice call to all Super users over the course of the year.
Your next question comes from the line of Justin Patterson with KeyBanc.
First, what's driving the confidence behind the acceleration in Q4—is that simply easier comps or are you seeing product-side changes finally starting to click? And Luis, on making education affordable: as you increase advertising, does that create tension with user experience? How are you thinking about guardrails to monetize while keeping education widely accessible?
Let me cover the bookings guidance. How the year is playing out hasn't changed much. Q2 was a little better than we expected, and you're seeing us adjust for that in the guidance. Our bookings guidance includes about a 0.5 point FX headwind, so net-net we're in a slightly better place. We've always thought acceleration would come over time—this isn't a slow and steady story, but we know it will take time for the work we're doing to play through. That's what the guidance reflects: the expectation that growth rates will improve into Q4.
On making education affordable: this is a mission-driven company. Our mission is to develop the best education in the world and make it universally available. We prioritize reach—every extra active user means another person we're teaching. That's central to our thinking. At the same time, we believe success on our mission and building a large business are aligned: more users generally creates more monetization opportunities. We'll continue to focus on reach, but we'll also find monetization approaches that are not at odds with DAU growth—ads done well, longer free trials, and other DAU-aligned levers.
Your next question comes from the line of Arvind Ramnani with Truist.
With China continuing to become an important geography for you, and given regulatory and data residency considerations, does using OpenAI and other U.S.-based models create regulatory or residency risks? Would you move to a local model in that market? How are you thinking about it?
China is an exciting market—it's our second-largest market in terms of DAUs and we expect it could become the largest in a year or two. China monetizes well for us. Regarding AI models, in China we cannot use U.S.-based AI models; by law we must use local models, and we do. All of our AI usage in China uses Chinese models. Of course, China poses regulatory risk more broadly; that's outside our control, but we feel pretty good about our government relations there though nothing is certain.
Can you give a rough estimate of your AI costs? Is it largely on proprietary providers or more open-source weighted? Directionally, how significant are AI expenses relative to cost of revenues?
Our expenses on AI in cost of goods sold are tens of millions of dollars, so they are significant to cost of goods sold. Hosting is another big cost as well. Internally, our use of AI is closer to the $10 million range.
Perfect. One last question—there's a lot of debate about AI sovereignty and whether companies will use open-weight or closed-weight models. Any high-level view?
At a high level, it's in our best interest to use open-weight models as much as possible. If I had a magic wand, I'd move everything to open-weight models. It's not always possible—sometimes frontier proprietary models are more advanced—but from a cost and flexibility standpoint open-weight models are significantly better. I expect most companies will operate with a portfolio of models: proprietary where necessary, open-weight for many other uses. Over time I expect that portfolio to be weighted more toward open-weight models.
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.
Thank you, operator. I'd just like to thank everyone for joining us, and we look forward to seeing you on the next call.