Duolingo’s 2026 Q2 Earnings Call: Bookings Growth Signals Clash With Max Strategy and Marketing Shifts

Date of Call: Aug 5, 2026

Financials Results

• Revenue: Not explicitly provided; Q3 revenue guidance of $302M, growth of 11%
• Gross Margin: Q3 guidance of 71%; full-year expectation closer to 70% vs. initial 69%
• Operating Margin: Adjusted EBITDA margin guidance of 25.5% (full-year) and 25.2% (Q3)

Guidance:

• Full-year bookings growth ~11% and revenue growth ~16%.
• Adjusted EBITDA margin increased to 26.5% from 25% initially expected.
• Q3 bookings ~$307M (9% growth), revenue ~$302M (11% growth), gross margin 71%, adjusted EBITDA margin 25.2%.
• Full-year free cash flow expected >$375M.
• Bonus plan payout of ~$10M if Q4 DAU growth ≥25% (not included in 2026 guidance).

Business Commentary:

User Growth and Product Engagement:

• Duolingo's DAUs (Daily Active Users) grew 23% year-over-year in Q2, with an accelerating trend from Q1, and positive momentum continuing into Q3.
• The growth was primarily driven by continuous product improvements and experiments conducted through "The Green Machine," which led to an all-time high in user retention (CUR).

Monetization Strategy and Free Trials:

• Duolingo extended free trials from one week to one month, resulting in increased user conversions to paid plans and improved monetization.
• This strategy aligns with user growth by reducing friction in the free user experience, leading to higher engagement and a better product experience for users.

AI Cost Reductions and Margin Improvement:

• Duolingo expects to end the year with a gross margin closer to 70%, up from an initial expectation of 69%, driven by AI cost savings.
• The reduction in AI costs, particularly through the use of open-source models, has allowed the company to maintain its investment in growth while improving profitability.

International Marketing and Influencer Impact:

• Approximately two-thirds of Duolingo's total social media impressions come from influencers in countries like China, Indonesia, and India.
• The use of influencers and performance marketing has contributed to increased user acquisition and improved top-of-funnel trends, supporting overall DAU growth.

Video Call Feature and Cost Optimization:

• The cost of the Video Call feature was reduced from $0.30 per call to under $0.01 per call through the adoption of open-source models.
• This cost reduction enables Duolingo to provide the feature to more users, enhancing the learning experience and potentially increasing user retention and engagement.

Sentiment Analysis:

Overall Tone: Positive

• Q2 was described as a 'strong quarter' with DAUs growing 23% YOY, accelerating from Q1 and slightly ahead of expectations. The company reported profitability 'slightly ahead of our plan' and noted user momentum is strong, with confidence in reaching 100 million DAUs by 2028.

Q&A:

• Question from Wyatt Swanson (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?
  Response: Higher DAUs will imply higher revenue over time, but monetization is not immediate; the company remains within its stated revenue growth box of roughly 11% bookings growth for the year, focusing DAU and teaching improvements.

• Question from Wyatt Swanson (D.A. Davidson): You noted with the extension of free trials, it 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?
  Response: Longer free trials (one month vs. seven days) increase conversion to payers and improve user experience by turning off ads and energy, thereby boosting DAUs and monetization.

• Question from Andrew Boone (Citizens JMP): How do we think about international marketing and kind of the changes that you guys highlighted in the letter? Secondly, as we think about the U.S., ... Can you talk about top of funnel, though? How do you feel about trends there and the broader opportunity of attracting new users that may be new to Duolingo?
  Response: Marketing has expanded to include creators/influencers (e.g., in China, Indonesia, India) and performance marketing, driving top-of-funnel growth. U.S. growth increased in the last quarter, with broad-based DAU growth across all regions.

• Question from Nathan Feather (Analyst): On my end, both on the monetization angle, I guess, interested to hear what 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?
  Response: Video Call cost reduced from $0.30 to under $0.01 per call via open-source models, allowing it to be given to new Super subscribers; plans to expand to existing subscribers and potentially sunset Max or offer tiered access, with a focus on maximizing user access without losing revenue.

• Question from Bryan Smilek (JPMorgan): Could you share more color on just overall retention by cohort? Are these new free trial users that are engaging on a daily basis exhibiting higher engagement trends?
  Response: User retention, particularly CUR, is at an all-time high and increased by a percentage point YOY, driven by product improvements that make the app stickier across all regions and user types.

• Question from Bryan Smilek (JPMorgan): Can you just share more color in terms of overall engagement with more intermediate and advanced learners, which would, in my view, likely start to take on more speaking practice within the app?
  Response: Engagement with speaking features like Video Call is high and improving, with more words spoken per DAU over time; this is important for advanced/intermediate users and is expected to aid monetization and word of mouth.

• Question from Ryan MacDonald (Needham): Maybe just to ask on the bonus incentive comment, sort of at the end of the prepared remarks. How should we think about that translating to, let's call it, the pace of new experimentation between now and the end of the year?
  Response: Experimentation rate will remain high, focusing on DAU growth, teaching better, and monetization, with the bonus plan incentivizing DAU growth but not changing the broad experimentation focus.

• Question from Shweta Khajuria (Wolfe Research): First one is on attention span for users. As attention span, I guess, decreases, how is the engagement and session time, across the app trending? I guess, how are you addressing that? The second is on Math and Music. Could you please talk to just the product roadmap, as you see Math and Music develop through the year and how that could drive contribution to DAU growth?
  Response: Working on addressing shorter attention spans by testing longer minimum session lengths. For Math, strategy focuses on K-12 students; Music is earlier stage; both expected to grow but are smaller contributors to overall DAU growth.

• Question from Mark Mahaney (Evercore): Your comment about Video Call functionality, I’m sorry, Luis, were you saying that you could make it available to all Duolingo users or all Super subscribers?
  Response: Goal is to make Video Call available to all Super subscribers first; gating factors are cost and the need to maintain a purchase incentive, with a potential future for all users.

• Question from Mark Mahaney (Evercore): Then I want to switch gears and ask you about advertising. I think you’ve maybe changed a little bit the last couple of years in terms of your view on both advertising revenue and on advertising spend. Where are you on that journey?
  Response: Advertising revenue is a significant opportunity; the company has grown its ad team and is improving ad quality and revenue. For marketing spend, performance marketing is a complementary tool used more sophisticatedly, driving top-of-funnel growth.

• Question from Ygal Arounian (Wedbush): It feels a little bit like we’re starting to maybe shift or start to focus a little bit more on monetization, talking about ads and new tiers. Is that fair? ... How do you think about that transition?
  Response: Focus remains on DAU growth to reach 100 million by 2028; monetization efforts like longer free trials and ads are increasing but are aligned with DAU growth, not a shift away from user focus.

• Question from Ygal Arounian (Wedbush): I want to come back to the comments you made about the open source models and how that’s driven down AI compute costs. A, how should we think about that opportunity in terms of the margin structure over time? ...
  Response: Shifting to open-source AI models reduces costs and may allow more AI features; this is expected to improve structurally the margin, as reflected in the raised adjusted EBITDA guidance.

• Question from Justin Patterson (KeyBanc): If we can here, first, could you talk through just what’s driving the confidence level behind that acceleration in Q4? Is that simply easy comps, or are you just seeing something with the product side finally starting to click there?
  Response: Bookings guidance reflects the year playing out as expected, with Q2 better than forecast; acceleration in Q4 is implied by the guidance, driven by the compounding effect of product improvements over time.

• Question from Arvind Ramnani (Truist): Just with China just continuing to become a kind of important geo for you all, and you all are running OpenAI and Anthropic, to run your models ... Does it create some sort of data residency risk or regulatory risk?
  Response: In China, Duolingo must use local AI models by law; regulatory risk is acknowledged but managed through government relations, with China being a key and growing market.

• Question from Arvind Ramnani (Truist): Can you just give us just a rough estimate ... of what your AI costs are, and is it largely on Anthropic OpenAI, or are they kind of open-weight models? ...
  Response: AI costs in cost of goods sold are in the tens of millions; internal AI use is ~$10 million. The company prefers open-weight models for cost reasons where quality permits, using a portfolio approach.

Contradiction Point 1

Bookings Growth Trajectory and Drivers

Guidance for bookings growth acceleration appears inconsistent.

Justin Patterson (KeyBanc) - Justin Patterson (KeyBanc)

2026Q2: The bookings guidance has been adjusted slightly upward due to Q2 outperforming expectations... Acceleration in growth is expected over time as product improvements compound. - [Gillian Munson](CFO)

What is driving the confidence in the Q4 acceleration: easy comps or product improvements? - Alexander Sklar (Raymond James)

2026Q1: The quarterly bookings progression guided (Q2 ~6%, Q3 acceleration, Q4 ~17%) is typical seasonality for the company. - [Gillian Munson](CFO)

Contradiction Point 2

Strategy and Status of Duolingo Max

The strategic focus on the Max tier versus new features appears to have shifted.

Ryan MacDonald (Needham) - Ryan MacDonald (Needham)

2026Q2: The primary goal is to provide speaking features to as many users as possible, not to extend the life of the Max tier. - [Luis von Ahn](CEO)

Are there any new feature developments aimed at the Max tier? - Bryan Smilek (JPMorgan)

2026Q1: Various options are being tested for Max, including potential price changes or offering unlimited Video Call. - [Luis von Ahn](CEO)

Contradiction Point 3

Marketing Focus and Top-of-Funnel Growth

The stated driver of DAU growth shifts from primarily organic/word-of-mouth to a more significant role for performance marketing.

Andrew Boone (Citizens JMP) - Andrew Boone (Citizens JMP)

2026Q2: Marketing has evolved from 100% organic/word-of-mouth to include social media (over 1 billion impressions per quarter) and a growing use of influencers... - [Luis von Ahn](CEO)

How are you addressing international marketing changes and U.S. user growth, particularly in terms of top-of-funnel strategies and attracting new users to Duolingo? - Wyatt Swanson (D.A. Davidson)

2026Q1: DAU growth remains driven by word of mouth, which has historically been the main factor. Marketing and performance marketing budgets have increased slightly but are not massive. - [Luis von Ahn](CEO)

Contradiction Point 4

Primary Strategic Focus for the Year

Shift in stated primary goal from user growth to increased monetization focus.

Ygal Arounian (Wedbush) - Ygal Arounian (Wedbush)

2026Q2: The primary focus for the year remains growing DAUs to reach 100 million in 2028. Monetization efforts... have been reset to ensure they align with user growth. - [Luis von Ahn](CEO)

How is the company approaching the transition towards monetization through ads and new tiers? - Ralph Schackart (William Blair)

20260227-2025 Q4: The strategic shift to prioritize DAU growth was discussed last quarter... - [Luis von Ahn](CEO)

Contradiction Point 5

Timeline for Launching New Features

Inconsistency regarding when new language content (advanced levels) will be rolled out.

What was Shweta Khajuria's question for the company during the earnings call? - Shweta Khajuria (Wolfe Research)

2026Q2: For Math, the strategy is to focus on K-12 students... Music is still early, with more updates expected in a future quarter. - [Luis von Ahn](CEO)

How does the product roadmap for Math and Music plan to drive DAU growth through the year? - Mark Stephen Mahaney (Evercore)

20260227-2025 Q4: Advanced content for top 9 languages up to score 129 will roll out in a month or two, with continuous improvements planned. - [Luis von Ahn Arellano](CEO)