Duolingo

“Cost of revenues predominantly consists of third-party payment processing fees charged by various distribution channels in addition to hosting fees and generative AI costs.”

“Other business purchase commitments consist of hosting costs, web services and generative AI costs.”

“We talked about the fact that for MAX, there's incremental cost for every use case, for every usage of it. And that does lower the gross margin of the MAX product.”

“Further, our ability to continue to develop, maintain or use such technologies may be dependent on access to specific third-party software and infrastructure, such as processing infrastructure for the training of our own machine-learning models or the use of third-party AI models.”

“Now, that said, we expect that the cost of generative AI, the cost of large language models, will go down. So over time, we'll probably be able to roll out everywhere.”

“When we first started adding Video Call to the platform, the first time that we put a Video Call on the platform, I remember the team that was working on it told me, "Okay, we can give this to users, but it's going to cost, like, $0.30 per call to give to users." That was expensive, and this is why we decided to put it behind our most expensive plan, which is Duolingo Max.”

“The good news is that, through a lot of really hard work, we've been able to bring down the cost of Video Call. It is now under $0.01 per Video Call. The reason for that is mainly a move towards open source models. It's just a lot cheaper to do that, and we don't see a loss in quality in there.”

“We're developing a lot of features, and there may be some that, because of costs of them or something, we end up putting them behind Duolingo Max. That is not the goal. The goal really is to try to give, particularly speaking features, which are the most expensive ones to provide.”

“I do expect that what'll happen is that the cost per usage of AI, whatever it is, the cost per token, if you want to call it, will come down for us because we will continue moving more and more to open source.”

“Internally, of course, we're still using many models from, say, OpenAI, Anthropic, and we'll continue doing that.”

“What we're basically saying is by going up about a point and a half on that adjusted EBITDA margin, we are seeing AI cost savings that will give us a bit structurally a better margin, even with our goal to put voice call out to all super users over the course of the year.”

“For gross margin, we now expect to end the year closer to 70% as compared to the 69% we initially expected, as we drive more AI content into our products, offset by AI cost savings.”

“Yeah, our expenses on AI in the cost of goods sold are in the tens of millions of dollars, so they're significant to the cost of goods sold. Hosting is another big cost for us as well, but those are the two biggies going through the cost of goods sold.”

“The reality is that in China, we simply cannot use the AI models, the kind of U.S. AI models. We have to use local models. That's by law.”

“At the highest level, our view inside the company is that it is in our best interest as a company to use open-weight models as much as possible. If I had a magic wand, I would try to move everything to an open-weight model. It's not always possible because sometimes the frontier models are more advanced. From a company standpoint, it is just significantly better because it's way cheaper to use open-weight models.”

“Gross margin was 72.6%, a small improvement over the prior year, and was ahead of our expectation of approximately 71.0%. This reflects our measured pace of AI-powered feature expansion (such as Video Call), as well as AI cost efficiencies.”

“We expect a gross margin of approximately 71.0% in Q3 and approximately 71.6% for the full year, better than the trajectory we outlined on our Q1 call based on AI cost trends.”

“The increase was primarily attributable to an increase in subscription gross margin, reflecting continued reductions in per-unit third-party AI costs.”

“Cost of revenues predominantly consists of third-party payment processing fees charged by various distribution channels in addition to hosting fees and third-party AI costs.”

“It just turns out that for a lot of applications, you don't need the absolute smartest model. The reality is the quality's indistinguishable for many applications that we use.”

“We do that in China. All of our usage of AI uses Chinese models.”

“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.”

“That's certainly what we have. What I would say is that our expectation is that over the next some amount of time, that portfolio will be weighted a little more towards open-weight models than it is today.”

“Other business purchase commitments consist of hosting costs, web services and generative AI costs.”

“For example, we use AI and machine learning technologies to help us produce content for both the learning application and the Duolingo English Test.”

“Further, our ability to continue to develop, maintain or use such technologies may be dependent on access to specific third-party software and infrastructure, such as processing infrastructure for the training of our own machine-learning models or the use of third-party AI models.”

“Increased web services and technology costs of $3.3 million”

“Internally, of course, we're still using many models from, say, OpenAI, Anthropic, and we'll continue doing that.”

“Inside the business, we also use AI, and that is more closer to the $10 million range internally.”

“At the highest level, our view inside the company is that it is in our best interest as a company to use open-weight models as much as possible. If I had a magic wand, I would try to move everything to an open-weight model. It's not always possible because sometimes the frontier models are more advanced. From a company standpoint, it is just significantly better because it's way cheaper to use open-weight models.”

“The increase was primarily due to higher net personnel costs of $13.8 million, driven primarily by growth in headcount, including increased stock-based compensation expenses related to equity awards of $5.0 million, and increased software and third-party AI costs of $3.3 million.”

“The increase was primarily due to higher net personnel costs of $23.6 million, driven primarily by the growth in headcount, including increased stock-based compensation expenses related to equity awards of $8.9 million, and increased software and third-party AI costs of $5.5 million.”

“That's certainly what we have. What I would say is that our expectation is that over the next some amount of time, that portfolio will be weighted a little more towards open-weight models than it is today.”

“What was amazing about it is this is really the first big batch of content that we were able to generate in large part because of generative AI. I mean, we use large language models for this. It was a lot quicker and a lot cheaper to generate than what we had been doing in the past, which was mostly handmade.”

“Now, this is not to say that humans are not involved anymore. They're still involved, but the involvement is much less because we've been using generative AI.”

“For example, we use AI and machine learning technologies to help us produce content for both the learning application and the Duolingo English Test.”

“The above increases were partially offset by a decrease in net contractor costs of $3.9 million.”

“The foundation of our product strategy is our relentless focus on improving learner engagement through A/B testing, and we run hundreds of A/B tests on new product features each quarter.”

“Our team, which as of December 31, 2024, consisted of approximately 830 passionate employees, including more than 380 engineers, aims to build the most sophisticated education platform in the world.”

“We talked about the fact that for MAX, there's incremental cost for every use case, for every usage of it. And that does lower the gross margin of the MAX product.”

“Duolingo Max is a premium subscription tier launched in 2023 and offered to a portion of our user base and priced higher than Super Duolingo. It gives learners access to the existing features of Super Duolingo in addition to incremental features and exercises powered by generative AI technology.”

“About a year ago, we started experimenting with a third tier, which we call Duolingo Max, where the idea was that this coincided with the large language models and generative AI coming out. We decided to use the AI features as a good kind of excuse to start the third tier, which is something we've wanted to do for a while.”

“The other thing that you'll see us do is you'll see us start shifting features around to see what is the best packaging. I mean, there's no real reason for the highest package to be just AI features.”

“We're seeing a bunch of evidence that people are willing to pay a substantially higher price for it.”

“Furthermore, in the third quarter of 2024 we announced an AI-powered product enhancement, Video Call, within our highest subscription tier that allows users to practice conversation skills through video calls with one of our characters.”

“Now, that said, we expect that the cost of generative AI, the cost of large language models, will go down. So over time, we'll probably be able to roll out everywhere.”

“We're running an experiment to put unlimited hearts in Max.”

“Yeah, Sean, the mix question is going to be one that we already mentioned, which is right now, the number of folks who are subscribing to Max is relatively small.”

“And certainly in 2024, the impact of Max is in our guide, but it's commensurate with the fact that it's only a 5%-10% rollout now. So it's relatively modest in the 2024 guide.”

“When we first started adding Video Call to the platform, the first time that we put a Video Call on the platform, I remember the team that was working on it told me, "Okay, we can give this to users, but it's going to cost, like, $0.30 per call to give to users." That was expensive, and this is why we decided to put it behind our most expensive plan, which is Duolingo Max.”

“That calls into question, what are we doing with Duolingo Max? My answer is, I don't know yet. There's a few possibilities, and one possibility could be that while Super subscribers get a limited version of Video Call, like limited number of Video Calls, Duolingo Max subscribers get unlimited. That is a possibility. Another possibility, truthfully, is that we may actually sunset Duolingo Max.”

“What I will tell you is that we're going to have an answer to this in the next couple of quarters, in addition to that, we're going to try to do this without a loss of revenue. That's partly why we're not going super fast here, because we're trying to figure out how to do this without losing much revenue.”

“We're developing a lot of features, and there may be some that, because of costs of them or something, we end up putting them behind Duolingo Max. That is not the goal. The goal really is to try to give, particularly speaking features, which are the most expensive ones to provide.”

“Additionally, most new Super Duolingo subscribers now have access to Video Call, and we expect to extend that access to existing Super subscribers later this year. This means that more learners can now use our flagship conversational practice feature, demonstrating how AI is helping us deliver higher-quality learning at scale.”

“The first one is that if you have access to Video Call, the engagement is very good. In fact, that feature has just gotten significantly better.”

“Duolingo Max is a premium subscription tier launched in 2023 and offered to a portion of our user base and priced higher than Super Duolingo. It gives learners access to the existing features of Super Duolingo in addition to incremental features and exercises powered by generative AI technology.”

“Furthermore, in the third quarter of 2024 we announced an AI-powered product enhancement, Video Call, within our highest subscription tier that allows users to practice conversation skills through video calls with one of our characters.”

“Super Duolingo offers learners additional features to enhance their learning experience.”

“What I will tell you is that we're going to have an answer to this in the next couple of quarters, in addition to that, we're going to try to do this without a loss of revenue. That's partly why we're not going super fast here, because we're trying to figure out how to do this without losing much revenue.”

“If suddenly all users have it, there's less incentive to buy, and then we would have to find other reasons to get people to buy. There's a little bit of a trade-off here. It's both cost, and this is one of the main things that gets people to buy.”

“What we're basically saying is by going up about a point and a half on that adjusted EBITDA margin, we are seeing AI cost savings that will give us a bit structurally a better margin, even with our goal to put voice call out to all super users over the course of the year.”

“Additionally, most new Super Duolingo subscribers now have access to Video Call, and we expect to extend that access to existing Super subscribers later this year. This means that more learners can now use our flagship conversational practice feature, demonstrating how AI is helping us deliver higher-quality learning at scale.”

“Look, I would love to make it available to all Duolingo users. I don't think we can do that right now.”

“The first one is that if you have access to Video Call, the engagement is very good. In fact, that feature has just gotten significantly better.”