Duolingo Retires Its Priciest AI Tier as Bookings Growth Accelerates

Duolingo Inc. said late Tuesday it is discontinuing Duolingo Max, the premium, AI-heavy subscription tier it built its early artificial-intelligence push around, as the language-learning company reported third-quarter results showing user growth accelerating faster than it had forecast. The decision was disclosed in a shareholder letter filed with the Securities and Exchange Commission, and caps nine months of a strategy shift that initially unsettled investors but now appears, at least for one quarter, to be working.

Revenue for the quarter ended September 30 rose 14 percent from a year earlier to $309.0 million, while bookings — a measure of subscription and advertising sales before accounting deferrals — climbed 12 percent to $316.1 million, according to the company's earnings release filed with regulators. Daily active users reached 64.9 million, up 29 percent year over year and the second consecutive quarter in which that growth rate accelerated, while monthly active users rose 13 percent to 153.1 million. Paid subscribers grew 14 percent to 13.1 million.

Net income fell to $27.2 million from $292.2 million a year earlier, though the prior-year figure was inflated by a one-time $222.7 million tax benefit from releasing a valuation allowance, making the comparison misleading. Adjusted earnings before interest, taxes, depreciation and amortization was $78.7 million, a 25.5 percent margin, roughly in line with a year ago, and free cash flow was $75.3 million.

Why Max Did Not Survive

Max launched in 2023 as Duolingo's top-of-the-line tier, wrapping GPT-4-powered conversational practice and detailed grammar explanations into a pricier subscription above its mainstream Super plan. In the shareholder letter, the company said it would stop selling new Max subscriptions this month and move existing individual subscribers onto a Super family plan "at the same price," since Max's signature feature — unlimited video-call practice with an AI tutor — is being folded into the cheaper Super tier by the end of the year. Duolingo said it is still deciding what happens to legacy subscribers on Max's family plan, with a resolution expected "in 2027," and that it has built the "minimal" expected hit to bookings into its fourth-quarter guidance.

The move follows remarks Chief Executive Luis von Ahn made in September at a Citi technology conference, when he said sunsetting Max was under consideration, according to reporting that cited his comments. Falling costs for AI inference — the expense of running each automated video call reportedly dropped from roughly 30 cents to about a penny — made it economical to extend the feature broadly rather than ration it behind a premium tier.

A Costly Pivot Starts to Show Results

The Max decision is the latest step in a strategy Duolingo announced in February, when it told investors it would deliberately slow near-term monetization to chase faster user growth, guiding to full-year bookings growth of only about 11 percent for 2026 — down from the roughly 20 percent it said its prior approach could have delivered. Shares fell more than 23 percent in after-hours trading on that news, and the board authorized a $400 million share-buyback program the same day, partly to cushion the reaction.

Three quarters later, the bet looks more credible. Subscription bookings grew 16 percent in the third quarter, accelerating six percentage points from the second quarter, as the user-growth push began converting into paying customers. Duolingo raised its full-year outlook to the high end of its targets: bookings of $1.296 billion, up 12 percent, and revenue of $1.221 billion, up 18 percent, with an adjusted EBITDA margin of 26.5 percent. For the current quarter, it guided to bookings of $382 million, up 13 percent, and revenue of $322 million, up 14 percent, while flagging that gross margin will keep drifting down, to roughly 72 percent, as AI features expand.

"We had a great Q3, with DAU growth accelerating to 29% year over year, and all of our key financial metrics coming in ahead of expectations," Chief Executive Luis von Ahn wrote in the shareholder letter.

Who Is Affected

The change touches Duolingo's 13.1 million paying subscribers directly, particularly the subset who had paid extra for Max; most will be shifted automatically to the cheaper Super tier at no added cost, while family-plan Max holders wait for a decision promised next year. More broadly, the quarter underscores how directly Duolingo's business now depends on the economics of generative AI: falling inference costs are what let the company give away a feature it once charged a premium for, even as rising AI infrastructure spending pushed GAAP operating expenses up 24 percent, including an $11.4 million bonus accrual tied to the user-growth target. The company closed the quarter with $1.4 billion in cash and short-term investments, and it repurchased $6.4 million of stock in the period, bringing cumulative buybacks under the program to $82.0 million — enough, it said, to offset all dilution from 2024 and 2025.

Investors Respond

Shares, which had closed Tuesday's regular session at $128.00, down 5.4 percent ahead of the report, jumped more than 11 percent in after-hours and early Wednesday trading to roughly $145, based on trading data and news coverage aggregated on Yahoo Finance, as investors weighed accelerating bookings growth and a raised outlook against the loss of a premium revenue line. The reaction stands in contrast to the stock's response to Duolingo's past three quarterly reports, each of which triggered double-digit declines as the company cut guidance to fund its growth push.

The fourth quarter will be the clearer test of whether the acceleration holds and whether the Max transition proceeds as smoothly as management expects. Duolingo's next scheduled disclosure — its fourth-quarter and full-year results, typically reported in late February — will show whether bookings growth can sustain the pace set this quarter, and whether margin pressure from AI costs stays within the range the company has guided to.