Duolingo Surpasses 50M DAUs and $1B Bookings in 2025, but AI Costs and Execution Risks Persist

What happened

Duolingo announced Q4 and full-year 2025 results, confirming it surpassed 50 million daily active users and generated over $1 billion in bookings for the first time, meeting preliminary guidance. This milestone comes amid heightened investor scrutiny over AI-driven margin compression, with gross margins declining to 72.5% in Q3 2025 due to higher generative AI and hosting costs from expanding the Duolingo Max subscription tier. The company's strong top-line growth is tempered by a recent CFO transition, effective February 23, 2026, which adds near-term execution and communication risk. Market sentiment remains split on whether Duolingo can monetize AI features enough to offset rising costs, especially with increasing competition from generalized AI apps threatening user engagement. The solid cash position of over $1 billion provides a buffer, but the next quarters will be pivotal in proving if bookings growth can re-accelerate sustainably while margins stabilize.

Implication

Duolingo's achievement of 50 million DAUs and $1 billion in bookings reinforces its scale and user engagement, but persistent margin pressure from AI costs requires vigilant analysis; if bookings re-accelerate above 35% YoY while gross margin stabilizes near 72%, the bull case target of $175 becomes more plausible. However, if DAU growth falls below 25% YoY or margins deteriorate further without a corresponding uplift, the bear case value of $80 could materialize, highlighting downside risk. The CFO transition introduces near-term volatility, but the strong balance sheet with $1.01 billion in cash mitigates financing stress, allowing for continued product investment. Investors must assess detailed disclosures from the full report to gauge management's confidence in monetizing AI features and navigating competitive threats. Ultimately, the stock's trajectory hinges on converting AI investments into higher per-user revenue rather than just increasing costs, which remains the core challenge for valuation.

Thesis delta

The new results align with the DeepValue report's base case, confirming preliminary data on DAU growth and bookings, so there is no major shift in the underlying thesis. Investors should refine their models based on updated margin trends and guidance clarity from the full report, particularly around Duolingo Max's impact on monetization versus costs. The key delta remains whether AI features can drive booking acceleration to justify the current valuation, as any deviation from this path could trigger a reassessment of the 'POTENTIAL BUY' rating.