Duolingo(DUOL) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In 2025, the company surpassed 50 million daily active users, more than five times the number at the time of its IPO in 2021 [5] - The company achieved over $1 billion in bookings and more than $300 million in adjusted EBITDA [5] - The guidance for 2026 includes bookings growth of 10%-12%, revenue growth of 15%-18%, and an adjusted EBITDA margin around 25% [12][14] Business Line Data and Key Metrics Changes - The company is focusing on three main initiatives: teaching languages better, improving the free user experience, and developing new subjects like math, music, and chess [8] - The company expects DAU growth to be about 20% year-over-year throughout 2026, indicating a deceleration from previous years [7][9] Market Data and Key Metrics Changes - The company holds approximately 85% of the daily active users in the language learning app market, indicating a strong market position [47] - In the U.S., only 2% of internet users engage with Duolingo daily, suggesting significant room for growth [48] Company Strategy and Development Direction - The company aims to redefine the future of learning by leveraging advances in AI, which is expected to enhance the learning experience [5][6] - The medium-term goal is to reach 100 million daily active users by 2028, with a focus on user growth over immediate profitability [9][40] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the deceleration in DAU growth and emphasizes the need for decisive actions to re-accelerate this growth [6][7] - The company is confident in its ability to scale and generate significant EBITDA and free cash flow while investing in user growth [84] Other Important Information - The board has authorized a share buyback of up to $400 million, reflecting good capital allocation discipline [16] - The company is experimenting with pricing strategies and A/B testing to optimize monetization without adding friction to the user experience [62][76] Q&A Session Summary Question: Can you elaborate on the market across AI and overall innovation? - Management believes AI will significantly enhance teaching quality and user engagement, making it an opportune time for strategic shifts [21][22] Question: How does the company view market saturation and competition? - Management is not concerned about market saturation, citing low penetration rates in various countries and a stable user base [47][48] Question: What are the expectations for user growth and monetization? - The company expects user growth to stabilize as friction points are removed, with a focus on enhancing the free user experience [36][39] Question: What is the outlook for the ad business? - The company plans to improve ad quality without increasing ad load, focusing on direct deals to enhance revenue per ad [86] Question: How will the company balance user growth and monetization? - Management aims to ramp up monetization gradually while prioritizing user growth, with expectations for increased efficiencies in marketing [82][84]