Duolingo, Inc. Q4 FY2025 Earnings Call

Welcome, everyone, to Duolingo's Fourth Quarter 2025 Earnings Webcast. Today after market close, we released the shareholder letter for this quarter, which you can find on our IR website at investors.duolingo.com. On today's call, we have Luis von Ahn, our Co-Founder and CEO, and Gilian Munson, our new CFO, whom we are pleased to welcome. They will begin with some prepared remarks before we open the call for questions. Please note that this call is being recorded. Before we begin, we will make some forward-looking statements regarding future events and financial performance. These statements are subject to risks and uncertainties described in our SEC filings and are based on assumptions we believe to be reasonable as of today. We undertake no obligation to update them. We will also discuss both GAAP and non-GAAP financial measures. Reconciliations between the two can be found in our earnings materials, and we encourage you to review them when evaluating our performance. Now I will turn it over to Luis.

Thank you all for joining us. I want to begin by acknowledging Matt Skaruppa, who has led all of our earnings calls as CFO until today. It has truly been a privilege to work with Matt. I know you're watching tonight, and I appreciate all that you have done for our mission. Following in Matt's footsteps is no easy task, but I can't think of anyone better suited for this role than Gilian Munson, who has been a long-term Board member and Chair of our Audit Committee. She's our new CFO and I look forward to working closely with her. Now, let's dive into the details. 2025 was another impressive year for Duolingo. For the first time, we exceeded 50 million daily active users, which is more than five times the number we had at our IPO in 2021. We also achieved over 1 billion in bookings and more than $300 million in adjusted EBITDA. I take pride in the fact that we have created a profitable business that has a significant positive impact globally. However, what excites me the most is not our past achievements, but what lies ahead. I am increasingly confident that rapid advancements in AI will transform the way people learn, presenting a tremendous opportunity for us. We are already the leading education app worldwide, and we plan to be at the forefront of this change. By capitalizing on this moment, we aim to redefine the future of learning while delivering exceptional value to our shareholders for the long term. The key focus right now is to continue attracting users. As we mentioned in our last earnings call, although our DAU growth in recent years has been remarkable, it slowed down throughout 2025 and has continued into the new year. We now anticipate DAU growth of about 20% year-over-year for 2026. This has reinforced my belief that we need to take more decisive actions to reignite DAU growth. Long-term value in this business hinges on two factors: the size of our active learner base, which represents the overall potential, and how well we monetize that base, symbolizing the revenue we generate. At this stage, we are focused on expanding the size of the user base. As I outlined in our shareholder letter, we have a well-thought-out plan for 2026 that emphasizes enhanced teaching methods and user growth. Alongside the thousands of A/B tests planned for 2026 to refine our product, we have larger initiatives organized into three categories: improving language instruction, enhancing the free user experience, and developing our future growth areas, including math, music, and chess. All of this is designed to accelerate DAU growth. Our medium-term goal is to achieve 100 million daily active users by 2028. If we successfully double our DAUs, the benefits will be substantial: a stronger brand, significantly increased bookings and profits, and, most importantly, a company that reaches and educates many more individuals worldwide. However, in the short term, this means we will experience slower bookings growth and lower profitability this year, as reflected in our guidance. I want to clarify that this decision was not made lightly and may surprise some investors. Nevertheless, it aligns with the vision I shared with shareholders in my very first letter, which I will now read: "Dear potential investors, the main thing you need to know is that I plan to dedicate my life to building a future in which, through technology, every person on this planet has access to the best quality of education. Furthermore, I envision a future where people actively want to engage in learning. Duolingo is the platform for building that future, and we are just getting started." With that, I will hand it over to Gilian Munson.

Thank you, Luis, for the really warm welcome. Being a full-time member of this team is going to be a great adventure. I'd be remiss if I didn't say a huge thank you to my friend and colleague, Matt Skaruppa, who we are all going to miss and who I wish all the best. We had a solid finish to the year and ended in a strong financial position, a great platform from which to look forward strategically, as Luis explained. Turning to the go-forward plan and guidance. In our shareholder letter, we have included a lot of specific details to help you with your 2026 modeling, likely more than we will going forward. I'll repeat a bit here and add some color in areas we really want to be sure we emphasize. At the highest level, our 2026 guidance is bookings growth of 10% to 12%, revenue growth of 15% to 18%, and adjusted EBITDA margin around 25%. For our Q1 guidance, it is 11% bookings growth, 25% revenue growth, and an adjusted EBITDA margin of 25.5%. Here are some details that I hope will help you with your models. Looking at bookings. Quarter-to-date, as of last Friday, Q1 bookings growth was tracking above our Q1 guidance. However, it's important to remember that we are heading into a particularly tough compare in the first half with dead Duo, a price increase, particularly strong advertising bookings, and the rollout of Energy. We are modeling some improvement to bookings growth rates at the end of the year, but have only factored in modest early returns on our investments at this point, which we think is prudent as shifts like the ones we are making can take some time to materialize. Turning to revenue. We believe that the rate of year-over-year revenue growth will adjust down following bookings growth rates over the course of the year with some stabilization in the second half. Given our Q1 guidance of 25% growth, the math implies that quarters 3 and 4 will be below the low end of this guidance range. As for cost, as you think about our COGS, the key thing to keep in mind is that we plan to share AI features with a far greater portion of our user base. This is anticipated in the lower gross margins that we outlined in our letter. Additionally, we are investing in 2026. As a result, we expect that R&D and sales and marketing spend growth will outpace revenue growth. Putting it all together, the trajectory of adjusted EBITDA margins will likely be slightly different in 2026 than in previous years. In Q1, we've guided to 25.5% adjusted EBITDA margin, and we expect adjusted EBITDA margin to decline roughly 3 points sequentially in Q2. Then it will improve through the back half of the year with Q4 being our highest margin quarter in 2026. I'd note, however, that we do manage to annual targets, and the timing of our spending could shift, but we will update you as we continue the year. That's a lot of detail we know. We hope that in combination with the shareholder letter, this does help you manage your estimates as we execute our strategy. You may ask about our guidance philosophy. And so I thought I'd note that. This year, our view is that like in Q4, our hope is to narrow the gap between our guidance and actuals versus what you have generally seen from Duolingo in the past. Finally, I would like to highlight our buyback authorization that was announced today. Our Board has authorized a buyback of up to $400 million in our shares. We believe this represents good capital allocation discipline and expect to execute upon this authorization in the coming year. I couldn't be more excited to join this company at this time. The size and scale of the market opportunity ahead is massive. And I very much view 2026 as a foundational year to achieve that opportunity. Thank you, Luis. I'm excited to step into this role during this important moment at the company. And now I'll turn it back to the operator, and we can take your questions.

We'll take our first question from Bryan Smilek with JPMorgan.

Luis to start, can you just elaborate a bit more on what you're seeing in the market across AI and just overall innovation across the technology space that makes this the right time for the strategic shift to reaccelerate user growth? And I guess, more fundamentally, to achieve your 2028 target to double users, what are the, call it, 1 to 2 top priorities across the product that will really enhance that DAU growth and drive the implied acceleration to get there?

Thank you for the question. We are currently in a unique moment in history with AI, which is set to significantly enhance our teaching capabilities. The way people learn is going to evolve, and I anticipate that within the next few years, the quality of instruction will match that of a one-on-one tutor. Furthermore, this experience will be as engaging as playing a mobile game. We are witnessing remarkable advancements that allow us to identify where learners encounter difficulties and effectively address their questions or confusion. For instance, in language learning, we are now able to improve conversational practice through our feature video call with Lily, which continually enhances the ability to practice conversation. We are seeing notable improvements in learning outcomes, particularly in math. As mentioned in our shareholder letter, I believe this year we will launch the premier tutor app for math, which we are branding as Duolingo math, tapping into a vast market with approximately 1 billion people learning math worldwide. This excites me about the potential of AI and underscores our intention to attract as many users as possible. Regarding our goals to reach 100 million daily active users by 2028, we have several key priorities. Firstly, we will focus on enhancing language instruction, which remains our largest subject for the foreseeable future. Secondly, we will work on improving the free user experience, as reducing friction in this area has historically led to user growth. Finally, we will heavily invest in our new growth areas, with chess showing significant progress; we now have about 7 million daily active users in that sector less than a year post-launch, positioning us as the second largest chess platform globally, despite not yet optimizing for App Store visibility. These initiatives will be pivotal in driving our user growth.

Great. And then I guess, elaborating a bit more, you mentioned video call as well, too. Can you talk about the philosophy and the product roadmap really across Max versus Super? You've been very transparent in the past in terms of oscillating the features and the relative pricing set. So how should we think about just overall the Max road map as you start to ship those video calls to Super users as well?

Yes. When we started Max a few years ago, we introduced some AI features. We were super excited about all the AI features because they really can help us teach better. At the time, cost for AI inference was way higher than it is now. And so we decided to put our AI features behind a much higher subscription tier, which is Duolingo Max. That's what we have done. But we said back then that as AI costs came down, we would experiment putting features in the different tiers because ultimately, our goal is to be able to teach as many people as possible. At this point, the cost of a video call has gone down very significantly over the last couple of years since we launched video call. And we feel pretty comfortable being able to put it inside Super Duolingo. Now like everything we do, this is going to be an A/B test. We're going to A/B test what happens if we put some video call in Super Duolingo. I'm not sure what that A/B test will do. It may be that this increases revenue because more people sign up for Super Duolingo or because the retention of Super Duolingo is significantly higher because video call is there, or it may be that it decreases bookings because we're not making as much money from selling Max. I don't know what it will do. But whatever it does, we're going to take the appropriate options. So for example, if the decrease in bookings is too high, we may do something like we meter video cost. So for example, on Super Duolingo, you only get access to 1 video call a day versus on Max, you get unlimited. Now I'm saying all of this very much in advance because I don't actually know what will win in these A/B tests. But what I will tell you is that, for sure, we will put some form of video call in our Super tier because we just think that it will help us teach a lot better to a significantly larger number of people. There's about 10x as many subscribers on Super that they are on Max. So if we put video call on Super, 10x as many people have access to conversational practice. And the other thing that I think is we're going to do this on our own terms. I mean my sense is that over time, it will not make sense to have a feature like video call on their plan that is so expensive as Max. So we're doing it from a position of strength right now where our finances are very strong, and we're going to just do that as opposed to if we had to do it defensively 3 years from now because a competitor popped up. I mean, at the moment, we really are not worried about competition. So we're getting ahead of it.

And Bryan, we designed the guidance to give the company the room to go do all of this and experiment with this and do the right thing for our customers. And that's precisely how the guidance and the way we think about the financials this year are designed.

Our next question comes from Ralph Schackart with William Blair.

Luis, last call, when you talked about the reprioritization for 2026, and I think it was sort of contemplated it was going to have some impact on the financials for 2026. But maybe not to the level guided that was presented today. At least that was my interpretation. I could certainly have that wrong. But I guess, did something change since last quarter in terms of how you thought about 2026? So the user growth, is this larger than perhaps you originally anticipated? And then maybe a question for Gilian on the 20% DAU growth. When these friction points or monetization friction points are removed, should we expect some reacceleration in the DAU metrics? And I guess, you sort of suggested that you're tracking above in bookings. Maybe just some kind of early reads on, as you're removing some of these friction points, how the user growth is responding?

Thank you, Ralph, for your question. In the last call, we mentioned that our focus would be on user growth. We observed a slowdown in daily active user growth throughout 2025, which influenced our decision. We believe we have a unique opportunity to shift from a slowing user growth to accelerating it by seizing this moment. Since that call, two key developments have occurred. First, we continued to see a decline in user growth, and we now expect approximately 20% year-over-year growth through 2026. Second, my confidence in AI has strengthened, reinforcing the need to concentrate most of our efforts on daily active user growth. As we prepared for 2026, this became a clear part of our guidance. Gilian, you can provide further insights regarding the 20%.

Yes. So as Luis said, we really do expect that 20% through the year. In terms of the Q1, what we're seeing so far, it is tracking ahead of the guidance. And we think that shows everyone that there is a lot of health in the business. But you do have some really, really tough comps coming. And so the overall guide reflects that. I think it's really important to put in context that Luis is talking about is the confidence we've gotten in going for the bigger prize. And so when you think about that 20% and the 100 million target, that would imply an acceleration to much higher growth rates in the next couple of years. And if you kind of play that out in terms of what the financials could look at, that is, as Luis said, a much bigger business. So as we look at the business, we think to ourselves, okay, we could have grown the business, probably we would be at about a mid-teens CAGR over the next couple of years. If we could keep our margins where they are, we're probably looking at a $1.5 billion business, $400-plus million in adjusted EBITDA. But we, at the company, are really motivated to go for the bigger prize, which is much more aligned with what Luis and Severin were thinking about when they founded the company. So then if you sort of play out the DAU, this was all back of the envelope. But if we can get to that DAU and even reasonable monetization assumptions from where we are today, and we believe we can scale our expenses over time, you're looking at a business in a couple of years, it could be $2.5 billion with over $700 million in adjusted EBITDA. And I think around this entire company, we're really motivated to go for the bigger prize. And so that's what you're seeing and kind of how we're thinking about it. In terms of when you're going to see it in the model, we've really modeled it late in the year. So it's going to take a little while. What we're working on is going to take a little while to see through it. But we do have a little bit in the end of the year. We think it's prudent to keep that small for now until we kind of get going. You'll start to see more and more as we move into '27 and '28.

The next question comes from Mark Mahaney with Evercore.

I would like to ask a question about growth and another about the product. For the growth question, you mentioned factors that contributed to the slowdown, such as the law of large numbers and a heightened focus on monetization. There are two additional potential reasons to consider: market saturation and competitive intensity. Are there any new insights that highlight the long-term growth potential? Regarding the product, the video call feature is impressive. What about the speaking adventures you mentioned? When can we expect that to be available? Also, will reaching the advanced content level with all nine of your largest languages and achieving the 129 score happen soon, or is that a multi-year effort? How long do you anticipate it will take for us to see these two products and their associated impacts?

Thank you, Mark. To address your first question regarding market saturation and competition, we are not concerned about either. In the realm of language learning apps, we hold approximately 85% of the daily active users globally, and this number has remained relatively stable. Therefore, we are not overly worried. Regarding market saturation, we analyze the percentage of daily active users in a country compared to its internet user base. For instance, in the United States, only 2% of internet users engage with Duolingo daily. In the U.K., it's 3%, and in Germany, 4%, which is not even the highest figure we have. We believe there is ample room for growth, and even if every country reached the U.S. level of 2% penetration, we would more than double our daily active users. This indicates we are far from saturation. Additionally, we have been surveying our churn users, and their responses have remained consistent over the years. The most frequent reason for discontinuation is simply that they stop learning, which hasn’t changed. As for the features mentioned in the shareholder letter, such as speaking adventures, we are very enthusiastic about this. It's an interactive game where users perform tasks that may require speaking to achieve their goals. This feature will be available for all users, both free and paid, and we are currently testing it with plans to scale by mid-year, so you can expect to see it in your app soon. Also, we will be rolling out more advanced content in the next month or two. All our main courses covering the top nine languages, which account for over 90% of our daily active users, will include content aimed at helping learners achieve a Duolingo score of 129. This score is critical for obtaining a knowledge job in that language, and we are very excited about this development. Moreover, this release is just the beginning. Following the rollout, we will focus on enhancing this content continuously throughout the year, and we look forward to sharing these improvements.

We'll take our next question from Justin Patterson with KeyBanc.

Luis, I would like you to elaborate on the social strategy. We haven't experienced the same level of virality on TikTok as we did before. I'm interested in how you are refining that strategy and using it to increase daily usage. Additionally, regarding the video call feature, I know you've made numerous improvements aimed at encouraging more conversation and enhancing usability. I would appreciate your insights on how these changes are performing compared to your expectations and how moving this feature to the Super tier could boost engagement and ultimately aid in the reacceleration of bookings.

Thank you, Justin. Regarding our social marketing strategy, we have a fantastic marketing team, arguably the best in the industry. Our videos are going viral and garnering millions of views. However, I must mention that a year ago, we consistently had the most-watched video on TikTok for several weeks, which was remarkable. Although we are still achieving virality with our content, we are not currently at the level of having the most-viewed video on TikTok. There are several reasons for this, one being changes in algorithms that make consistent success more challenging. Nonetheless, we will maintain our strategy of maximizing virality, and I am quite pleased with our results so far. You are correct that the situation is not exactly the same as it was a year ago. As for video call improvements, I am very satisfied with the progress. If we look at the graph showing words spoken per user during video calls, it shows a consistent upward trend over time; it continues to improve. We are becoming much better at encouraging users, like Lily, to stimulate more conversation. Currently, we are experimenting with prompting users to ask questions or use specific words in their responses, which significantly enhances engagement. I am thrilled with these developments. I believe that by expanding access to more users, we will increase the number of Duolingo advocates, as we often see testimonials from users who were initially skeptical of learning a language through our platform but have successfully conversed after using Duolingo and the video call feature. We are very pleased with this progress.

Our next question comes from Andrew Boone with Citizens JMP.

I wanted to go back to the free user experience and improving it. And really, the question is, how does that evolve into a monetization strategy over time, right? So it sounds like one of the lessons was that you guys essentially overmonetized your user base. So Luis, as we think about going through this transition, what happens on the other side in terms of the lesson that you guys now have as you guys come back and then start to monetize users later on?

Andrew, that's a great question. We've found ourselves in a unique situation where Duolingo is both undermonetized and overmonetized at the same time. It's undermonetized because only about 10% of our monthly active users are paying us, and we truly believe we can improve this significantly. For comparison, around half of Spotify's users pay for their service. We see potential to increase our monetization well beyond 10%. However, the approach we've taken to boost monetization has involved adding friction, which has led to increased subscriptions. While this method has worked to some extent, it has also conflicted with our daily active user growth. There are alternative strategies to encourage subscriptions, such as adding more features or selling customization options for avatars, similar to what has proven successful in gaming, and since we incorporate game-like elements, we can leverage that. Moving forward, we plan to use this year to explore new monetization strategies that will draw in more subscribers without relying solely on adding friction. While we are confident in this approach, it will take more time compared to the quicker methods like increasing ad loads. Nonetheless, we believe we can achieve our goals, especially considering that only 10% of our active users currently pay for subscriptions.

And then I wanted to ask about the chess disclosure, and this is really about utilizing multiple apps at the same time. So if I think about the 7 million users, and I think about the core trend of core Duolingo through 2025, how do I think about multiple users using multiple apps, right? Do I just take the 53 million and I subtract 7 million to be able to think about where you are? What's the right way to think about that?

Another great question. Yes, chess has reached about 7 million daily active users in under a year, and we are very proud of that incredible growth. The majority of these users are those who were already Duolingo users, making it easier for us to reach them whenever we introduce a new subject. Although we aren't disclosing the exact number, most of these users are now using both languages and chess. While languages continue to grow at a pace similar to Duolingo, we are seeing some new users for chess; however, a significant portion is simply adding chess to their existing language-learning experience. Over time, more people are discovering that Duolingo offers chess, which is beginning to draw its own user base. This transition will take some time, but it is already in progress.

Our next question comes from Alexander Sklar with Raymond James.

Luis or Gilian, I don't know who wants to take this one. But on the bookings outlook, just given some of the unknowns you spoke to with Bryan's question earlier on how video call tests are going to play out on Super. What is the bookings outlook factor in terms of conversion rate of Super relative to what you've experienced in the past? And how much time or data, Luis, do you think you need to know if the decision is a successful one based on some of the historical testing?

If you look at the bookings, the key point to consider is that starting from a growth of about 24% in Q4 bookings, we expect about half of that will continue due to the user deceleration that Luis mentioned. The other half is related to us being more thoughtful about monetization and reducing friction for our users. This is our approach to positioning. Regarding how monetization will unfold, as you know, we conduct extensive A/B testing here, so there’s a lot to learn throughout the year, as Luis explained. Our guidance aims to provide us room for action from a strong financial position because we believe it will allow us to strive for higher prices.

Yes. And in terms of how long it will take until we know this is working, it's going to take a little while. I mean, we need to make a lot of product changes, et cetera, each of which takes a while and then we also need to see user reactions, et cetera. So it's going to take a little while. As Gilian said, we're putting in something modest towards the end of the year to see that some things are working there.

And then maybe just a quick follow-up. Anything factored in terms of pricing changes within the different packages in the outlook?

This year, we're planning to experiment more than usual with pricing, testing both higher and lower prices. We're consistently A/B testing, and while we’ll incorporate the results of all our experiments into our outlook, I can't confirm whether the price of Super will increase due to video calls. The results of the A/B tests are still unknown to me.

Our next question comes from Wyatt Swanson with D.A. Davidson.

Thanks for the question. I've just got one thinking about like the medium-term goal of reaching the 100 million DAUs. Does that assume like marketing stays elevated and monetization stays on the back burner for the entire duration? I think you've kind of answered it, but just sort of thinking through as you sort of ramped monetization over the past year, and you've started seeing DAUs start to decel. So like how do you think about that balance over the medium term? Should we see monetization slowly start to ramp up in these alternate forms that you're kind of exploring?

Yes, I can respond, and I can also let Gilian chime in. Generally, our marketing remains highly efficient, accounting for only a small percentage of our revenue. I expect that we will continue to increase our marketing dollars each year, but I hope that beyond this year, we will achieve some efficiencies. It's difficult to predict exactly what will happen after this year, but I believe we will find some efficiencies. Regarding monetization, as Gilian mentioned earlier, with 100 million daily active users, we are looking at a significantly larger business. It's challenging to provide specific numbers or a model for beyond 2026, but I am confident that we will see other aspects ramping up. I'm particularly excited about direct ad sales, which are gaining traction, and in-app purchases, especially with our avatars, as there is considerable enthusiasm for them and our playful brand. We believe there's substantial potential there.

Yes. And as you think about the margins of the business, one of the reasons I'm so excited about where we're at is that we've shown that this business can have tremendous scale even at the size we're at today, and we think we can be a lot bigger. And there's nothing that we can see in the business that says we can't scale it going forward. We're making an investment right now and descaling some to make that happen. But really, we don't think we need to hire double the number of people, twice the amount of marketing. We think that this business can scale really beautifully. It's one of the nicest things about the business model that we have the opportunity to do what we're doing from a position of strength to profitability. We will continue to generate tremendous EBITDA and free cash flow even as we invest, and we see no reason why we couldn't scale up as we reenter monetization and a bit more of a smarter way from here.

That's understandable. Can you elaborate on what the advertising business will look like in the future? You mentioned that increasing the ad load might create some friction and lead to users potentially leaving. It sounded like ads may not be as significant a revenue source moving forward.

What we're unlikely to do is increase the number of ads. Currently, there's an ad at the end of each lesson, and that's not expected to change this year, as it contradicts our overall approach. However, we have improved how we display ads. In the past, we didn't put much effort into our advertising strategy, relying mostly on basic network ads. Now we are entering into direct deals, which serves two purposes for our business. First, it greatly enhances the quality of the ads, so instead of promoting unknown games, we’ll feature ads from reputable brands like Disney, which are of significantly higher quality. Second, the revenue we generate from each ad is also higher. This is the direction we're taking. We’re testing some innovative ideas, though I can't guarantee their success. I’ve always envisioned providing ads in the language that users are learning, and we are currently exploring that. For instance, if someone is learning Spanish, part of the ad will be presented in Spanish. This approach appeals to users and ultimately benefits advertisers, as users will be more engaged. I hope we can implement this successfully. While I'm unsure which strategies will be effective, I do expect that the ad load won’t increase, but we will earn more from each ad.

We'll take our next question from Nathaniel Feather with Morgan Stanley.

Two on my end. First, there's been a lot of concern in the market about the improvement in AI translation tools and the general rise of all-purpose chat bots. I guess what gives you conviction that the user deceleration we saw in 2025 was not due to those factors? And then second, just of the changes you've made so far to improve the user experience, are you seeing anything in the data that gives you conviction that these changes are going to stabilize user growth through the year? And are you already seeing that? Or when might you expect to reach that stabilization point?

Thank you for the question. AI translation is something people discuss, but it is not a concern for us internally. AI translation has been nearly flawless among major languages for over a decade. For instance, the translation between Spanish and English has been almost perfect. Our users utilize Duolingo for two primary reasons: firstly, as a hobby, they genuinely want to learn, and for them, AI translation is irrelevant; it's a personal interest. Secondly, there are users who are focused on learning English and truly want to improve in that area. We also conduct surveys to understand why users leave Duolingo, and this issue does not arise. The primary reason for user attrition is often simply that they become busy, which usually translates to increased time spent on social media. Therefore, this is not something we are particularly anxious about. Regarding user growth, we have implemented a few enhancements to improve the free experience within the app, like introducing the "Explain My Answer" feature from Duolingo Max, which is now accessible to everyone for free. These improvements have led to an uptick in feature engagement, and we can see that users are enjoying them. However, we have not yet noticed a significant increase in daily active users that would signal a major breakthrough. To be fair, we did not anticipate this, which is why we mention that you should expect to see some modest progress by the end of the year.

Our next question comes from Ryan MacDonald with Needham.

Luis, I wanted to ask about Duolingo Max to start. In the fourth quarter, I believe you had your first large group of Max subscribers. I was curious about what you observed regarding retention and renewal and how much that influences your strategy to reintroduce video calls into Super. Additionally, when should we anticipate the effects of subscribers transitioning from Max to Super with video calls being a part of the future? What assumptions are you considering for that in your guidance?

Yes. In terms of Max, none of the Max numbers are influencing our approach to video calls. The Max figures are actually quite strong, and we are satisfied with them. We are taking a proactive stance with Max. I believe the cost of providing video calls has decreased enough that it doesn't make sense to keep it exclusively in Max when we can offer it in more affordable packages. We're not at the point where we can provide it for free, but that's a possibility in the future. I believe offering it for free would be in our best interest as it allows us to build a larger user base that we can monetize in various ways, rather than limiting it to a small segment of users. This philosophy drives our decision to include video calls in Super; it's about what's best for our users, not just the metrics with Max. We are quite pleased with Max's performance. Gilian, I don't know if you wanted to address the second part of your question. It seems we cannot hear you, as you might be muted. Sorry, I lost track of your question while waiting for Gilian. Can you remind me what it was? I'll try to answer it again.

Yes. As you think about the guidance for fiscal '26, I guess what assumptions, if any, are you making sort of building in for when video call rolls out to Super for sort of, I guess, you could call it sort of ARPU trend changes of maybe downsells from Max down to Super from that?

Yes. I can share what I believe Gilian would have said here. We don’t have a clear idea of how the A/B test for introducing video calls in Super will play out. However, we plan to conduct this A/B test. We've established some guidelines outlining our expectations and limits, and we intend to operate within them. If we determine that introducing video calls in Super significantly negatively impacts our Max business, we might implement measures like restricting video calls in Super to one per day, compared to unlimited access in Max. I’m discussing potential future scenarios because I can’t predict the outcome, but we will adhere to the parameters we've set. I don't know if we can hear you now, Gilian. Unfortunately, it seems we cannot.

Not quite. Okay. Maybe Luis, just a more quick one for you. You talked about sort of the math and thinking that, that's an opportunity to build and sort of have one of the best math tutoring apps in the world. As that gets developed, would you look at sort of new channels in terms of how to sort of distribute that? Like I think in the past, Duolingo for schools as a way to sort of open up that population on the language side. Is that a potential viable channel as you think about areas where you could get this DAU growth from something like math?

Yes, math is a fascinating subject. It has a vast market, comparable only to languages, with 1 billion people engaged in learning it, which is impressive. However, unlike languages, these learners usually do not express a desire to study math, whereas language learners are typically motivated. Most of the math learners using our product are in K-12 schools, which is where we aim to focus our efforts. We envision multiple strategies for this development, with our initial step being the creation of an effective product. We are close to achieving this, as our internal versions of the math course have shown remarkable quality. Once the product is finalized, we will need to consider our go-to-market strategy. Currently, we believe a practical way to begin is by positioning our offering as a supplemental resource for schools rather than pursuing deals with school districts. We see it more as a competitor to Kumon, targeting a large audience that seeks external help. Importantly, we appreciate that the willingness of parents to invest in math education is significantly high, which we believe will be advantageous in the long term.

Do you hear me now, Luis?

Yes.

Okay. Good.

We'll take our next question from Shweta Khajuria with Wolfe Research.

I was going to ask Gilian very specific three questions while she was muted just to test her mic. No, actually, I have two questions. One is on retention and the other is on AI. So on retention rates, as we think about you investing in math and music and chess and perhaps there are some cross-platform benefits. How do we think about churn and/or retention rates over time as you invest in the product? My understanding is that it has remained largely stable. But is there a reason to think that it actually improves markedly and what that can do to your platform? And then the second is on AI. So you addressed this in terms of competition where you have a market lead versus anyone else in the market right now. But what AI could potentially do is accelerate the path to creating new competitors that don't even exist today. So could you talk to potential risk of a competitor emerging because AI is making it easier to create certain products?

Yes, in terms of retention, Gilian will provide more details. Overall, our retention, especially among payers, is quite stable and healthy. There is a possibility it might increase, although I'm not sure if we're projecting that. However, we do know that users who engage with multiple subjects tend to have higher retention. Additionally, as we continue to offer more subjects, more users are exploring multiple areas, which could lead to an increase. That said, I don’t want to mislead anyone since it has remained fairly flat so far. Gilian, would you like to add anything before I move on to discuss the new competitors in AI?

I mean retention, it looks pretty flat over a fairly long period of time. And we look at it in aggregate, and we look at it via cohorts. I think the perspective we have is that it can stay where it is. That said, I think you're pointing out something really, really important. All the work we're doing to make the product great, so that word of mouth and top of the funnel and all that stuff is keeping the size of the pool bigger. That also helps current customers, too, right? They get those features, too. So I think it's a possibility, but we haven't modeled anything significant on that front on.

Yes. Regarding your question about whether a new competitor could emerge due to AI enabling faster development, it's true that AI allows for quicker building of products, and we believe this will increasingly be the case. The good news is that this also benefits us, allowing us to develop faster as well. However, there seems to be a misunderstanding in the market regarding how challenging it is to recreate a complex app like Duolingo. If I were to outline just the specifications for Duolingo in plain English, it would take years because there are countless intricacies in what we do that enhance user engagement and learning effectiveness. Therefore, I'm not particularly concerned about someone quickly creating an app that surpasses Duolingo. Moreover, it's quite difficult. The reason Duolingo has not faced significant competition thus far—given that we hold about 85% of the daily active users in the language learning app space—is because it's tough for competitors to rival our free product, which benefits from extensive distribution. New entrants need to figure out how to grow, often relying on performance marketing. However, because our free offering is so strong, they typically struggle to make performance marketing effective if they have a free version. As a result, they often resort to implementing a paywall, which limits their growth potential. We've seen maybe around 400 apps attempt to compete with us over the years, and despite that, they generally fail to gain traction due to our significant distribution advantages.

We'll take our next question from Eric Sheridan with Goldman Sachs.

Maybe building on Shweta's question and asking it a little bit differently. When you think about the AI landscape, what is the scope by which you think you need to sort of be a leader in AI learning in the four walls of your application and your experience as opposed to possibly cooperating with LLM agents and being an application layer to their platform if more consumer behavior goes in that direction from an aggregation standpoint? I'd love to get your sort of philosophical view on that. And maybe the second question would be you guys were probably one of the leading examples of a mobile-first company with Web 2.0. How should we think about the duration and the need to invest to reposition the company to be AI native in its tech stack over the next couple of years?

Yes, that's a good question about whether we should continue focusing on our own app or consider something like an LLM. Historically, we’ve seen various new platforms emerge since we launched Duolingo, such as smartwatches and smart speakers like Alexa. We received numerous inquiries about these technologies and were told by companies that they were the next big thing. In the past, we made the mistake of developing an app for smartwatches, only to realize later that these apps were mainly used for fitness. As it stands, if consumer behavior shifts significantly to a point where everyone is using something else, we will adapt accordingly. However, our app is quite different from others; it's designed like a game and isn't just text-based. People really enjoy interactive elements, as seen with games like Candy Crush or Duolingo, partly due to the animations involved. I don’t believe a text-based chatbot could engage users in the same way. Looking ahead, we feel confident that our primary focus should remain on creating a visually appealing experience, as that is what keeps users engaged. Regarding AI, we're a technology-driven company and have been integrating AI and technology as quickly as possible. We have pushed for rapid adoption, sometimes to our own detriment, but we are committed to continually advancing our use of AI.

This concludes the Q&A section of the call. I would now like to turn the call back to the host for closing remarks.

Well, thank you, everyone. These were excellent questions. And I just want to say that we're very excited about 2026. It is probably not exactly what investors expected. But if you are thinking about Duolingo as a long-term company, which obviously I am because that's kind of what I want, this is really the right investment to do. The second thing that I'll say is that Gilian started her job 3.5 days ago, so it is incredible the amount of knowledge that she has about our finances, which already surpasses mine. So thank you, Gilian, for that. And thank you, everyone.

I'm so delighted to be here. Thank you, everyone.