AI interpretation based on checked source excerpts. Issuer assertions and evidence limitations remain explicit.
Policy quality-scores-2: six equally weighted categories. The overall score requires full coverage. Missing inputs are not zero. Qualitative grades are sourced interpretations, not probabilities. 4/6 · 18/10/2026
Moat50
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
structural advantage · 2/4 · Established reach, repeated engagement growth and expanding paid demand support a brand and product advantage. Comparative distribution economics and the claimed data flywheel are not sufficiently demonstrated to establish a stronger structural barrier.
durability · 2/4 · Multiple periods of engagement growth support persistence, but free access and terminable platform agreements leave the franchise dependent on continued product appeal and distribution access.
customer dependency · 2/4 · Daily usage and paid subscriber growth demonstrate repeat demand. They do not establish essential customer dependence or costly switching, and substantial learning access remains free.
erosion resilience · 2/4 · Continued engagement and subscription growth show current resilience. Platform control and dependence on perceived learning usefulness remain material exposures; the risk disclosures do not establish that these adverse outcomes have occurred.
Pricing power56
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
realized pricing · 2/4 · Higher subscription revenue per user, a realized English Test price increase and subsequent advertising price improvement support some pricing ability. Historical advertising price declines provide contrary evidence, while subscription mix effects are not isolated.
retention · 3/4 · Daily active users increased across successive periods, and paid subscribers rose 17% year over year to 12.7 million. Retention is assessed from indirect engagement and paid-demand evidence plus management's attribution of daily-user growth largely to retention; no cohort renewal rate is disclosed.
margin resilience · 3/4 · Gross margins remained broadly stable across the supplied annual comparisons and improved in the first half of 2026. Lower AI and processing costs contributed, so this demonstrates operating margin resilience rather than proving price-led protection or a moat from margins alone.
contractual freedom · 1/4 · Distribution agreements grant platforms termination rights, and platforms can alter fees and monetization practices. These disclosed terms indicate fragile freedom over important commercial conditions. Customer subscription repricing and renewal rights are not supplied.
Predictability85
Five consecutive annual periods. Equal weights: nondeclining revenue frequency; revenue-growth volatility (5–40pp); positive FCF frequency; FCF-margin volatility (3–20pp). Stability indicator, not a growth forecast.
- Nondeclining revenue years (%)
- 100.00
- Revenue growth volatility (pp)
- 3.24
- Positive FCF years (%)
- 100.00
- FCF margin volatility (pp)
- 13.44
Financial strength—
Missing required inputs: debtFcfGrade, netDebtEbitGrade, interestCoverageGrade. Equal-weight grades: debt/FCF (1–8x), net debt/earnings before interest and tax (0–5x), interest service (1–12x), current ratio (0.75–2x). Earnings use reported operating income, or reported pretax profit plus reported interest expense when operating income is unavailable. Interest service uses earnings/interest expense; if unavailable, it uses reported operating cash flow/cash interest paid, without relabeling cash paid as accrued expense. Nonpositive cash flow/earnings score 0 for their service component; reported zero interest with a positive numerator scores 100. Net cash scores 100 for net leverage. Missing disclosures remain unavailable. General nonfinancial-company rubric, not a credit rating; exceptional and nonoperating gains are not normalized out. IFRS finance-cost and cash-flow classifications retain their reported scope.
- currentRatioGrade
- 100.00
- Current ratio (x)
- 2.61
Capital allocation—
Missing required inputs: operatingReturn, dilution. Three-year equal-weight indicators: pretax return on average invested capital (0–25%; equity + debt − cash, each year and its prior year), share-count growth (0–5%, lower better), share-based cost/revenue (2–20%, lower better), consolidated FCF/net income (0–1x). Return uses reported operating income or, if unavailable, EBIT calculated from reported pretax profit plus reported interest expense; exceptional/nonoperating gains are not normalized out. Share-based cost uses the reported cash-flow add-back or, if absent, separately reported recognized compensation expense; the latter never becomes an FCF adjustment. Nonpositive net income scores 0 for cash conversion; absent income/FCF stays unavailable. Nonpositive invested capital has no defined return and remains unavailable. Does not establish acquisition quality or buyback timing.
- 3-year average SBC / revenue (%)
- 15.31
- cashConversionGrade
- 100.00
Management56
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
capital discipline · 2/4 · Strong cash generation after capital expenditures and completed repurchases support disciplined funding capacity. Actual share issuance, substantial equity compensation and contractual commitments temper the assessment; acquisition returns and repurchase value creation are not demonstrated.
incentive alignment · 3/4 · Actual equity-heavy executive compensation, previously granted ten-year founder awards with stock-price hurdles and an adopted clawback policy support meaningful alignment. Stock-price conditions do not directly measure operating value creation, and dilution prevents an exceptional assessment.
execution · 3/4 · Sustained engagement growth, expanding paid subscriptions, revenue growth and higher first-half cash generation demonstrate strong execution. Attribution to management is assessed indirectly from operating outcomes; weaker quarterly cash generation and earnings temper the conclusion.
governance · 1/4 · The 20-to-one voting structure, classified board and restrictions on stockholder action materially weaken outside accountability. Independent audit oversight, independent director sessions and the clawback policy offer safeguards but do not remove those structural weaknesses.
Evidence
Overview Our flagship app has organically become the world’s most popular way to learn languages and the top-grossing Education app in the App Stores, offering over 250 total language courses to over 130 million monthly active users for the three months ended December 31, 2025.
MD&A / Overview / consumer reach and app ranking · Filed 27/02/2026
We had approximately 40.5 million and 26.9 million DAUs for the three months ended December 31, 2024 and 2023, respectively, representing an increase of 51% from the prior year period.
MD&A / Key Operating Metrics / 2024 daily active users · Filed 28/02/2025
We had approximately 52.7 million and 40.5 million DAUs for the three months ended December 31, 2025 and 2024, respectively, representing an increase of 30% from the prior year period, driven largely by an increase in retention of current users supported by modest growth of new and reengaged users.
MD&A / Key Operating Metrics / 2025 daily active users and retention attribution · Filed 27/02/2026
We had approximately 58.7 million and 47.7 million DAUs for the three months ended June 30, 2026 and 2025, respectively, representing an increase of 23% from the prior year period, driven largely by an increase in retention of current users.
MD&A / Operating Metrics / June 2026 daily active users and retention attribution · Filed 06/08/2026
As of June 30, 2026 and 2025, we had approximately 12.7 million and 10.9 million paid subscribers, respectively, representing an increase of 17% from the prior year period.
MD&A / Operating Metrics / June 2026 paid subscribers · Filed 06/08/2026
We have seen these millions of learners provide two benefits to our business model: ◦They become advocates for Duolingo and support our growth through positive word-of-mouth for our product, which enables us to make very selective, efficient, and targeted marketing investments.
MD&A / Business Model / management claim about advocacy and marketing efficiency · Filed 27/02/2026
•Free Users: Since the majority of our learning content is not behind a paywall, anyone can download the Duolingo App, use it for as long as they like, and complete any of our courses free of charge.
MD&A / Business Model / free access to learning content · Filed 27/02/2026
In addition, our distribution agreements with Apple and Google are generally terminable by Apple or Google without cause with 30 days prior written notice (to the extent allowed by applicable local law).
Risk Factors / distribution agreement termination rights · Filed 27/02/2026
A platform provider may also change its fee structure, impose additional fees associated with access to or use of its platform, alter advertising practices, modify how user data is made available to application developers, limit the use of personal information for advertising or attribution purposes, or restrict how users can share information on or across platforms.
Risk Factors / platform control over fees, advertising and user data · Filed 27/02/2026
•users lose confidence in our ability to teach language or there is a decrease in user stickiness as a result of users no longer being interested in pursuing online language learning or reaching a point where they feel our product cannot advance their language ability;
Risk Factors / learning usefulness and user stickiness · Filed 27/02/2026
The following table provides the changes in revenues by product type: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2026 2025 Change % Change 2026 2025 Change % Change Subscription $258,035 $210,678 $47,357 22% $508,943 $401,665 $107,278 27% Other Advertising 21,052 20,603 449 2 41,666 38,485 3,181 8 Duolingo English Test 10,109 10,088 21 — 21,426 22,074 (648) (3) In-App Purchases 8,002 10,390 (2,388) (23) 16,448 19,832 (3,384) (17) Other 1,256 506 750 >100 1,938 952 986 >100 Total Other $40,419 $41,587 $(1,168) (3)% $81,478 $81,343 $135 —% Total revenues $298,454 $252,265 $46,189 18% $590,421 $483,008 $107,413 22% The main drivers of the increases were: •Subscription revenue increased $47.4 million, or 22%, to $258.0 million during the three months ended June 30, 2026, and subscription revenue increased $107.3 million, or 27%, to $508.9 million during the six months ended June 30, 2026, primarily due to growth in the average number of paid subscribers, and to a lesser extent, an increase in average revenue per user.
MD&A / Revenue / subscription growth, average revenue per user and other revenue streams · Filed 06/08/2026
This was primarily due to higher subscription margins as a result of a reduction in third-party payment processing fees per subscriber in addition to higher margins on the Duolingo English Test as a result of an increase in the average test price.
MD&A / Gross Margin / payment processing costs and realized English Test price increase · Filed 29/02/2024
This increase was driven by the increase in DAUs, which resulted in increased advertisements served, partially offset by the decline in advertising pricing;
MD&A / Advertising Revenue / realized advertising pricing decline · Filed 29/02/2024
•Other revenue increased $1.3 million, or 3%, to $41.1 million during the three months ended March 31, 2026, primarily due to increased advertising revenue, resulting from an increase in DAUs and price per ad served.
MD&A / Other Revenue / advertising volume and price per ad · Filed 05/05/2026
Cost of Revenues and Gross Margin. Total gross margin increased to 72.6% from 72.4% during the three months ended June 30, 2026 and 2025, and total gross margin increased to 72.8% from 71.8% during the six months ended June 30, 2026 and 2025.
MD&A / Cost of Revenues and Gross Margin / June 2026 comparisons · Filed 06/08/2026
The increase was primarily attributable to an increase in subscription gross margin, reflecting continued reductions in per-unit third-party AI costs.
MD&A / Gross Margin / reductions in per-unit third-party AI costs · Filed 06/08/2026
Cost of Revenues and Gross Margin. Total gross margin decreased slightly to 72.8% from 73.2% during the years ended December 31, 2024 and 2023.
MD&A / Cost of Revenues and Gross Margin / 2024 and 2023 · Filed 28/02/2025
The following table presents a reconciliation of net cash provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP, to free cash flow: Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2026 2025 2026 2025 Net cash provided by operating activities $ 88,260 $ 90,675 $ 239,031 $ 196,306 Less: Capitalized software development costs and purchases of intangible assets (2,734) (3,153) (5,587) (4,463) Less: Purchases of property and equipment (6,896) (1,198) (7,028) (2,507) Free cash flow $ 78,630 $ 86,324 $ 226,416 $ 189,336 For the three months ended June 30, 2026 and 2025, we generated $88.3 million and $90.7 million of net cash provided by operating activities, respectively, representing a decrease of $2.4 million.
MD&A / Free Cash Flow / quarterly and six-month cash generation and capital expenditure reconciliation · Filed 06/08/2026
During the six months ended June 30, 2026, the Company repurchased a total of 694,630 shares of the Company’s Class A common stock through open market purchases at an average per share price of $101.15 for a total of $70.3 million.
MD&A / Liquidity and Capital Resources / completed share repurchases · Filed 06/08/2026
AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Amounts in thousands) Common Stock Shares Amount Additional Paid-In Capital Retained Earnings (Accumulated Deficit) Total BALANCE—January 1, 2023 40,361 $ 4 $ 772,562 $ (230,488) $ 542,078 Stock-based compensation expense — $ — $ 95,221 $ — $ 95,221 Release of performance stock units 180 $ — $ — $ — $ — Taxes paid related to net-share settlement of share-based compensation awards (84) $ — $ (11,482) $ — $ (11,482) Stock options exercised 1,396 $ — $ 13,617 $ — $ 13,617 Release of restricted stock units 673 $ — $ — $ — $ — Net income — $ — $ — $ 16,067 $ 16,067 BALANCE—December 31, 2023 42,526 4 869,918 $ (214,421) $ 655,501 BALANCE—January 1, 2024 42,526 $ 4 $ 869,918 $ (214,421) $ 655,501 Stock-based compensation expense — — 110,477 — 110,477 Release of performance stock units 270 — — — — Taxes paid related to net-share settlement of share-based compensation awards (143) — (49,358) — (49,358) Stock options exercised 1,462 — 19,356 — 19,356 Release of restricted stock units 821 — — — — Net income — — — 88,574 88,574 BALANCE—December 31, 2024 44,936 $ 4 $ 950,393 $ (125,847) $ 824,550 BALANCE—January 1, 2025 44,936 $ 4 $ 950,393 $ (125,847) $ 824,550 Stock-based compensation expense — — 137,437 — 137,437 Release of performance stock units 360 — — — — Taxes paid related to net-share settlement of share-based compensation awards (168) — (41,617) — (41,617) Stock options exercised 664 1 12,570 — 12,571 Release of restricted stock units 836 — — — — Net income — — — 414,065 414,065 BALANCE—December 31, 2025 46,628 $ 5 $ 1,058,783 $ 288,218 $ 1,347,006 See accompanying notes to the Consolidated Financial Statements.
Financial Statements / Stockholders' Equity / actual compensation expense and share issuance · Filed 27/02/2026
Contractual Obligations The following table summarizes our contractual obligations and commitments as of December 31, 2025: Payments Due by Period Total Less than 1 Year 1-3 Years 3-5 Years More than 5 years Operating lease commitments (1) $ 137,818 $ 13,931 $ 30,575 $ 29,270 $ 64,042 Other commitments (2) 44,377 44,377 — — — Total contractual obligations $ 182,195 $ 58,308 $ 30,575 $ 29,270 $ 64,042 ________________ (1)Consists of future non-cancelable minimum rental payments under operating lease obligations, excluding short-term leases.
MD&A / Contractual Obligations / lease and purchase commitments · Filed 27/02/2026
The vast majority of our named executive officers’ total direct compensation is awarded as equity in the form of restricted stock units (“RSUs”) – 81% on average for 2025 (excluding the CEO), calculated based on the target dollar value of the RSUs.3 Consistent with prior years, our CEO received only salary in 2025.
Executive Compensation / actual 2025 equity compensation mix and CEO salary · Filed 17/04/2026
In connection with the IPO of our Class A common stock in 2021, our CEO and CTO each received performance-based RSUs (“PSUs”) with a 10-year term that vest upon attainment of specified stock price hurdles, detailed under “Special Multi-Year Performance-Based Founder Awards” below.
Executive Compensation / previously granted founder performance awards · Filed 17/04/2026
Under the Clawback Policy, which applies to the Company’s current and former executive officers (as defined under Exchange Act Rule 10D-1), the Company is required to recoup the amount of any erroneously awarded compensation (as defined in the Clawback Policy) on a pre-tax basis within a specified lookback period in the event of any accounting Restatement (as defined in the Clawback Policy), subject to limited impracticability exceptions.
Executive Compensation / adopted clawback policy requirements · Filed 17/04/2026
Because of the 20-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively could continue to control a significant percentage of the combined voting power of our common stock and therefore be able to control all matters submitted to our stockholders for approval until all outstanding shares of Class A and Class B common stock have converted automatically into shares of a single class of common stock.
Risk Factors / dual-class voting ratio and control · Filed 27/02/2026
Our corporate governance documents provide for: •a dual-class structure; •a classified board of directors with three-year staggered terms, who can only be removed for cause, which may delay the ability of stockholders to change the membership of a majority of our board of directors; •no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; •the exclusive right of our board of directors to set the size of the board of directors and to elect a director to fill a vacancy, however occurring, including by an expansion of the board of directors, which prevents stockholders from being able to fill vacancies on our board of directors; •the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including voting or other rights or preferences, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror; •the ability of our board of directors to alter our amended and restated bylaws without obtaining stockholder approval; •in addition to our board of director’s ability to adopt, amend, or repeal our amended and restated bylaws, our stockholders may adopt, amend, or repeal our amended and restated bylaws only with the affirmative vote of the holders of at least 66 2/3% of the voting power of all our then-outstanding shares of capital stock; 49 Table of Contents •the required approval of (i) at least 66 2/3% of the voting power of the outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class, to adopt, amend, or repeal certain provisions of our restated certificate of incorporation and (ii) for so long as any shares of Class B common stock are outstanding, the holders of at least 80% of the shares of Class B common stock outstanding at the time of such vote, voting as a separate series, to adopt, amend, or repeal certain provisions of our restated certificate of incorporation; •the ability of stockholders to act by written consent only as long as holders of our Class B common stock hold at least 50% of the voting power of our capital stock; •the requirement that a special meeting of stockholders may be called only by an officer of our company pursuant to a resolution adopted by a majority of our board of directors then in office or the chairperson of our board; and •advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us.
Risk Factors / classified board and stockholder rights restrictions · Filed 27/02/2026
Our Board of Directors has affirmatively determined that each member of our Audit Committee qualifies as “independent” under Nasdaq’s additional standards applicable to Audit Committee members and Rule 10A-3 of the Exchange Act of 1934, as amended (the “Exchange Act”) applicable to Audit Committee members.
Corporate Governance / audit committee independence · Filed 17/04/2026
Executive Sessions The independent directors meet at least twice a year in a private session that excludes management and any non-independent directors.
Corporate Governance / independent director executive sessions · Filed 17/04/2026
These metrics are determined by using internal data gathered on an analytics platform that we developed and operate and have not been validated by an independent third party.
Special Note Regarding Key Operating Metrics / internal measurement and lack of independent validation · Filed 06/08/2026
Because we update the methodologies we employ to create metrics, our operating metrics may not be comparable to those in prior periods.
Special Note Regarding Key Operating Metrics / methodology comparability · Filed 06/08/2026
Many large companies, such as Amazon, Facebook and Google, invest significantly in data analytics to make their websites and platforms more attractive to advertisers.
Risk Factors / named advertising competitors · Filed 27/02/2026
•Learning flywheel: The greater the scale of our learner base, the more we can use insights from data to improve both engagement and efficacy.
Business Model / management claim about the learning data flywheel · Filed 27/02/2026
Three Months Ended June 30, (In millions) 2026 2025 Operating Metrics Daily active users (DAUs) (1) 58.7 47.7 Paid subscribers (at period end) 12.7 10.9 Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2026 2025 2026 2025 Operating Metrics Subscription bookings $ 250,316 $ 227,259 $ 518,381 $ 459,443 Total bookings $ 289,054 $ 268,020 $ 597,538 $ 539,668 Non-GAAP Financial Measures Net income (GAAP) $ 33,158 $ 44,781 $ 76,618 $ 79,916 Adjusted EBITDA $ 77,315 $ 78,680 $ 160,747 $ 141,484 Net cash provided by operating activities (GAAP) $ 88,260 $ 90,675 $ 239,031 $ 196,306 Free cash flow $ 78,630 $ 86,324 $ 226,416 $ 189,336 _______________ (1) We primarily evaluate user engagement using DAUs, with MAUs as a supplementary metric.
MD&A / Key Operating Metrics and Financial Measures / bookings, earnings and cash generation · Filed 06/08/2026
