Duolingo’s Asymmetric Potential: Short-Term vs Long-Term Investing
Duolingo’s revenue could double by 2028.
There’s no beating around the bush. The start of 2026 has been terrible for the Asymmetric Portfolio. Week after week, I’m watching companies report great numbers and watching shares fall off a cliff.
Over the next couple of days, I’m going to go over results from On Holding $ONON ( ▼ 4.4% ) and Owlet $OWLT ( ▼ 38.21% ), two fast-growing companies that have seen shares crash in the past week. And yes, I will be sending out an update on Hims & Hers $HIMS ( ▼ 0.88% ) — which was up 40% this evening — tomorrow.
But today, I want to highlight why Duolingo $DUOL ( ▲ 0.37% ) is doing everything I want as a long-term investor while disappointing short-term investors, who drive the stock price.
The Duolingo Thesis
The Duolingo thesis laid out in the spotlight article is relatively simple.
Build scale in the language market
Expand into new education modalities (language specialist to education generalist)
Chess and math are early examples
Bundle growing content suite for one simple, compelling monthly fee
Democratize education at scale
This would create a flywheel in education as more scale gives Duolingo the economics to develop more modalities, which would make the bundle more valuable, and so on.
It’s similar to what Netflix did with content, providing more content value for subscribers over time.
But there’s a conundrum for Duolingo economically. It could run a profitable business today with limited upside. Or it could sacrifice profitability today for scale, hoping the upside is much larger in the future.
The returns to scale can be seen over and over again in the digital age. Look at how Netflix sacrificed cash flow for growth before turning the cash machine on in the last few years.
For Duolingo, a business with 50 million daily users is great, but it would be far more profitable if that number were 100 million daily users or 500 million daily users.
We want the bigger prize as asymmetric investors. But it involves tradeoffs.
Growing the Pie
For the last few years, Duolingo didn’t have the make tradeoffs. A growing user base that was increasingly monetizing well led to phenomenal financial results.
But we are seeing the limits to this strategy. As Duolingo turned the monetization engine on, monthly active user growth slowed in 2025.
Management highlighted in the Q4 2025 conference call that they saw decelerating growth in daily active users (DAUs) as the biggest challenge.
While our DAU growth over the past several years has been nothing short of phenomenal, it decelerated throughout 2025, and as the new year began, we continued seeing this trend. We now expect DAU growth to be about 20% year-over-year throughout 2026. This reinforced my conviction that we needed to take more decisive actions to re-accelerate DAU growth.
Another way of seeing it is that long-term value in this business is driven by two things: the size of our active learner base, that's like the size of the pie, and how effectively we monetize that base. You can think of that as the piece of the pie. At this moment, we are prioritizing growing the size of the pie. As I detailed in our shareholder letter, we have a carefully considered plan for 2026 that focuses on teaching better and user growth. In addition to the thousands of A/B tests we plan to run in 2026 to improve our product, we have larger initiatives that fall into three categories: teaching languages better, improving the free user experience, and feeding our next growth engines, meaning our subjects of math, music, and chess.
All of this is in service of growing DAUs faster.
20% user growth is great and would put Duolingo over 60 million daily active users by the end of 2026. But there’s a bigger goal.
Our medium-term goal is to reach 100 million daily active users in 2028. If we succeed in doubling our DAUs, the payoff would be significant. A more resilient brand, a business with meaningfully higher bookings and profit, and most importantly, a company that reaches and teaches far more people around the world. In the short term, the short-term implication is that this year we'll see slower bookings growth and lower profitability, as captured in our guide. I want you to know that I don't take this decision lightly, and that I know it may come as a surprise to some investors, but it's fundamentally aligned with what I said to 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. Not only that, but a future in which people want to spend their time learning. Duolingo is the platform for building that future, and we are just getting started."
To be clear, Duolingo’s 2026 guidance wasn’t terrible.
Bookings of $1.274 billion to $1.298 billion
10-12% Y/Y growth
Revenue of $1.197 billion to $1.221 billion
15-18% Y/Y growth
Adjusted EBITDA of $299 million to $305 million
25.0% margin
Duolingo could have grown faster in 2026, but sees a bigger prize ahead. And that prize may be closer than you think.
Going For the Bigger Prize
There was a lot of disappointment around Duolingo’s 2026 guidance, but the 100 million DAU goal isn’t a decade goal; it’s a 2028 goal. So, the improvement management expects should come relatively quickly. And if they hit 100 million DAUs, we could see rapid improvement in the financials in a few years.
If you sort of play out the DAU, at least it's all back of the envelope, but if we can get to that DAU and even reasonable monetization assumptions from where we are today, and, you know, we believe we can scale our expenses over time, you're looking at a business in a couple of years that could be $2.5 billion, with over $700 million in adjusted EBITDA. 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 kinda how we're thinking about it. In terms of when you're gonna see it, in the model, we've really modeled it late in the year, so it's gonna take a little while.
What we're working on is gonna take a little while to see through it. We do have a little bit in the end of the, end of the year. We think it's prudent to keep that small for now until we kinda get going. You'll start to see more and more as we move into 2027 and 2028.
Let’s say Duolingo ends 2028 with 100 million daily active users, and Munson is right that it can get to $2.5 billion in revenue and $700 million in adjusted EBITDA runrate. That would put the 2-year growth rate from 2026 guidance to the end of 2028 at:
2026 - end of 2028 revenue growth rate: 44%
2026 - end of 2028 adjusted EBITDA growth rate: 52%
Even if these numbers are off by 10%, the story is clear.
Short-term, investors are seeing a deceleration in the rate of revenue growth from 39% in 2025 down to 15-18% in 2026.
Longer-term (in 2027 and 2028), the growth rate should accelerate from 15-18% to potentially over 40% as the fruit of investment in 2026 begins to pay off.
Stocks often go down when revenue growth is decelerating and go up when the growth rate accelerates. We’re just ahead of the curve today.
Duolingo’s Limited Downside & Unlimited Upside
The growth story I’ve laid out is the upside for Duolingo. But we need to consider the risk side as well.
To me, anyway you look at it, Duolingo’s stock trades like a value stock.
Current enterprise value is $3.48 billion after accounting for $1.04 billion in cash
No debt on the balance sheet
Management announced a $400 million buyback program
Free cash flow in 2025 was $360.4 million
The EV/EBITDA based on 2026 guidance is just 11.5x.
EV/trailing free cash flow is under 10x.
This is a stock priced for destruction. Any stock can go lower, but I think the downside risk from here is limited.
But look past the short-term guidance to the long-term company management is building, and this is a very asymmetric stock.
The sentiment around Duolingo is bad; there’s no doubt about that. But that’s typical when a stock is falling.
What I’m more focused on is what the underlying fundamentals and strategy say about the business. And I think it’s clear the market is reacting negatively to management focusing on the long-term potential over short-term profits.
But that tradeoff makes sense to me, and I think Duolingo will be a big winner long-term.
The buyback and a recent $500,000 purchase by board member James Shelton are a vote of confidence as well.
Disclaimer: Asymmetric Investing provides analysis and research but DOES NOT provide individual financial advice. Travis Hoium may have a position in some of the stocks mentioned. All content is for informational purposes only. Asymmetric Investing is not a registered investment, legal, or tax advisor, or a broker/dealer. Trading any asset involves risk and could result in significant capital losses. Please, do your own research before acquiring stocks.
