Duolingo: Raising DAU Estimates into 2Q Earnings; Focus on User Growth, 2H Bookings Re-Accel, & Adj. EBITDA Margins; Neutral w/$125 PT

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Duolingo: Raising DAU Estimates into 2Q Earnings; Focus on User Growth, 2H Bookings Re-Accel, & Adj. EBITDA Margins; Neutral w/$125 PT

funnel remains

flattish, but engagement and retention continue to improve across cohorts, while Asia trends remain

strong.

• Asia. Asian markets drove ~40% of 1Q DAU growth and continue to monetize well, led by China

(~7-8% of DAUs), South Korea, and Japan. DUOL has partnered with McDonald’s China and

MINISO in China, which should support user trends.

• Bookings. 2026 Bookings Y/Y growth guidance embeds 2H reacceleration after challenging Y/Y

comps in 2Q (Energy system, Super price increases, and Ads). Initiatives such as streak restorations

and free trials could support sub conversions over time. DUOL is rolling out Avatar Suits

(monetized via IAPs) and launched World Cup themed Avatar Suits ($1.99/each), which we

Key Topics estimate could drive ~$4-5M IAP Revenue in 2Q.

• Max penetration has remained stable (~9% of paid subscribers in 4Q) despite the shift of select

Video Call usage to select Super subscribers (with some calls costing users XP). Duolingo will

continue to test Max pricing and relative tier features.

• Marketing. DUOL continues to revamp its marketing strategy to a more balanced approach across

unhinged and wholesome content, along with ramping its creator presence, Reddit visibility, and

select paid marketing.

• Margins. DUOL is expanding AI feature access, investing in R&D/S&M, and facing Bookings

growth deceleration. Gross margins will compress closer to ~69% by 4Q (vs. ~73% in 1Q), though

AI costs/unit are decreasing. DUOL expects ~24% adj. EBITDA margins in 2Q and flattish to

slightly down Q/Q adj. EBITDA margins in 3Q. We estimate app store fee changes in the US could