Q3 2024 Earnings Summary
- Strong User Growth with Significant Potential: Duolingo has been experiencing robust Daily Active User (DAU) growth of 50-60% year-over-year for the last two years, and expects this trend to continue given the vast untapped market of 2 billion language learners worldwide compared to its current 100 million monthly active users. The growth is broad-based across countries, including the U.S., where growth is around the company average.
- Monetization Upside from Duolingo Max and ARPU Growth: The introduction of Duolingo Max, the premium subscription tier featuring Video Call with Lily, is showing strong traction and is expected to drive increased monetization and ARPU growth as it becomes available to more users. Max is now available to roughly 50% of DAUs, expected to increase to 60-70% by year-end , and is contributing to ARPU stabilization and potential future growth.
- Expansion into Underpenetrated Markets and Products: Duolingo is targeting intermediate and advanced English learners, a significant growth opportunity since English learners are underrepresented on the platform relative to the market. With over 2 million DAUs in intermediate or advanced English content , the company expects this segment to grow. Additionally, localized marketing efforts in countries like France and Korea are yielding positive results, with plans to expand to Italy and Turkey.
- Uncertainty in sustaining high growth rates: The company expects to continue its high DAU growth rates of 50% to 60% year-over-year, similar to the past two years ,. However, relying on past growth rates may be unrealistic as market saturation occurs, potentially impacting future financial performance.
- Limited data on Max subscriber retention and uptake: The company acknowledges that they "don't actually have enough data yet on Max at scale to really know how that's going to retain" , and it's uncertain where the top-line run rate will stabilize. This lack of data introduces risk to revenue projections if Max does not meet expectations.
- Reliance on word-of-mouth and organic marketing may limit growth: The company's growth strategy depends heavily on word-of-mouth, which is "not super fast", especially for expanding intermediate and advanced English learners. Additionally, the company does not invest significantly in paid marketing, stating that they "don't pay for the vast majority of our social media stuff" , which may limit their ability to accelerate user growth in competitive markets.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +40% (from $137.62M to $192.6M ) | Driven primarily by robust subscription growth and strong user engagement, which boosted paid conversions. Continued market demand for language learning apps also supported higher monetization through in-app purchases and subscriptions. |
Subscription Revenue | +49% (from $105.89M to $157.6M ) | Attributed to a higher number of paid subscribers and premium offerings (Family Plan, Duolingo Max). Company-specific initiatives (product bundling, improved retention strategies) further increased average revenue per subscriber. |
Advertising Revenue | +23% (from $11.68M to $14.4M ) | Reflects increased daily active users, which led to more ad impressions served. This gain was partly offset by fluctuating ad rates in a competitive digital advertising market, but overall user growth provided net improvement. |
Operating Income | Improved from - $4.67M to $13.57M | Results from operating leverage, as revenue growth outpaced increases in R&D and S&M expenses. Cost discipline and subscription-driven margins helped shift from an operating loss to a profit, indicating sustained scalability in the business model. |
Net Income | Rose from $2.81M to $23.36M | Growth fueled by strong top-line performance, improved operational efficiency, and higher interest income on cash balances. Forward-looking implication is continued net profitability if Duolingo maintains subscriber momentum and cost controls. |
Net Change in Cash | Dropped from + $23.07M to - $33.83M | Decrease mainly driven by higher investing activities (capitalized software development, property/equipment) and working capital changes. Despite strong operating cash flows, increased capital expenditures lowered net cash for the period. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Bookings growth | FY 2024 | 32.5% | 36% | raised |
Revenue growth | FY 2024 | 38.5% | 40% | raised |
Adjusted EBITDA margin | FY 2024 | 24.5% | 25.5% | raised |
Net dilution | FY 2024 | no prior guidance | a little more than 1% | no prior guidance |
Adjusted EBITDA margin | Q4 2024 | no prior guidance | 24.4% | no prior guidance |
Gross margin | Q4 2024 | no prior guidance | down ~100 bps from Q3 2024 | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Yoy Revenue Growth | Q3 2024 | ~27% | 40% (192,594Vs. 137,624) | Beat |
Adjusted EBITDA | Q3 2024 | ~$41M | $45.4M (Operating Income of 13,574+ D&A of 2,876+ Stock-based Comp of 28,959) | Beat |
Adjusted EBITDA Margin | Q3 2024 | 22.0% | ~23.6% (45.4M ÷ 192.6M) | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Robust DAU Growth and User Engagement | In Q2, DAU growth was described as robust (e.g. 59% YoY and record engagement metrics) with product improvements driving retention; Q1 noted strong 54% YoY growth driven by product enhancements and subscription conversion, and Q4 highlighted 10 consecutive quarters of accelerating DAU growth. | Q3 2024 emphasized 54% YoY DAU growth with projections of 50% for the rest of 2024, enhanced by the addition of features (e.g. Video Call with Lily) and TAM expansion. | Consistent focus on strong user growth with added feature-driven engagement. |
Premium Subscription Expansion (Duolingo Max) and ARPU Growth | Q2 mentioned Max being available to 15% of DAUs with new AI-powered features; Q1 described a limited rollout (5–10% of DAUs) and experiments with feature packaging; Q4 discussed initial three-tier pricing experiments and modest ARPU challenges. | Q3 2024 reported a marked acceleration with Max now available to 50% of DAUs, driven by features like Video Call with Lily, while ARPU remains flat as the plan mix is adjusted for future growth. | Notable acceleration and increased emphasis on premium tier expansion despite current flat ARPU. |
AI-Enabled Product Innovation and Accelerated Content Creation | Q2 and Q1 highlighted the use of AI for enhanced conversational practice and cutting content creation times (from years to months); Q4 emphasized AI-driven interactive features such as DuoRadio and Roleplay. | Q3 2024 continued to leverage generative AI with the introduction of Video Call with Lily as a “killer feature” and showcased rapid content creation (a video produced in 7 minutes). | Steady and even enhanced use of AI technology with new flagship features emerging. |
Advanced English Course Expansion and English Learning Market Opportunity | Q2 and Q1 discussed adding advanced content across English courses and improving learner placement; Q4 cited the lack of advanced English content as a past limitation and a major opportunity. | Q3 2024 reiterated a focus on the enormous English learning market—with around 80% global spend—and the continued improvement of advanced course offerings to capture this untapped opportunity. | Consistent, positive focus with promising long‑term market potential. |
International Expansion and Localization Strategies | Q2 emphasized a proven playbook by hiring local managers and tailoring social media efforts in countries like Japan, Germany, and France; Q1 briefly mentioned market challenges in India; Q4 featured segmentation into key regions (Southeast Asia, Japan, China, Europe). | Q3 2024 highlighted the addition of marketing managers in France and Korea, with plans for Italy and Turkey, reinforcing the localized approach. | Ongoing and refined international expansion with targeted localization strategies. |
Reliance on Organic Growth and Word‑of‑Mouth Marketing | Q1 and Q4 stressed word‑of‑mouth as the primary engine of growth (via organic channels like TikTok and YouTube Shorts), driving user acquisition and high engagement. | Q3 2024 confirmed continued reliance on organic growth and word‑of‑mouth as the main, cost‑efficient growth strategy. | Stable reliance on organic and word‑of‑mouth channels with consistent positive sentiment. |
Sustainability Concerns in User Growth and Market Saturation | Q2 and Q1 noted that despite high growth rates, Duolingo’s TAM remains huge (with only a small share captured) and growth is sustainable; Q4 reiterated the significant untapped global market (2 billion learners vs. 100 million MAUs). | Q3 2024 addressed sustainability by emphasizing continued strong DAU growth (50–60% YoY) and the fact that most markets are still underpenetrated, reducing market saturation concerns. | Continued optimism about long‑term sustainable growth supported by a vast untapped market. |
Uncertainty in Duolingo Max Retention and Data Limitations | Q1 acknowledged uncertainty in retention and LTV for Max due to early rollout and limited data; Q2 and Q4 had little to no discussion on this aspect. | Q3 2024 again stressed uncertainty in predicting long‑term retention for Duolingo Max given the recency of key features (like Video Call with Lily) and limited data at scale. | Persistent uncertainty remains as the Max rollout continues – more data is needed to reach definitive conclusions. |
Profit Margin Pressure from Increased R&D and AI Investments | Q1 mentioned high incremental margins in Q1 with expectations of margin pressure from investments; Q2 and Q4 talked about margin pressures from increased AI and R&D spending yet highlighted improved EBITDA guidance. | Q3 2024 reported a 100‑basis‑point sequential gross margin decline due to higher AI (GenAI) and amortization costs but also raised 2024 adjusted EBITDA margin guidance, showing commitment to scaling profitably. | Ongoing pressure from rising costs is being managed by improved guidance and anticipation of future AI cost optimizations. |
Decline in Emphasis on Family Plan Growth | Q1 and Q2 emphasized strong growth and higher retention on the Family Plan, with Q4 citing over 100% YoY growth and dedicated teams driving its success. | Q3 2024 noted that while the Family Plan continues to grow, its expansion was mostly due to increased visibility rather than new feature initiatives, leading to uncertainty about the speed of future penetration. | Slight de‑emphasis observed as focus shifts towards premium offerings, with less aggressive new feature investment in the Family Plan. |
Emergence of New Duolingo Max Features (e.g., Video Call with Lily) | Q2 discussed immersive conversational practice in Max, though specific emphasis on features like Video Call with Lily was absent in Q1 and Q4. | Q3 2024 prominently featured Video Call with Lily as a “killer feature” for Max, driving strong adoption and bookings, especially among English learners. | New emphasis emerging strongly in Q3 with flagship features accelerating premium product appeal. |
Exploration of Product Diversification into New Offerings (e.g., Math and Music) | Q1 and Q2 detailed early rollouts, content expansion, and platform enhancements for math and music courses; Q4 discussed integration into the main app and long‑term growth potential for these verticals. | Q3 2024 included mention by leadership that while language learning remains core, subjects like math and music are expected to contribute more in the coming years. | Consistent exploration with gradual progress as these new verticals remain early opportunities for long‑term diversification. |
Regional Monetization Challenges (e.g., Low Subscription Conversion in India) | Q1 discussed significant growth in India coupled with low conversion rates, noting lower subscription pricing and market maturing challenges; Q2 and Q4 did not feature this topic. | Q3 2024 did not mention regional monetization challenges such as those in India. | Topic has dropped from current discussion, suggesting a possible de‑prioritization or resolution in the current period. |
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Subscriber Growth to 20 Million Subs
Q: How will you reach 20 million subscribers?
A: We plan to continue our successful strategies, including growing user numbers by making the product more engaging and leveraging social marketing. Our DAUs have been growing between 50% and 60% over the last two years. We're also focusing on better converting users and introducing new plans like Max, which we believe will attract more subscribers, especially English learners interested in practicing conversation with features like Video Call with Lily. -
DAU Growth Expectations
Q: What drives your DAU growth into 2025?
A: We expect growth from all regions, including our more penetrated markets like the U.S.. Currently, there's no country where growth is slow. We'll be layering more English growth and continue to improve features to attract users. With 2 billion people learning languages globally and only about 100 million monthly active users on Duolingo, we see significant room for expansion. -
Max Subscription Tier and Monetization
Q: How is the Max tier impacting monetization?
A: The Max tier is available to around 50% of our DAUs, up from 15% last quarter, and we expect it to reach 60%-70% by year-end. We're seeing users both subscribing to Max directly and upgrading from Super. Max is priced approximately 2x higher than Super in markets like the U.S., and while margins are lower due to LLM costs, it generates more gross profit dollars per subscriber. We believe Max will be particularly attractive in geographies with English learners who value features like Video Call with Lily. -
Impact of AI and Cost Optimization
Q: How will AI cost declines affect your offerings?
A: As inference costs for AI models decrease, we anticipate being able to offer features like Video Call with Lily at more reasonable prices in more countries. Currently, we cannot offer it at attractive prices in markets like India, but cost reductions will be a major unlock. We haven't focused heavily on optimizing costs yet, but we expect natural declines in LLM querying costs over time. -
ARPU Trends and Margins
Q: What are the trends in ARPU and margins?
A: Our ARPU has trended to 0% year-over-year growth, reaching a flattish level. We expect it can go higher due to plan mix shifts towards Family Plan and Max, especially as Max becomes more material. Despite the higher costs associated with Max, especially LLM calls, we are generating more gross profit dollars per subscriber. Over the last three years, we've scaled bookings at a CAGR of 42% and increased adjusted EBITDA from $2 million to $49.7 million guided at the midpoint. -
International Expansion and Marketing Strategy
Q: How are international markets and marketing evolving?
A: We're seeing strong growth internationally, with every region growing well. We've added country marketing managers in France and Korea, and plan to add Italy and Turkey. Our marketing leverages local influencers and word of mouth, which is effective and cost-efficient. We don't rely heavily on paid social media marketing; most of our social media presence is organic content with minimal costs. -
English Learners as Growth Opportunity
Q: How are you capitalizing on English learners?
A: English learners represent a significant opportunity, as about 80% of language learning spend outside Duolingo is from people learning English. Historically, our revenue from English learners has been less than 50%. We've developed intermediate and advanced English content and improved user placement to better serve this segment. With over 2 million DAUs using intermediate or advanced English content, we expect growth, primarily through word of mouth. -
Product Testing and Innovation Pace
Q: Has the pace of product testing changed?
A: Yes, the number of tests we're running per quarter is increasing, and our success rate remains around 50%. We feel confident about the upcoming features over the next six months. We have multiple teams focusing on monetization, engagement, and teaching, each running experiments to improve the app. -
Subscriber Retention Metrics
Q: Any changes in subscriber retention trends?
A: Overall retention is stable. We don't have enough data on Max yet to determine its retention impact, but early indicators suggest that Max's LTV may be superior to Super. We are monitoring retention as we roll out new features. -
Family Plan Contribution
Q: How is the Family Plan performing?
A: The Family Plan now accounts for 21% of subscribers. The increase is mainly due to making it more visible to users. While added features will help with long-term retention, visibility has been the primary driver of growth. -
Resurrected Users as Growth Vector
Q: What's the impact of resurrected users?
A: Resurrected users—those returning after a hiatus—now make up more than half of our top-of-funnel users. This is a significant opportunity, and we're working on improving their experience. Many users return to Duolingo, and often don't consider themselves as having stopped using the app. -
Competitive Landscape
Q: How do you view competition in AI features?
A: We differentiate ourselves through engagement and motivation strategies, such as gamification and personalized features like Video Call with Lily. Our freemium model allows us to scale massively, with the majority of users on the free tier acting as a marketing engine and providing data to improve teaching. -
Holiday Promotional Strategy
Q: Any changes to holiday promo plans?
A: Our annual promotion runs for four days in December and into January. We experiment with how we present and promote it each year, and these are factored into our guidance. We're considering including Max in promotions but are still experimenting. -
Video Call with Lily Engagement
Q: How is Video Call with Lily performing?
A: Early data shows strong engagement metrics. English learners and more advanced users use it more. Enhancements like adding facial expressions and current conversation topics are increasing user engagement and time spent. -
Macro Outlook and Resilience
Q: How is the macro environment affecting you?
A: We see continued growth opportunities, with no indications of a cap. Our entry-level price is free, and our subscriptions are not very expensive, which helps in various economic conditions. With a large untapped market and diversified user base, we feel well-positioned.