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Duolingo, Inc.

DUOL
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Business Summary

Duolingo operates in the online language learning industry, which according to HolonIQ in January 2024, consumer spend on both online and offline language learning is expected to reach about $123 billion by 2027. The company also competes in adjacent education verticals including math, music, and chess, and offers the Duolingo English Test, an online English proficiency assessment. The industry is characterized by low switching costs, a consistent stream of new products and entrants, and rapid technological change, particularly in artificial intelligence. Duolingo positions itself as a technology company building products native to the smartphone, leveraging a freemium business model that allows free access to learning content while charging for premium subscriptions.

The online language learning industry is highly competitive, with low switching costs and a consistent stream of new products and entrants. Duolingo competes for learners' time, attention, and spend with other online and app-based language learning platforms, offline forms of language learning, language learning assessment providers, literacy platforms, and math, music, and chess learning products. The company believes its competitive advantages include its freemium model, large user base, brand recognition, data moat from nearly 2 billion exercises completed every day, and its learning and investment flywheels. As of December 31, 2025, Duolingo's flagship app is the world's most popular way to learn languages and the top-grossing Education app in the app stores, and on Google, people search for the term 'Duolingo' much more often than 'learn Spanish'.

Duolingo generates revenue through a freemium business model. The majority of learning content is free, and the company monetizes through premium subscription offerings (Super Duolingo and Duolingo Max), advertising, in-app purchases (IAPs), and the Duolingo English Test. Subscription revenue is recognized ratably over the subscription term, while advertising revenue is recognized at the point in time when the advertisement is placed. The company's primary customer segments are individual learners, and it relies on third-party platforms like the Apple App Store and Google Play Store for distribution and payment processing. As of December 31, 2025, approximately 9% of monthly active users were paid subscribers.

Duolingo's primary product is the Duolingo App, which as of December 31, 2025 offers over 250 total language courses to more than 130 million monthly active users. The app also includes courses in Math (launched 2022), Music (launched 2023), and Chess (launched 2025). The company offers two subscription tiers: Super Duolingo, which provides an ad-free experience and additional features, and Duolingo Max, a premium tier launched in 2023 that includes AI-powered features like Roleplay, Explain My Answer, and Video Call. The Duolingo English Test, launched in 2016, is an online, on-demand English proficiency assessment. As of December 31, 2025, over 6,100 education programs accept the Duolingo English Test, including 24 of the top 25 undergraduate programs in the U.S. ranked by international enrollment. For the year ended December 31, 2025, subscription revenue was $873.4 million , other revenue (comprising advertising, Duolingo English Test, IAPs, and other) was $164.1 million , with advertising contributing $79.7 million , Duolingo English Test contributing $42.0 million , and IAPs contributing $40.5 million .

During the period, Duolingo completed two acquisitions. In July 2024, the company completed the acquisition of Hobbes, an animation and motion design studio based in Detroit, Michigan, for total aggregate consideration of $7.5 million . In July 2025, the company completed the acquisition of the team behind NextBeat through the purchase of Music Learning Services Limited, a U.K.-based entity, for total aggregate consideration of $34.5 million . The company also executed an amendment to its Pittsburgh headquarters lease, increasing leased space and extending the term through 2036, recognizing an additional operating lease right-of-use asset and lease liability totaling approximately $39.0 million and receiving a tenant improvement allowance of $6.8 million . On October 20, 2025, an outage of the us-east-1 region of the AWS platform caused Duolingo to go offline for over 12 hours.

For the fiscal year ended December 31, 2025, total revenues were $1,037.6 million , compared to $748.0 million in the prior year, representing growth of 39%. Net income was $414.1 million versus $88.6 million in the prior year. The net income for 2025 included a one-time income-tax benefit of $256.7 million from the release of the valuation allowance on deferred tax assets. Gross margin was 72.2% compared to 72.8% in the prior year. Adjusted EBITDA was $305.9 million compared to $191.9 million in the prior year. Net cash provided by operating activities was $387.8 million compared to $285.5 million in the prior year, and free cash flow was $360.4 million compared to $264.4 million in the prior year.

Business Outlook

Duolingo's primary growth vector is expanding its user base and converting free users to paid subscribers. The company believes its subscriber base has strong growth ahead, driven by a strong future roadmap of feature improvements and optimizations. As of December 31, 2025, subscribers made up 9.2% of average MAUs over the last twelve months, compared to 8.8% in the prior year. The company also sees significant opportunity to diversify the scope of its platform beyond language learning into additional subjects, leveraging its scalable technology platform, gamification, and data-driven analytics. New products like Math, Music, and Chess courses are integrated into the Duolingo App, and the company believes expanding into additional learning subjects will further expand its addressable market.

Duolingo is investing in AI-powered features to drive engagement and efficacy, such as Roleplay, Explain My Answer, DuoRadio, and Video Call. The company believes rapid advances in AI will fundamentally change the way people learn and that it is well positioned to play a leading role in this innovation. AI plays an increasingly important role in providing effective learning experiences and generating content at scale. However, the use of AI also requires increased investment in computing infrastructure and related costs, which the company actively manages. The company also continues to invest in geographic expansion, particularly in markets where organic awareness is relatively low, through localized marketing, social media campaigns, and paid advertising.

The filing does not contain specific margin or cost trajectory targets. However, the company notes that its costs continue to increase, and it anticipates expenses will continue to rise as it broadens its user base, develops new products, expands technical infrastructure, and hires additional employees. The company's gross margin decreased to 72.2% from 72.8% year-over-year, primarily due to increased AI costs and a shift in revenue mix toward lower-margin advertising. Research and development expense increased by 30% to $306.3 million , driven by headcount growth, increased stock-based compensation, and higher web services and technology costs including GenAI costs of $3.6 million .

Duolingo's operational outlook focuses on continued investment in its technology infrastructure, including AI and machine learning capabilities. The company relies on third-party hosting and cloud computing providers like AWS and Google Cloud, and expects this dependence to continue. The company has increased its employee headcount and expects headcount growth to continue for the foreseeable future. As of December 31, 2025, the company had more than 900 employees, including more than 430 engineers. The company also continues to expand its physical office presence, including a significant expansion of its Pittsburgh headquarters lease through 2036.

For the year ended December 31, 2025, Duolingo capitalized $9.2 million of software development costs. Purchases of property and equipment were $18.1 million . The company's Board of Directors has authorized a share repurchase program of up to $400 million . The company has never declared or paid any cash dividends on its common stock and does not currently intend to pay any cash dividends in the foreseeable future.

Duolingo faces several headwinds and constraints. The company experienced a deceleration in user growth following the public release of a memo regarding the use of AI in its operations in April 2025, which may have contributed to unfavorable publicity and adverse impacts on the company's brand and social media presence. The company also faces risks from foreign currency exchange rate fluctuations, as its operating expenses are denominated in multiple currencies. Additionally, the company is subject to complex and evolving U.S. and international laws and regulations, particularly regarding privacy, data protection, and AI, which could result in increased costs or changes to business practices.

The company faces structural headwinds including intense competition in the online language learning industry, with low switching costs and a consistent stream of new products and entrants. The company's reliance on a limited number of third-party platforms (Apple App Store and Google Play Store) for distribution and payment processing creates concentration risk, as these platforms accounted for 62% of revenue and 61% of total bookings in 2025. The company also depends on third-party hosting providers like AWS and Google Cloud, and experienced a significant outage on October 20, 2025 when an AWS outage caused Duolingo to go offline for over 12 hours.

Risk Factors

The company faces significant concentration risk from its reliance on third-party platforms: for the year ended December 31, 2025, 62% of revenue and 61% of total bookings came from the Apple App Store, and 20% of revenue and 21% of total bookings came from the Google Play Store. The company also depends on AWS and Google Cloud for hosting, and experienced a major outage on October 20, 2025 when an AWS outage caused Duolingo to go offline for over 12 hours. User growth and engagement are critical, and the company experienced a deceleration in user growth following the public release of an AI-related memo in April 2025. The online language learning industry is highly competitive with low switching costs, and new products or entrants could disrupt the business. The company's development and use of AI technologies, including GenAI features like Video Call, carries risks related to accuracy, bias, intellectual property, and evolving regulation, with the EU AI Act imposing fines of up to 7% of worldwide annual turnover for non-compliance.

Management Priorities

Management's message emphasizes the company's mission to develop the best education in the world and make it universally available, and highlights the company's strong financial performance with revenue growth of 39% to $1,037.6 million and net income of $414.1 million . Key strategic priorities include continuing to grow the user base and convert free users to paid subscribers, investing in AI and machine learning to enhance the learning experience, and expanding the platform beyond language learning into new subjects like Math, Music, and Chess. Management believes the company is well positioned to play a leading role in AI-driven education innovation and that the subscriber base has strong growth ahead. The company also emphasizes its two mutually-reinforcing flywheels: the learning flywheel, where greater scale improves engagement and efficacy, and the investment flywheel, where user scale allows focused capital investment on product innovation rather than marketing.

View Source Annual Report on SEC.gov ↗

References

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  6. [6] Item 8, Note 4 — Acquisitions
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  10. [10] Item 7, MD&A — Results of Operations
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  17. [17] Item 7, MD&A — Key Operating Metrics and Non-GAAP Financial Measures
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  19. [19] Item 7, MD&A — Liquidity and Capital Resources
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  21. [21] Item 7, MD&A — Key Operating Metrics and Non-GAAP Financial Measures
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  27. [27] Item 8, Note 7 — Intangible Assets and Goodwill
  28. [28] Item 8 — Consolidated Statements of Cash Flows
  29. [29] Item 8, Note 14 — Subsequent Events
  30. [30] Item 7, MD&A — Results of Operations
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  32. [32] Item 8 — Consolidated Statements of Operations and Comprehensive Income
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  38. [38] Item 7, MD&A — Results of Operations
  39. [39] Item 8 — Consolidated Statements of Operations and Comprehensive Income
  40. [40] Item 8 — Consolidated Statements of Operations and Comprehensive Income
  41. [41] Item 7, MD&A — Results of Operations
  42. [42] Item 7, MD&A — Results of Operations
  43. [43] Item 7, MD&A — Key Operating Metrics and Non-GAAP Financial Measures
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  45. [45] Item 8 — Consolidated Balance Sheets
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  47. [47] Item 8, Note 5 — Revenue
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Analysis on 9/27/2026