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Duolingo, Inc. (DUOL)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered strong top-line and user metrics: revenue $230.7M (+38% YoY), DAUs 46.6M (+49% YoY), paid subs 10.3M (+40% YoY), Adjusted EBITDA $62.8M (27.2% margin) .
  • Management raised full-year guidance midpoints for bookings growth (to ~29%) and Adjusted EBITDA margin (to ~28%) and guided Q2 revenue $238.5–$241.5M with continued robust DAU growth .
  • Gross margin declined ~200 bps YoY to 71.1% in Q1 (better than prior expectation of ~300 bps decline), with a planned ~50 bps sequential dip in Q2 before improving in H2 as AI cost efficiencies scale .
  • Product/AI momentum is a core narrative: Duolingo Max reached ~7% of subs; Video Call engagement rising; 148 new language courses launched using generative AI; Chess course rolling out in the coming weeks .
  • Stock reaction catalysts: raised FY margin guidance, accelerating premium mix (Max upgrades), and AI-driven content scale; watch gross margin trajectory and monetization from Max in lower-GDP markets (pricing actions ahead) .

What Went Well and What Went Wrong

What Went Well

  • Record DAU adds and premium adoption: “we added more Daily Active Users this quarter than any in our history,” surpassed 10M paid subscribers; revenue +38% YoY to $230.7M; Adjusted EBITDA $62.8M (27.2% margin) .
  • AI/product velocity: 148 new language courses created in <1 year via genAI (“shared content”) expanding seven top languages to all 28 UI languages; accelerates TAM and engagement .
  • Gross margin better than expected: decline ~200 bps YoY vs ~300 bps guided; operating leverage across OpEx categories; free cash flow $103.0M (44.6% margin) .

Key management quotes:

  • “Q1 was an outstanding start to the year… delivered 38% year-over-year revenue growth” (Luis von Ahn) .
  • “We’re raising our full-year Adjusted EBITDA margin guidance to 28% at the midpoint” (CFO commentary) .

What Went Wrong

  • Gross margin still pressured by Max variable AI costs: total gross margin 71.1% vs 73.0% in Q1 2024; subscription margins lower given genAI expansion .
  • Q2 sequential GM dip: guidance embeds ~50 bps sequential decline before H2 recovery; margin cadence requires execution on AI cost optimization .
  • Max affordability constraints in lower-GDP markets (e.g., India ~$70/year currently); pricing reductions expected “in a few months” as model/API costs fall .

Financial Results

GAAP and Non-GAAP Results vs Prior Periods

MetricQ1 2024Q4 2024Q1 2025
Revenue ($USD Millions)$167.6 $209.6 $230.7
Gross Margin (%)73.0% 71.9% 71.1%
Net Income ($USD Millions)$27.0 $13.9 $35.1
Adjusted EBITDA ($USD Millions)$44.0 $52.3 $62.8
Adjusted EBITDA Margin (%)26.3% 25.0% 27.2%
Diluted EPS ($USD)——$0.72

Notes: EPS for Q1 2025 from GAAP income statement; prior-quarter diluted EPS not disclosed in the cited tables.

Revenue Mix

Revenue by Product ($USD Millions)Q1 2024Q1 2025
Subscription$131.7 $191.0
Other (Ads, DET, IAP)$35.9 $39.8
Total Revenues$167.6 $230.7

KPIs and Operating Metrics

KPIQ4 2024Q1 2025
DAUs (Millions)40.5 46.6
MAUs (Millions)116.7 130.2
Paid Subscribers (Millions, period-end)9.5 10.3
Subscription Bookings ($USD Millions)236.5 232.2
Total Bookings ($USD Millions)271.6 271.6
Operating Expenses (% of Revenue)Q1 2024Q1 2025
GAAP R&D31% 31%
GAAP S&M12% 12%
GAAP G&A21% 19%
Non-GAAP R&D22% 22%
Non-GAAP S&M11% 11%
Non-GAAP G&A14% 13%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Bookings ($M)Q2 2025—$243.5–$246.5 New disclosure
YoY Bookings Growth (%)Q2 2025—28.1%–29.7% New disclosure
Revenue ($M)Q2 2025—$238.5–$241.5 New disclosure
YoY Revenue Growth (%)Q2 2025—33.7%–35.4% New disclosure
Adjusted EBITDA ($M)Q2 2025—$58.4–$61.6 New disclosure
Adjusted EBITDA Margin (%)Q2 2025—24.5%–25.5% New disclosure
Bookings ($M)FY 2025$1,082–$1,098 $1,117.5–$1,126.5 Raised
YoY Bookings Growth (%)FY 202524.3%–26.1% 28.4%–29.4% Raised
Revenue ($M)FY 2025$962.5–$978.5 $987–$996 Raised
YoY Revenue Growth (%)FY 202528.7%–30.8% 31.9%–33.2% Raised
Adjusted EBITDA ($M)FY 2025$259.9–$274.0 $271.4–$283.9 Raised
Adjusted EBITDA Margin (%)FY 202527.0%–28.0% 27.5%–28.5% Raised
Gross Margin commentaryFY 2025~300 bps YoY decline implied earlier~150 bps YoY decline; Q2 ~50 bps lower vs Q1; H2 improvement Improved outlook
Fully diluted share countFY 2025—~+1% YoY New disclosure

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024)Previous Mentions (Q4 2024)Current Period (Q1 2025)Trend
Gross margin cadenceGM down ~120 bps YoY on Max; plan H2 margin progress FY24 GM 72.8%; Q4 71.9%; margin scaling despite Max Q1 GM -~200 bps YoY (better than expected); Q2 -50 bps sequential; H2 up Improving in H2
Duolingo Max adoptionMax available to ~50% DAUs; strong Video Call demand Max ~5% of subs YE; Video Call driving Max ~7% of subs; upgrades from Super; higher adoption among English learners Increasing adoption
AI cost optimizationFocus on product > cost; costs expected to decline Investment-first posture; margins expanding Early Q1 optimizations; pricing/model costs trending down; broader H2 optimization Costs declining
English learners focusIntermediate/advanced content; placement; word-of-mouth ramp Plan to elevate Video Call; expand courses Higher Max uptake among English learners; conversion varies by region Positive momentum
New subjects (Math/Music/Chess)Video Call feature; other subjects contribute over time Longer-term initiatives; foundation in 2025 Chess rolling out in coming weeks; monetized via subscription Expanding portfolio
Payments/App Store——Considering tests to web post Epic ruling; potential GM upside Optionality emerging

Management Commentary

  • “We also surpassed 10 million paid subscribers and delivered 38% year-over-year revenue growth” (CEO) .
  • “We’re raising our full-year Adjusted EBITDA margin guidance to 28% at the midpoint” (CFO) .
  • “We are really going all in… AI is very transformative for our business” (CEO) .
  • “Part of the Q1 outperformance was driven by… Super subscribers converting up to Max” (CFO) .
  • “Chess… will be widely available to everybody by the end of the year” (CEO) .

Q&A Highlights

  • Gross margin cadence: full-year YoY decline ~150 bps; Q1 better-than-expected; Q2 -50 bps sequential; ramp in H2 on AI cost efficiencies and moderated marketing spend .
  • Max adoption/retention: ~7% of subs; incremental platform LTV positive; upgrades from Super; retention “as expected” early days .
  • Pricing/affordability: Max too expensive in India (~$70/year); price reductions expected “in a few months” as API/model costs decline .
  • Payments optionality: post Apple-Epic ruling, DUOL will test directing users to web; majority of COGS are payment provider fees—potential GM tailwind over time .
  • AI-first execution: genAI enabling rapid content creation (148 courses) and new features (Video Call 3D Lily); company-wide push to automate and experiment faster .

Estimates Context

MetricQ3 2024Q4 2024Q1 2025
Revenue Consensus Mean ($USD)$189.20M*$205.49M*$223.11M*
Revenue Actual ($USD)$192.59M*$209.55M*$230.74M*
Surprise ($USD)$3.39M*$4.07M*$7.64M*
Primary EPS Consensus Mean ($USD)$0.36*$0.48*$0.52*
Primary EPS Actual ($USD)$1.08*$0.82*$1.26*
Revenue - # of Estimates13*16*16*
EPS - # of Estimates12*14*15*

Values retrieved from S&P Global.
Note: S&P “Primary EPS” may differ from GAAP diluted EPS due to normalization methodologies.

Key Takeaways for Investors

  • Strong beat on revenue vs consensus in Q1 2025 and raised FY guidance midpoints; watch continued estimate revisions and premium mix uplift.
  • Margin narrative improving: Q1 GM decline better than feared; Q2 dip transitory; H2 expansion from AI cost optimization and marketing leverage .
  • Max adoption rising (7% of subs), with upgrade motion from Super and higher English learner uptake—supports ARPU and bookings trajectory .
  • AI-driven product/content scale is a durable growth driver (148 courses; 3D Video Call), expanding TAM and engagement at low incremental cost .
  • Payments routing optionality post Epic ruling could add gross margin leverage over time; monitor experiments and conversion impacts .
  • Near-term trading: positive catalysts from raised FY margin guidance and better-than-expected Q1 GM; sensitivity to Q2 sequential GM dip and H2 execution on AI costs .
  • Medium-term thesis: compounding user growth + premium tier monetization + AI-enabled content velocity underpin sustained 30%ish top-line growth and margin expansion path .

Appendix: Additional Data Tables

Q2 and FY 2025 Guidance Detail

MetricQ2 2025FY 2025
Bookings ($M)$243.5–$246.5 $1,117.5–$1,126.5
YoY Bookings Growth (%)28.1%–29.7% 28.4%–29.4%
Revenues ($M)$238.5–$241.5 $987–$996
YoY Revenue Growth (%)33.7%–35.4% 31.9%–33.2%
Adjusted EBITDA ($M)$58.4–$61.6 $271.4–$283.9
Adjusted EBITDA Margin (%)24.5%–25.5% 27.5%–28.5%

Balance Sheet Snapshot

($USD Thousands)Dec 31, 2024Mar 31, 2025
Cash & Cash Equivalents$785,791 $883,996
Short-term Investments$91,854 $115,284
Deferred Revenues$372,884 $415,023
Total Assets$1,301,728 $1,403,146
Total Stockholders’ Equity$824,550 $893,826

Cash Flow (Quarterly)

($USD Thousands)Q1 2024Q1 2025
Net Cash from Operating Activities$83,514 $105,631
Free Cash Flow$78,493 $103,012

Additional Product/AI Press Release

  • “Duolingo Launches 148 New Language Courses… leveraging generative AI to scale content creation” (Apr 30, 2025) .