Duolingo (DUOL) Q1 FY26 earnings call: guidance and Q&A

Duolingo is leveraging AI to fundamentally transform its product and content creation. In Q1 FY26, the company published 20,500 course units, a more than tenfold increase compared to two years ago, enabling courses up to professional proficiency (B2 CEFR) in its nine most learned languages. AI has also enhanced speaking practice features like 'spoken tokens' and 'speaking adventures,' and significantly improved the 'video call' feature for paid subscribers, doubling the average words spoken per user over the past year. This increased content velocity and personalization are key to improving teaching effectiveness.

The company is deliberately investing in FY26 to position itself as a larger, more durable long-term business. This includes managing towards specific bookings (10-12%), revenue (15-18%), and Adjusted EBITDA margin (25%) targets, with point estimates provided for the full year. These investments are intended to allow for continued product innovation, marketing expansion, and experimentation with monetization strategies, even if it means navigating tougher comps or short-term margin fluctuations, as seen with the expected Q2 bookings growth of ~6% and gross margin trending down to ~69% by year-end.

Duolingo is actively seeking monetization tactics that do not conflict with Daily Active User (DAU) growth, addressing a historical 'paradox' where some monetization efforts created too much friction for free users. The company is experimenting with longer free trials, such as a 1-month trial, which has shown to increase bookings without deterring users. This approach aims to convert more of its ~12% paid subscriber penetration among Monthly Active Users (MAUs) while maintaining a positive user experience, with further tests, including potential 3-month trials, planned for the year.

DAUs grew 21% year-over-year, with Asia identified as the fastest-growing region. While U.S. DAU growth is lower than international markets, China demonstrates strong monetization comparable to Western Europe. The company acknowledges that top-of-funnel growth (MAU) has been flat and is working to accelerate it through increased and more professional performance marketing, particularly in underpenetrated, profitable markets like China. The goal is to build infrastructure for better attribution and user acquisition, which was historically underinvested.

Duolingo maintains a strong financial position with over $1 billion in cash and no debt, expecting to generate over $350 million in free cash flow for FY26. The company plans to continue executing on its $400 million share buyback authorization, having already repurchased 514,000 shares (approximately 1% of fully diluted shares outstanding). Management views buybacks as a good way to offset dilution and is open to M&A, though historically focusing on smaller, strategic acquisitions that align with growing the core Duolingo business.