Duolingo, Inc. (DUOL)
Language Learning Platform | Internet & Consumer
What They Do
Duolingo operates the world's most popular language-learning platform, offering free and subscription-based lessons through gamified mobile apps. The company serves over 50 million daily active users globally and generates revenue primarily through Super and Max subscription tiers, plus advertising to free users. They've recently expanded into adjacent educational areas including math tutoring and chess.
Investment Thesis
**Massive scale with runway ahead** — 50 million DAUs (5x since IPO) targeting 100 million by 2028, with only ~10% monetization rate vs. 50% for Spotify**Dominant market position** — Controls ~85% market share of daily active users among language learning apps with strong network effects**Proven unit economics** — Achieved $1B+ in bookings and $300M+ adjusted EBITDA in 2025 while investing heavily in growthKey Risks
**Slowing user growth momentum** — DAU growth decelerated throughout 2025 to ~20%, prompting strategic shift away from monetization**Margin pressure from strategic pivot** — Company deliberately sacrificing near-term profitability to prioritize user acquisition and product investmentGrowth Story
Management is executing a bold strategic shift to prioritize user growth over monetization, targeting 100 million DAUs by 2028 (doubling current base). Revenue growth is expected at 15-18% in 2026 with bookings growth of 10-12%, as the company invests in enhanced AI features, expanded content, and new subjects. The chess product already reached 7 million DAUs in under a year, demonstrating expansion potential beyond language learning.
Profitability Profile
Duolingo maintains impressive 72% gross margins but expects some compression as AI features roll out to broader user base. Adjusted EBITDA margins will decline to ~25% in 2026 as R&D and marketing spend outpace revenue growth. However, the company continues generating strong free cash flow and has proven ability to scale efficiently, with clear path to margin expansion once investment phase moderates.
Competitive Position
Duolingo enjoys a dominant moat in language learning with 85% market share of daily active users, powered by superior gamification, extensive course catalog, and network effects from its massive user base. The platform's freemium model creates a sustainable competitive advantage, allowing continuous product improvement while competitors struggle to match scale and engagement levels.
Recent Momentum
Q4 2025 showed continued execution with revenue beating estimates by 2.5% and EPS beating by $0.15, capping a year of consistent outperformance. The company surpassed key milestones including 50 million DAUs and $1B in annual bookings, while successfully launching chess as a second major product vertical. Management's strategic pivot toward user growth signals confidence in long-term market opportunity despite near-term margin sacrifice.
What Wall Street Thinks
Analysts are likely digesting the strategic shift toward prioritizing DAUs over monetization, with CY26-27 estimates suggesting modest revenue acceleration (17% growth expected). The company's track record of consistent earnings beats and ambitious 100 million DAU target by 2028 should support investor confidence, though margin compression guidance may create near-term pressure.
The Bottom Line
Duolingo is deliberately trading short-term profitability for long-term market dominance, betting its proven platform can double to 100 million DAUs while maintaining pricing power for eventual margin expansion.
