🦉 Duolingo: Widening the Moat (and Why Wall Street Will Hate It)

Alright, Duolingo just wrapped a monster 2025, crossing 50M daily users and $1B in bookings for the first time.

I am personally thrilled with this performance, but what I love even more is what they are doing next.

They are leaning directly into Nick Sleep’s "Scale Economics Shared."

Instead of squeezing every drop of profit to appease analysts today, management is intentionally dropping 2026 EBITDA margins (from ~30% down to ~25%) to reinvest heavily in the free learner experience. By prioritizing product value and expanding into subjects like Chess (already at 7M DAUs!) and Music over immediate monetization, they are actively choosing to widen the moat.

Wall Street absolutely hates this.

Markets despise lower margins and routinely punish companies that prioritize long-term dominance over short-term earnings beats.

But this is exactly why I respect and believe in Duolingo's management. They have the courage to build for the next decade rather than the next quarter.

The status:

• Revenue: $1.04B (+39% YoY)

• Free Cash Flow: $360M (A massive 35% margin)

• Cash: $1.04B with zero debt.

• Capital Allocation: A new $400M buyback program (which sounds great on paper. However, equity compensation (SBC) will still increase the fully-diluted share count by 3.5–4% in 2026, so this is the only part I actually did not like that much)

I believe deeply in the long-term prospects of this company.

Betting that 100M "happy free users" is worth infinitely more than a few extra points of margin today is exactly how real, compounding super-apps are built.

So, let Wall Street hyperventilate over the 2026 margin guidance; I'm looking at the terminal value.