Duolingo stays on track with 21% DAU growth, and 27% revenue growth. The company’s valuation is a low $4.3Bn with $1.2Bn in cash, and sales of $1.2Bn growing at 16% and adjusted earnings growing at 20%.
Guidance was in line with expectations with revenue growing 16% at mid-point and bookings at 10.5%.
They beat on all the important user metrics and also talked up better engagement, richer features with a tremendous emphasis on voice interaction, and better products with AI at a much faster speed. I believe their plan to make more features available to free and the super tier is working and they'd like to exceed their DAU target for 2026, and 2028 target for 100Mn DAUs. China has been an excellent growth driver, and it’s also come at better prices. Both chess and mathematics also contributed to growth.
The stock dropped 13% to $96 after hours – I think it’s a bargain and I plan to add some.
Duolingo earned net income of $43.5Mn on total revenue of $292Mn but operating cash of a whopping $150Mn -- almost 3.5x net income. It spent $35Mn in SBC in this quarter, but even then, dilution was only 3-4% and less if you include buybacks.
Duolingo should closed the year with GAAP EPS of $3.50 to $4.00, and an adjusted EPS for SBC of at least double that in the range of $7 to $8. Management has also guided to free cash flow of $350Mn double the net income of $150-$175Mn for the year. At $95 Duolingo sells for just 22-24x GAAP EPS and 11-12x adjusted EPS, growing in excess of 15%, and given all the product developments, plethora of courses, better user engagement and conversion to paid subscriptions they should be able to monetize a lot better in 2027, and 2028. I think 2026 is a transition year, with the stock likely to remain rangebound but then at the same time offering a lot of opportunities to buy for 20-25% returns in 2027-2029.
Duolingo does have a top of the funnel growth problem with MAUs topping out, it is the nature of the beast that this is not a decade long subscription business, at least not yet. The churn of students completing courses and moving is expected. In the long-run, Duolingo does want to become the classroom for everyone, which means a decade out, you could get the equivalent of an American school education for 12 years in a foreign country, at a fraction of the price, but for now it has to deal with the churn of students finishing courses. Still the DAU ratio to MAU, keeps improving as Duolingo keeps users longer on its platform. DAU growth should remain steady at 20% for 2026.
Daily active users (DAUs) grew 21% year-over-year; DAU growth to remain around 20% through 2026. Duolingo has a stated goal of 100Mn DAUs by 2028.
Duolingo’s cash flow generation deserves a premium, especially for a company that hardly requires Capex. It has a fortress-like Balance sheet with over $1Bn in cash, no debt, and expects to generate free cash flow of over $350Mn this year, some which will go to fund share purchases. Share repurchases to date: 514k shares (~1% of fully diluted shares) under a $400M authorization.
Duolingo published 20.5 thousand course units in Q1 — more than 10x the quarterly pace from two years ago — and now offer courses up to B2 (professional proficiency) across the nine most learned languages. I like this approach of providing professional proficiency, which will keep users on the platform longer. It’s also using AI to drive personalization for each student.
It continued to launch/expand speaking-focused features for free and paid users: New product features include spoken tokens, speaking adventures, flashcards. Duolingo is also betting the house on continued improvements to video call – this should be key and one of their biggest competitive advantages. Video call usage: average words spoken per user has more than doubled (~100% increase) over the past year.
Yes, and I would thoroughly laud this strategy – Duolingo made missteps in 2025, but I believe it is doing the right thing now, and the focus on DAU growth without friction will pay off in 2027 and 2028. Expect longer free trials (e.g., one-month trials), and extensive use of video calls for the Super tier to acquire customers.
Bloom Energy continues to bloom with a 40% revenue beat and 12% higher guidance for the full year. It has a huge moat of readily available power for datacenters that can be deployed independent of the grid in less than 3 months.
