Duolingo, Inc. (DUOL) Earnings & Analysis

Latest quarter

Duolingo reported Q3 FY2026 revenue of $309.0 million, up from $271.7 million a year earlier. Its filing attributed subscription revenue growth to an increase in average paid subscribers, while other revenue fell primarily because of lower in-app purchase revenue. Paid subscribers rose 14.0%, and daily active users increased 29.0%, with the filing attributing much of the user growth to retention.

Gross margin rose to 72.9% from 72.5%; the filing attributed the increase primarily to lower feature-based AI costs. Operating margin fell to 7.83% from 12.9%, while the filing showed higher research and development, sales and marketing, and administrative expenses.

Diluted earnings per share fell to $0.54 from $5.95. Duolingo said the decline in net income was primarily due to a one-time tax benefit in the prior-year quarter. The company reported $89.4 million in cash provided by operating activities. Its filing said quarterly free cash flow fell as higher capital expenditures related to office expansion and capitalized software development affected the comparison.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Luis von Ahn said Duolingo began the year prioritizing better teaching and user growth, with the expectation that results would take time. On the call, he said daily active user growth had accelerated for a second consecutive quarter. He also said bookings, revenue and profitability were ahead of the company’s expectations.

Von Ahn said each new learner expands the audience Duolingo can monetize over time. He said the company is gradually placing more emphasis on monetization while preserving the quality of its free experience. Asked about bookings growth, he explained that some new users subscribe, but others can take years to become paying customers. He said Duolingo is concentrating more on monetization after accelerating daily user growth.

On retention, von Ahn said the company’s CURR metric is the main measure it optimizes to increase daily active users. He said the metric continued to increase and accounted for a majority of daily active user growth, but he declined to give precise figures or commit to quarterly updates.

Asked about gross margin, executive Gilian Munson said AI costs had been lower than Duolingo expected. She said the company planned to make AI features such as Video Call available to all paid users by year-end. Munson said Duolingo wanted to put more AI into the product while balancing that investment against the bottom line.

For the fourth quarter, Munson said the gross margin outlook includes the expected transition of Duolingo Max. She also said operating expenses would likely grow faster than revenue because of continued investment and the second portion of an employee bonus. Von Ahn said fourth-quarter daily active user growth should be similar to the third quarter.

Guidance

Duolingo now expects full-year revenue growth of 18.0% and bookings growth of 12.0%, each at the upper end of its previous range. It also raised its expected full-year adjusted EBITDA margin to 26.5%.