Duolingo, Inc.

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Good evening, everyone, and welcome to Duolingo's first quarter 2026 earnings webcast. Today, after market close, 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 Fanon, our co-founder and CEO, and Jillian Munson, our CFO. They'll begin with prepared remarks before we open the call for questions. Analysts may ask a question by using the raise hand feature. Please note this call is being recorded and all participants are currently in listen-only mode. Before we begin, please note we'll make some 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 our assumptions we believe to be reasonable as of today. We undertake no obligations to update them. We will also discuss both GAAP and non-GAAP financial measures. Reconciliations between 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. Q1 was about execution. We said we were going to prioritize teaching better and changes in the growing users, and that's exactly what we did. DAUs grew 21% year over year, right in line with what we expected as we make this strategic shift. I want to spend a few minutes on what we shipped this quarter related to language learning, because teaching better is the foundation of everything we're building toward. Speaking practice has historically been the hardest thing to do well on a mobile app. This quarter, we made it a bigger part of the experience for free users and paid subscribers. We introduced spoken tokens, which let learners speak their answers to almost any exercise. We started rolling out speaking adventures, which put learners in real-world conversational scenarios. And we launched flashcards, which helped learners build fast recall by saying words aloud. And for our paid subscribers, video call keeps getting better. Over the past year, we've more than doubled the average number of words spoken per user in that feature. We also reached a major milestone on content. We now offer courses up to professional proficiency, which is B2 on the CEFR scale across all our nine most learned languages. And we got there fast. In Q1 alone, we published 20,500 course units. To put that in context, that's more than 10 times what we were shipping per quarter just two years ago. AI has fundamentally changed what's possible for us, and I believe we're just scratching the surface. The product is better than it has ever been, and I couldn't be more excited about what's ahead. And with that, I'll turn it over to Jillian.

Thank you, Luis. Q1 was a solid quarter. We achieved double-digit growth in both bookings and revenue, expanded gross margin, and delivered adjusted EBITDA of $83 million, which is about 29% of our revenue. As you consider 2026, it's worth reiterating how we are thinking about the year. We are investing deliberately to set us up to be a larger, more durable, long-term business. This means that for this year, we are managing the business towards the targets that we shared on the fourth quarter call. Specifically, 10 to 12% bookings growth, 15 to 18% revenue growth, and an adjusted EBITDA margin of about 25%. To help with your modeling, we have provided point estimates for the full year of 2026 based on what we can see today, consistent with those ranges. These are bookings growth of roughly 10.5%, revenue growth of roughly 16.1%, and an adjusted EBITDA margin of 25.7%. A few things we want to make sure are on your radar as you build out your models. On bookings, our expected Q2 bookings growth of about 6% reflects a tough comp. The prior year quarter included the initial rollout of energy, a price increase on our most popular subscription plan, and exceptional advertising performance. We do expect bookings growth to accelerate through the second half, with about three points of acceleration in Q3 and a further rise in Q4. We expect about 17% growth in Q2 for revenue, after which we expect growth to step down in Q3 before stabilizing in Q4. For gross margin, we expect it to be approximately 71% in Q2, after which it will trend down to roughly 69% by the end of the year as AI-powered feature use in our products expands. Adjusted EBITDA margin in Q2 should be roughly 24%. We expect Q3 adjusted EBITDA margin to be flat to slightly down from Q2 before approaching 27% in Q4. That's a lot to digest, but the overall message is that 2026 is a key strategic investment year for us, and it is playing out as we expected so far, as demonstrated by the point estimates for our financials that we have shared. We enter Q2 with over $1 billion in cash, no debt, and expect to generate over $350 million in free cash flow this year. We plan to continue executing on our buyback authorization, under which repurchases to date are 514,000 shares, or about 1% of our fully diluted shares outstanding. 2026 is a big year for Duolingo and I am very excited about what we are building. And now I'll turn it back to the operator and we can take your questions.

We will now begin the question and answer session. If you would like to ask a question, please use the raise hand bar which can be found at the bottom of your screen. You may remove yourself from the queue at any time by lowering your hand. When it is your turn, you will receive a message on your screen asking to be promoted to a panelist. Please accept and wait a moment and once you have been promoted, you will hear your name called and you may unmute your video and audio and ask your question. Your Zoom application may disappear momentarily. This is expected and your window will reappear. We are allowing analysts one relevant follow-up to their main question and we will now pause a moment to allow the team to gather and assemble the queue. All right, we are waiting one moment for Wyatt Swanson with DA Davidson to accept. Wyatt, please turn on your video and audio and ask your question.

Hey, thanks for the question. Appreciate it. Hi, Wyatt. Awesome. Could you talk to some of the different drivers of DAU growth this quarter and maybe entering 2Q? uh just talk to like whether it's performance marketing word of mouth maybe starting to return or something else and could you maybe also talk to what regions you're seeing any particular strength or weakness

Yeah, thanks for the question. So DAU growth, this is very important to us. Of course, this is the most important thing we're trying to do this year. We're growing in every single region, as we have been for several years. But of course, some regions are growing faster than others. Asia in particular is the fastest growing region. And in terms of the growth drivers, they remain pretty similar. I mean, word of mouth has historically been the main growth driver for us. Most of our users come to Duolingo through word of mouth. We have some amount of marketing, some amount of performance marketing that we're doing. We've increased that budget a little bit, but it's not massive when compared to other apps our size. But generally, I think it's been pretty similar to the growth drivers. And the last thing that I'll say is Historically, the other place where DAU increases is just a lot of increases in retention to the product. And that's basically the work of just making the product stickier. And that has gone really well. We've been making a lot of changes to the product, some of which are small, some of which are larger, that just make retention higher. The way you would see that is just an increase in our DAU to MAU ratio, which keeps increasing pretty much every quarter. And it increased again this quarter.

Perfect, thanks. And then one quick follow up. Do you maybe provide some color on how you expect DAU growth to look in 2Q and whether 20% is still the right way to think about DAU growth going through 2026?

Yeah, everything we said in the last call remains. I mean, we expect that it's going to stay at around 20% throughout the year. Now, there will be some slight ups and downs depending on the comps from last year, etc. But it's around 20% for the rest of the year. So nothing has changed from the last time we spoke. Perfect. Thanks.

All right, your next question will come from Ross Sandler with Barclays. We are waiting for a moment for him to accept. Ross, please turn on your audio and video and ask your question.

Hi, Ross. Hey, everybody. I think I got this thing to work. Okay. Luis, you had mentioned a couple interesting things 90 days back as kind of part of the plan this year. One was to kind of like revitalize some of the engagement in the free tier kind of like high engaging free tier, that top 20% of the free tier. So curious to hear any update on that effort. And then you also had mentioned that you wanted to kind of like get inspiration from some of the big like mobile gaming companies out there. in terms of new things that you could potentially bring into Duolingo. So yeah, curious just to hear, you know, what you've learned and any new strategies on that front. Thanks.

Yeah, thanks for the question. Okay, so in terms of the free tier, I mean, we've done a few things. We basically made it so that the free tier is better than it was two months ago. Of course, you know, some of these changes take time. It's only been two months since the last earnings call. So it's not like we've done, you know, a thousand changes, but we have made the free tier better. There's just more things that are available to free users. And, you know, we're very happy with that. We think that over time, that's going to really increase word of mouth. In terms of getting inspiration from mobile games, we've always gotten a lot of inspiration from mobile games. And the idea, ultimately, what we're trying to do with Duolingo is make a thing that is as good at teaching as a one-on-one human tutor, but it's also as fun as a mobile game. That's what we're trying to do. And, you know, we keep doing that. I mean, if you look over the last quarter, some of the things that we've worked on, very soon you'll see really cool avatar costumes that's directly coming from mobile games. I think users are going to love that. We're doing a number of changes in terms of how we show rewards to users. For example, we're showing them as cards now, and that feels really collectible. So we're doing things like that. Another thing that is not exactly for mobile games, but that is important, and it's also important to mention for the free tier, one of the things that we mentioned last time is that we want to work on monetization tactics that are not at odds with the free tier. And we have been finding some really good ones this quarter, and one of them that is good is longer free trials. Historically, Duolingo has given a seven-day free trial, and that has worked well for us. We're finding that giving longer free trials is really good in that not only does it give us more bookings, that's good, but also it's good for the user. They feel good. They're like, ooh, I have a one-month free, for example. So that's something else that we're finding that we're pretty happy with.

Thank you.

Our next question will come from Andrew Boone with Citizens JMP. Please unmute your audio and video and ask your question.

Thanks for taking the questions. I would love to talk about malgrowth and top of funnel at large. Can you just help us understand the deceleration there? I understood the comp and everything from last year, but how do we start to think about what has been the deceleration there and whether that needs to accelerate to support downgrowth?

Yeah, I mean, so in terms of growth, the main thing we work on here is daily active user growth. That's the main thing we have worked on for the longest of times. And monthly active user growth, there's just no team that's looking at that. And we do report it, but it's just no team that's looking at that. Now, related to MAU growth is top of funnel, and that we do work on. you know, we're, the reality is that top of funnel has been about flat for, you know, certainly for this quarter and we would like to accelerate it. And we are, you know, we're working on that. There's a lot of stuff with marketing that I think will be really good, particularly on their penetrated regions. I think that's one thing. And then the other one is just, you know, making changes to the product to make it teach better and be better for free users that should accelerate word of mouth. Again, the, The main thing that has been responsible for our top of funnel historically has been word of mouth. And word of mouth is this interesting thing that is beautiful because it's free, but we don't have that much control over it in terms of being able to measure it the same way that we can measure retention. So we're doing things that we think are going to be really good for word of mouth, but we don't have the granularity of control that we have for things like retention.

And Louise, just a strategic question in terms of keeping users on platform, right? You guys have always focused on fun. It seems to me that there's a change as we think about more of a voice front experience. Just talk to me about keeping the entertainment value and what has to change as you guys do think about moving towards more of a voice-like experience. Thank you so much, guys.

I don't, I understand why you say that you may perceive a change, but internally there's no change in terms of fun. I mean, we are humongous believers that the hardest thing about learning something by yourself is staying motivated. Like we have to, this really is the secret sauce of Duolingo and what has gotten us so far is that we know that we have to motivate our users to learn something because there's a very big difference between what people say and what people do. People may say they want to learn something, but ultimately, you know, they'll do what's most fun. So we spend a lot of effort trying to make it fun. We think that, you know, making voice and speaking be more prominent in the app does not decrease fun. And, in fact, you know, our metrics suggest that it does not. It can be a pretty fun experience. So we're going to continue doing that. Now, one thing that is important to understand about fun. all the things that get shown on the screen, you know, are beautiful animations, et cetera. It just turns out that humans are very visual creatures. So you will see us continue having a lot of the, you know, very beautiful animations and kind of more game-like things, even though there's voice in there. you're just still going to see all the graphics and everything to keep Duolingo as fun as possible. But yeah, our teams dedicated to making the app more fun are really firing in all cylinders. And you'll see a bunch of stuff. Really, in the next couple of days, for example, you'll see this really awesome feature, which is avatar costumes. I think it's a lot of fun. My favorite one, I dress up. If you look at my account on Duolingo, I don't know if your app can see it yet, but I'm dressed up as a hot dog, and I love it. Thank you.

Your next question will come from Eric Sheridan with Goldman. Please unmute your audio video and ask your question.

Great to see everybody. Thanks so much for taking the questions. Maybe it's you, Porter, if I can. Luis, for you, what have been the key lessons so far in terms of scaling AI, both in terms of the user experience, as well as the scaling of content for the platform over the last couple of months? And Jillian, as AI scales on both sides of that equation, how should we think about what that means for margins longer term? the business? Thanks to both.

Yes, great question. I mean, we're very excited about AI. In general, if you go to the highest level, what we're trying to do here is we're trying to make a thing that is as good at teaching as a one-on-one human tutor and as fun as a mobile game. The teaching part, AI, is what's going to get us there. We are really doing, you know, for example, like we said, our video call feature that practices conversation has gotten significantly better over the last year. The conversations are way more fluid, and that's making it so that users are basically saying twice as many words on average as they were a year ago. So that's a pretty major improvement. Similarly, like you mentioned, content. What the amount of content that we were able to put out, learning content that we were able to put out in the last quarter has dwarfed basically everything that we've ever done in the past. We put out 20,500 units of content and that's in one quarter. And that's more that we were putting out like in an entire, that's about what we put out the entire year last year. And by the way, last year we were already using AI. So we're just getting better and better at using it. And the other thing that I think, you know, we're working on a lot of things, for example, models really picking what exercise to give to you. We've always had a model that picks what exercise to give to each user, but we're working on significantly more personalization because that's exactly what a one-on-one human tutor does. It basically personalizes very close to you. So, you know, we're very excited about that.

And then from a cost perspective, I think there's two things to think about. One, the adoption of AI, both in terms of customer facing and you'll see our gross margin guidance has us landing at about 69% in the fourth quarter. And that assumes we're going to put a lot more of that ingredient in our product. And then our operating expenses, we started to see some pretty big increases in AI costs internally and our guidance would reflect that. So we are increasing everywhere, but there's another thing going on. There are always these waves of efficiency that come with AI. So you might have AI costs come up and then the team optimizes and then you move forward. So if you look, for example, at the Q1 gross margin, It was better than we would have expected and pretty good on a year-over-year basis, and yet there's still a lot of new AI content in our product, and that's because on a per-unit basis, the costs have come down a lot. So it goes in sort of these waves. The costs come down, we adopt more, and we manage that. But I think as you think about the overall margins, I would expect us to be in that 69% range on the gross margin, and then we'll manage the operating expenses accordingly. Okay.

Your next question will come from Brian Smilak with JP Morgan. Your line is open. Please unmute your audio video and ask your question.

Great. Thanks for taking the questions. Luis, just going back to last earnings as well. You know, obviously very good to see just overall voice being infused across the ecosystem. Can you just discuss the affiliated impact on Macs overall, right? Like, are you seeing Mac subscribers crossgrade down to super or how should we think about the product market, you know, a go-to-market approach on Macs now that AI is becoming more, not commoditized, but more available across the broader ecosystem?

Yeah, thanks for that question because it helps us clarify. So what we said last time was that we wanted to add video call to our medium tier, super, super Duolingo. It's important for us to do that because video call is such a good feature in terms of teaching. And we just want significantly more people to have access to it because if they do, they'll learn better. They'll tell their friends, et cetera. So we really believe this is the right thing to do. We started doing that. So at the moment, we have a number of experiments giving video call to super subscribers, particularly to new users. New super subscribers are getting video call. We have not scaled this to all our existing user base, etc., So at the moment, there's no change for Max. I don't know what's going to happen with Max. There's a lot of possibilities and it remains, you know, again, there's just only been two months since we last spoke. So we just haven't run all the different experiments. But there's some possibilities of what it could be. It could be that we lower the price of Max. It could be that, you know, we do something where we give max subscribers, unlimited video call versus super subscribers, non-unlimited. So there's a number of things that it could be. But at the moment, you know, in terms of metrics, we're not seeing a big difference except for the fact that new users, a cohort of new users at the moment is not even seeing max. They're only seeing super. And that's just one of the many experiments that we're running.

Thank you. That's helpful. And I guess for Jillian overall, just looking at the guidance here, obviously understand the tougher comp on bookings into 2Q. Can you just help me think about just puts and takes that drives the back half reacceleration? I know you have mentioned as well to about 20% DAUs grow up with ebbs and flows in between each quarter. So would that back half guidance intuitively imply that DAUs would improve from early benefits from these ongoing product initiatives? Thank you.

Yeah, I think as you look at the second half guidance, in general, we are just planning the business based on that 20% growth basis. So really, you're going to maybe see some early returns on the investments we're making, but I wouldn't be banking on a lot of that. We're really trying to take the long view this year, and we really want to allow ourselves to operate in that range of bookings guidance that we gave. so that we can make all the investments we want to make and do what we think is right in terms of the customers. So when you think about the rate of growth Q2 into Q3, Q2 is a really tough comp because of the release of energy in particular and a handful of other features that really made that bookings a year ago really strong. And so you'll see us bounce back from that comp and then you'll continue to see those DAU numbers drive in the bookings.

Great. Thank you both.

Your next question will come from Nathan Feather with Morgan Stanley. Please unmute your audio, video, and ask your question.

Hi, everyone. Thanks for taking the question. You know, the rapid increase in your ability to do content generation is really interesting. You know, on one side, now that you have, you know, really a full core set across language learning, at least across the most common languages, are you starting to see the opportunity to kind of A-B test new content for different engagement metrics? And I guess historically, have you seen, you know, an increase in Your attention payer rates, you know, whatever it may be on a higher quality of content. And then kind of looking further, how does that impact your thoughts on expanding into additional subjects beyond language learning now that that kind of cost to entry is lower?

Yeah, thanks. Thanks. Thanks for the question. So, yes, one thing that is exciting about, you know, we've been working honestly for years to try to have the top nine languages have content all the way to Duolingo score 129, which we now have it internally. You know, I kept on going around like, oh, we're almost done. We're almost done. And somebody said something that stuck with me a lot. No, no, no. That's just the beginning. Because when we finally have all this content, and now we do, we really are in a much better spot to be able to make this content significantly get better based on how the users are performing. So we're starting really to do that. And yes, we have seen the changes in content, certainly changes in content quality, but also in the type of content that you show have increased. interesting impacts on retention, particularly new user retention. So we are doing a lot of experiments to see, for example, just what we teach you in the first unit matters a lot. Do we teach you greetings? That is one thing. Do we teach you just the words for mom and dad? That's another possibility. And it actually is not as simple as it's always better to teach you greetings. It's not as simple as that. It's a little more complicated than that. But generally, these things do have an impact in retention. And so we're very excited about that. And, you know, we're also, you know, likely going to move to something where we have all this content. This is awesome. But we may even start generating content just for you based on everything that we know about you. We may just be able to generate content just for you. Maybe not the immediate next exercise, but like two exercises from now based on everything. We've just generated that sentence just for you or that piece of content. So we really are getting to that point. And that's very exciting. In terms of other subjects, each subject has its unique challenges and unique things. So for sure, AI is helping us be able to add new subjects faster. And chess is a great example. I mean, we were able to add chess in about nine months. But each subject has its own challenges. Types of contents that you need to add. So, for example, adding math was relatively easy if what you're trying to do is add math in the way that like chat GPT would show it, which is a wall of text. But if you want to add math with diagrams and, you know, user interaction, et cetera, that is that is harder. But AI is definitely making it easier, but it's still a lot harder. You're not just querying an AI to be like, just give me some content. It's a lot harder to do it with all the diagrams. So I guess my answer to that is, yes, it is making it easier to add more subjects. No, it is not yet trivial to add new subjects. And at the moment, we're pretty happy with the subjects that we have. Particularly, we're very excited about math. You saw we started this call with a video for math. We really finally got to the point where our math course really has pretty much all the content between grades 2 and 12. And it can actually explain things when you got things wrong. So we're very excited about that.

Great. That's really helpful. And then thinking about the balance sheet, you've got a lot of cash on there, high free cash flow. I guess, what are your thoughts on what the right level of buybacks may be or what other substantial uses of that cash do you think might go forward?

So as we look at the cash, you saw we returned some level of cash back to shareholders in terms of a buyback in the quarter. And we do have a $400 million authorization. So we are willing to spend that money. I think that in general, we're largely focused on operating the business. So we are investing in the business as well. as we look at the business this year um so really it's going to be a balance of the two um and of course on a buyback uh you buy more when the stock is lower and less when it's higher so you know we will look at that and look at where the stock is we think it's a great time to buy our stock it's a great way for us to offset dilution from the last couple years as we look at the business so we like doing this and as um you can tell with our free cash flow estimates, we're going to generate almost as much cash as that buyback is anyway in the year. So that's the balance there. I think your other part of capital allocation is, of course, M&A. We are out there in the market always looking at things. But as you've seen, a lot of what we've done is fairly small in nature. It's not going to really hit the balance sheet so badly, or if you will, in terms of like a big deal. Obviously, we'll always look at everything that's out there. But as you've seen, Duolingo is very focused on growing Duolingo, investing in Duolingo and going from there.

Thank you. GameStop wants to buy eBay. We may want to do that too. I'm kidding.

Your next question will come from Ryan McDonald with Needham. Please unmute your audio, video, and ask your question.

I'm going to leave that last comment alone to Luis a little bit. We're not buying eBay, just so you know. Maybe can we talk about, you obviously rolled out and sort of had the announcement in late April about now that the advanced content being sort of available across all the top subjects. Now, can you talk about, from a marketing perspective, how big of an unlock that is in terms of how you're either deploying that incremental performance marketing budget now that you have all the content available and how we should start to think about how that maybe can help to replenish the top of the funnel as we go through the back half of the year and into next year.

Yeah, certainly in terms of performance marketing, this matters, I think, most for English learners. In terms of trying to find users that are going to come into the platform, English learners are the ones that are most interested in more advanced content. And some of our performance marketing, you know, some of the main places where we use it is in underpenetrated markets, in particular Asia. And one of the things that is interesting about Asia is in a number of large Asian markets, we can do profitable performance marketing. You know, performance marketing at Duolingo has been this interesting thing that because our free version is so good. It has not been easy for us to do profitable performance marketing because what happens is we acquire people and then they're super happy as free users. But we are finding that we can do that particularly, for example, in China, we're able to acquire profitably. So and these are English learners. So in that in that respect, these are these are a bit related. But I would say the main thing with performance marketing for us is that we just historically have under invested in performance marketing. And we are getting just a lot more professional about it. And certainly this year. And I think you'll see the results of that in the next few months. We're pretty excited about that just because we're finally, you know, building the infrastructure to have the right attribution to send users to the right place after you acquire them, et cetera, that a company our size should have probably built years ago, but we kind of just ignored it. So we're pretty excited about that.

Awesome. And then maybe from a follow-up perspective, as you're testing video call and super duolingo for sort of a cohort, that cohort of sort of net new paid subs on super, can you just talk about what you're seeing thus far in terms of elasticity on pricing and the potential demand to pay incrementally for that feature at the super level? And Jillian, maybe then how is that informing your view on sort of gross margin profile as we move forward?

Yeah, I mean, the main thing that I'll say there is that we are running some tests on kind of what the price, what the right price should be for super with video call. I cannot tell you all the results because, you know, we started this work a couple of months ago. And it takes some time. You know, you have to build the A-B test and you have to run the A-B test for a few weeks to, like, get the results, et cetera. So it's just really been eight weeks since we started this work. So I just don't have a lot of results. But what I can tell you is that people are willing to pay more for super with video call. That we know. Uh, we've learned that how much more I, you know, I'll be able to, I'll be able to tell you more in a quarter or two.

And Ryan, one of the reasons we've been really trying to focus everyone on we're operating within a a set of ranges of financials for the business is to allow ourselves to do this kind of work, this kind of testing, check out different ways of approaching the customer on price. So all of that's anticipated in the guidance around here are the ranges that we want to operate in 2026. And in any given quarter, it might be a little bit more, a little bit less. But we anticipated that coming into the year and are executing against that. So there's no big surprises in there. And we think that the financials that we've laid out for 26 can accommodate that.

Awesome. Appreciate the color.

Moving forward, we are allowing analysts one relevant question in order to get through the queue. Thank you. Your next question will come from Ralph Shackert with William Blair. Please unmute your audio, video, and ask your question.

Hopefully this is relevant. I'll try. Luis, historically, if you think about it, you have a little bit of a paradox. over-monetized historically. Now, maybe we're in some sort of duration of time where you're under-monetizing the user base, but maybe just kind of stepping back, can you just give us a sense, the signals that you're looking at today, what are they in terms of informing you you're on the right path right now? And maybe a broader sense, when would be the right time to start monetizing again? I know it's only been a couple of months since the last call, but just would love to hear your sort of riff on that. Thanks.

Yeah, it's a great question because it really allows me to emphasize something that I've said before. And you used the word paradox, which is kind of what we feel. We are at the same time under-monetized and over-monetized. It is a weird thing. The reality is that Roughly 12% of our monthly active users are paying subscribers. We think that number should be much higher. I mean, if you look at comps of other freemium models, they're much higher than that. Spotify is close to 50%. So we really think there's a lot of room there. We should be able to get more people. At the same time, I think certain types of monetization we probably overdid in the sense that we probably were making the free user experience have too much friction And at the crux of it was that most of our monetization tactics were kind of at odds with DAU growth. Not all of them, but many of them were at odds with DAU growth, which were like, if you make the free user experience have more friction, what happens is that some more people subscribe. That's good. That makes you money. But also some more people leave. And what we need to do and what we are doing, which I'm very excited about, is finding ways to monetize that don't put DAU growth at odds with monetization. Those ways exist and we're very happy with. I mentioned one already, which is longer free trials. We've been historically at Duolingo. This is not something we've experimented with a lot, the length of our free trial. But if you look at other subscription businesses that are scaled, they have pretty different free trials, usually much longer than the one we have. You see one month. You'll sometimes even see three-month free trials. Okay. So you're going to see us experiment with that, and we are definitely seeing, certainly the one-month experiment we already see, we are seeing that that both increases revenue, which is good, but also is not at odds with daily active users. Because when you give somebody, when you say instead of a seven-day free trial, it's a one-month free trial, that doesn't drive any user away. They're like, oh, that seems like a good thing. So the work that we're doing is finding ways to monetize that are not at odds with the AU growth. They exist, and they're just not as quick as basically adding friction to the free user experience. And that's what we're experimenting with this year. So what Jillian said is exactly right. The idea is that we have this year to be able to experiment with this. We'll probably experiment with a three-month free trial. And by the way, experimenting with a three-month free trial is something that we said before. That is something that we could have never done if we didn't have a year like this one, because in a three-month retrial, what happens is that your bookings get delayed by a whole quarter. And so you're saying, oh, you know, showing up without being able to say we're going to operate with these guidelines, which is what we did for this, just saying, oh, sorry, all our bookings are going to come next quarter. They didn't come this quarter. It was a little weird, but this is why we're operating this way.

Okay, great. Thanks, Luis. Appreciate it.

Your next question will come from Mark Mahaney with Evercore. Please unmute your audio video and ask your question.

Okay, thanks. I want to ask about gross margins. So it looks like your guidance implies that they're going to kind of phase down or whatever to the high 60s in the fourth quarter. Is there a reason to think that gross margins hold at that level? Is there a reason to think that they should recover up higher or lower? Just talk about the trajectory of gross margins after, like how to think about what drives it higher or lower after this year. Yeah.

Yeah, Mark, when we think about any of the margins that have AI content in them, so let's take gross margin. What you tend to find is as you start to introduce features, they might be more expensive to us. And then we optimize that cost over time. So when you look at Q1, for example, the margin held up really nicely as compared to the year before. And that's because our per unit AI costs have come down a lot. Now, as we look forward, we really want to put more and more AI as an ingredient in the product. And so that's why we have the margin guidance that goes down to 69%, which is essentially where we were last quarter, too. And that just implies a lot more AI content, which we think is great for the business long term. So I think from a positioning perspective, it's possible we could optimize that more. But we sort of want to be putting that much AI into the product. So I think 69 is a good place to think of us exiting the year. And if that works, that's going to give us nice growth as well. That said, this is a changing environment. And some of the optimizations come faster than you expect. And you could see both up and down on that one.

Okay. Thanks, Jillian.

Your next question will come from Justin Patterson with KeyBank. Please send me your audio, video, and ask your question.

Thank you very much and good evening. You know, I think about Duolingo as always having a high pace product velocity around A-B tests and decoding is certainly made it easier than ever to do lots of those. So we'd love to hear about how you're thinking about just engineer productivity as a whole, the number of tests being run and how we should think about that, you know, perhaps influencing long-term headcount needs. Thank you.

Yeah, that's a great question. So you're right. We A-B test a lot. We concurrently are running hundreds of A-B tests at all times. And that has been our product philosophy. And that is how Duolingo has gotten better over time because we just are able to increase. As soon as we set our minds on a given metric, if you just give us a few months, usually we're able to increase that metrics. We just run a lot of A-B tests. We are finding that the number of A-B tests that we can run is increasing. We believe that that is because of AI usage, particularly in our engineering, our product organization. The increase is not humongous, but it's kind of the first time we've seen an increase on a per capita basis. in years. So we do think that that is helping. I don't know where this is going to end, but it is an interesting thing because if you look last year, for example, like a year ago, and you were to read Twitter, Twitter would have had you think that you can program anything you want in five seconds and it's done, and why shouldn't you be running 10,000 A-B tests at once with a single engineer? That is an exaggeration. That is just not the case. And up until very recently, we and companies that are scaled like us have not seen a real increase in velocity, like, overall. But we're starting to see that increase. It's still moderate, but we're starting to see that increase. So I'm assuming that you're going to continue seeing that increase. Now, I don't think... I don't think we're going to be able to run 10 times as many A-B tests per capita, like per engineer. But, you know, it is increasing. And that's something that we're very happy with. Thank you.

Your next question will come from John Colantuoni with Jefferies. Please unmute your audio, video, and ask your question.

Hey, John.

Hey, great. Thanks for taking my questions. So I just wanted to ask about sort of DAU trends. Can you give us a bit of color on how U.S. DAUs are trending relative to international DAUs and what that relative geographic growth could mean for bookings over time, given U.S. users generally adopt a subscription at a higher rate than international users?

Yeah. So DAUs are growing in the US and they're growing in pretty much every country. But it is true that in the US, they're growing less than in many international markets. In particular, Asia is the fastest growing market that we have, that whole region. In terms of how that affects monetization. We're not, you know, that doesn't seem to affect it that much. It just turns out that, yes, the US monetizes well, but it just turns out that a lot of countries monetize relatively well. A good example is China. China monetizes about as well as Western Europe, so like about as well as France, which is not as high as the US, but pretty high. And given that the growth rate in China, I don't know the latest numbers, but I mean, it's pretty significant. So I just don't think that the fact that the growth in the U.S. is very low just means that our bookings growth is implied to be really low. But I would say that, you know, growth in the U.S., you know, my hope is, is that by making the product teach better and also have higher word of mouth, and also investing some in marketing in the U.S., which historically we had not invested in actual paid marketing in the U.S., my hope is that all of those things combined will allow us to have higher year-over-year growth in the U.S. than what we currently have. Thank you.

Your next question will come from Shweta Kajuria with Wolf Research. Please unmute your audio, video, and ask your question. Hi, Shweta.

Hello. Thank you for taking my question. So with the AI-driven content creation, there is a meaningful increase in content velocity. I guess, could you please talk to how you're managing quality of content as that continues to grow against volume and engagement? Thank you.

Yeah, we spend a lot of... I mean, the main reason why our content is not growing even faster is because we're trying to make sure that it is very high quality. We do a number of things. Certainly, we do evaluations of our content, both with AI and with humans, to try to make sure that the content is very high quality. And then after that, We try to test it with our own users in small amounts to see if it's high quality. And if it is, we actually increase the number of people that we give it to. So we're trying to be very careful to make sure that the content is high quality. It is a good point because the reality is that as amazing as AI is, if you are not careful about the quality, you can get a lot of slump. And we're trying very hard for that not to happen. So the quality of our content, I think, certainly over the last couple of quarters, has actually increased. And the way we know that is we basically do spot checks and we kind of rate the quality of all the content. And we know that over the last two quarters, the quality has actually increased.

Okay. Thanks, Luis.

Yeah.

Your next question will come from Omar Dessauki with Bank of America. Please send me your audio, video, and ask your question.

Hi, Amar.

Hi, thank you. Hi, how are you doing? Well, I just want to get back to performance marketing for a second. You know, glad to hear that the company is treating that with a lot more seriousness. You know, the last time you spoke, I think you gave me the impression that this product would be leaps and bounds better in the future than it is today, you know, and really would change the way that people learn languages. Does the maturity of the product itself, is it a bottleneck to scaling performance advertising spend? Because performance advertising typically tries to optimize specific types of behaviors, optimize for specific types of behaviors in users. So A, is that the case? And then B, Do you have any sense at what point you might be ready to really put the pedal to the metal, assuming your organization has done all of its experiments? When would the product be ready to really go full bore on performance marketing?

Yeah, I mean, I would say the bottleneck for performance marketing for us has been, first of all, building the infrastructure for it to be, again, like a much more serious performance marketing machine. That is something we are doing at the moment. That's one thing. But there's another one. And it is not the quality of the teaching. It is mainly the problem with how good our free tier is. One of the problems we've had, depending on the region and depending on what we advertise for, etc., has been... being able to acquire a user, and now they're here, and actually getting them to subscribe, as opposed to acquiring a user, now they're here, and they're very happy users of our free product. And so that's been the main bottleneck, and that's the thing that we need to get over. At the moment, in some geographies, we have profitable performance marketing, but in many geographies, we do not. I guess I'm just saying,

I said the only thing I would add to that is that we're making an investment in marketing this year, and it's not just in performance marketing. The team has a multi-tiered approach to marketing and to stepping up that investment that is really well thought through and has some diversity to it as well.

A lot of diversity. I want to make sure that... that I'm not thinking about performance marketing the wrong way because I thought it would be difficult to performance market a product that isn't stable or a product that's not mature and kind of finalized because users, you don't actually know what you're marketing if it's changing so much. I just want to make sure I'm not thinking about it the wrong way.

Oh, I wouldn't say that. I mean, you know, Duolingo has been around for 15 years. It has never stayed the same and it never will. So I don't think that that's, you know, well, that's not going to change, but I don't think that's been the problem.

Thanks.

Your next question will come from Alec Brondolo with Wells Fargo. Your line is open. Please ask your question.

Yeah, hey, thanks so much for the question. I appreciate it. Hey, you mentioned, you know, how fast China's growing. I think there's been two really successful brand tie-in deals over the last 12 months, one with Luckin Coffee last year, I think another with Meituan in March. Are there any kind of learnings we can take with regard to how successful those brand tie-ins have been in China and ways to kind of extend that success to other markets over the next year? Thanks.

Yeah. Thank you. I mean, you noticed the brand partnerships. We have had incredible brand partnerships in China. I think some of that is just that our IP and our brand in China are very strong, and that commands some of the largest brands wanting to partner with us. For example... we very soon have a partnership with McDonald's in China. And so the very large brands wanting to partner with us, they come to us to do that. I think there's that part. There's also the part that I think brands in China, brands like Luckin Coffee, for example, are just a lot more opening to partnerships than... you know, for example, brands in the Western world. You just don't see, for example, Starbucks changing all their stores every two weeks with a new brand, whereas that's kind of what Luckin does. So there's some learning. Certainly that team is, you know, our partnerships team in China and our marketing team in China are you know, very high performing. So there's some learnings of things that we can do in other places, particularly in Asia. But I would say some of that also has to do with the fact that it's the China market. I will say the other thing that I'll say is that China's not just growing fast because of the great partnerships. I mean, the great, I think it's kind of the other way around. I think the great partnerships are coming in part because we are growing fast and because we're seen as a very cool brand. I mean, the reality in China is that there's just a humongous appetite for English learning. that just keeps growing and growing. And that's the main reason why China is growing.

Thanks so much.

Your next question will come from Alexander Sklar with Raymond James. Your line is open. Please ask your question.

Hi, Alex. Hey, Luis. Hey, Jillian. Thanks. So on the relationship between DAUs and top of funnel growth versus kind of the visibility you've talked to on the shape of the bookings inflection this year, what early tests or maybe it's tier geomix is out there that that's providing your visibility in terms of that inflection? Sorry, in terms of an inflection of bookings exiting the year?

Yeah, first on the bookings, I think if you look at the quarterly progression, what we are guiding to as you go Q2 into Q3, Q3 to Q4 is fairly on par with where the company has been in the last couple of years. So I think one of the things we want to make sure we remind everyone of is we're playing a long game here and the investments we're making are... We're going to maybe see some things from them this year, but we're really looking out beyond this year. So 2026 is much more about... operating around that 20% DAU growth and then growing the business. And then right now, what you're seeing, that progression is pretty typical seasonality. There's been an adjustment here in Q1 and Q2 to our new monetization balance, but then in Q3 and Q4, what you're seeing is quite typical for us.

All right, great. Thank you.

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. Thanks, operator. I'd just like to thank everyone for joining us, and we look forward to seeing you on the next call.