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Duolingo, Inc. (DUOL)·Q4 2024 Earnings Summary

Executive Summary

  • Duolingo delivered a record Q4 2024: Revenue $209.6M (+39% YoY), Bookings $271.6M (+42% YoY), Adjusted EBITDA $52.3M (25.0% margin), DAUs 40.5M (+51% YoY), paid subscribers 9.5M (+43% YoY) .
  • Gross margin compressed to 71.9% (–120 bps YoY) due to higher generative AI costs tied to Duolingo Max adoption and lower advertising RPMs; mix shift to subscription revenue offset some pressure .
  • FY25 guidance: Revenue $962.5–$978.5 (+28.7%–30.8% YoY), Bookings $1,082–$1,098 (+24.3%–26.1% YoY), Adjusted EBITDA $259.9–$274.0 (27.0%–28.0% margin). Q1 2025 Revenue $220.5–$223.5 (+31.6%–33.4% YoY), Adjusted EBITDA $54.0–$57.0 (24.5%–25.5%) .
  • Catalysts: Rapid uptake of Duolingo Max (now ~5% of paid subs) and strong Family Plan adoption (23% of subs), plus social-first campaigns (e.g., New Year promo) and ongoing AI feature innovation (Video Call “Lily”) .

What Went Well and What Went Wrong

What Went Well

  • Record quarter across bookings, revenue, DAUs, net new subscribers; highest-ever Adjusted EBITDA dollars and strong free cash flow, aided by New Year promotion strength and Duolingo Max traction .
  • Duolingo Max momentum: Video Call feature meaningfully increased engagement; Max available to majority of DAUs, now ~5% of paid subscribers, lifting ARPU/LTV versus Super .
  • Operating leverage: Non-GAAP OpEx as % of revenue declined across R&D/S&M/G&A; Adjusted EBITDA margin expanded to 25.0% in Q4 and 25.7% for FY24 .

What Went Wrong

  • Gross margin headwind: down ~120 bps YoY to 71.9% in Q4 on higher GenAI costs for Max and lower advertising revenue per DAU; management expects pressure to be more pronounced in 1H25 before improving as AI costs are optimized .
  • Ads softness: lighter ad revenue (volume/RPMs) as focus stays on subscription optimization, pressuring advertising gross margin mix .
  • Estimates visibility: S&P Global consensus retrieval was unavailable at time of analysis, limiting beat/miss comparison versus Street on EPS/revenue (see Estimates Context).

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$178.3 $192.6 $209.6
Net Income ($USD Millions)$24.4 $23.4 $13.9
Diluted EPS ($USD)$0.51 $0.49 — (not disclosed in 8-K tables)
Gross Margin (%)73.4% 72.9% 71.9%
Adjusted EBITDA ($USD Millions)$48.1 $47.5 $52.3
Adjusted EBITDA Margin (%)27.0% 24.7% 25.0%

Segment revenue breakdown:

Product Revenue ($USD Millions)Q2 2024Q3 2024Q4 2024
Subscription$143.9 $157.6 $174.3
Other (Ads, DET, IAP)$34.4 $35.0 $35.2
Total$178.3 $192.6 $209.6

Key operating metrics:

KPIQ2 2024Q3 2024Q4 2024
Daily Active Users (DAUs)34.1M 37.2M 40.5M
Monthly Active Users (MAUs)103.6M 113.1M 116.7M
Paid Subscribers (period end)8.0M 8.6M 9.5M
DAU/MAU Ratio (%)——34.7% (Q4)

Cash generation highlights (for context):

Cash MetricsQ3 2024Q4 2024
Net Cash from Operating Activities ($USD Millions)$56.3 $83.3
Free Cash Flow ($USD Millions)$52.7 $87.8
Free Cash Flow Margin (%)27.3% 41.9%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Bookings ($M)Q4 2024$244.5–$247.5 (11/6/24) Reported $271.6 (2/27/25) Beat vs guide midpoint
Revenue ($M)Q4 2024$202.5–$205.5 (11/6/24) Reported $209.6 (2/27/25) Beat vs guide midpoint
Adj. EBITDA ($M)Q4 2024$48.6–$50.8 (11/6/24) Reported $52.3 (2/27/25) Beat vs guide midpoint
Bookings ($M)FY 2024$820.5–$827.5 (8/7/24) $843.5–$846.5 (11/6/24) Raised
Revenue ($M)FY 2024$731.3–$738.3 (8/7/24) $741.0–$744.0 (11/6/24) Raised
Adj. EBITDA ($M)FY 2024$175.5–$184.6 (8/7/24) $188.3–$190.4 (11/6/24) Raised
Bookings ($M)Q1 2025—$252–$255 (2/27/25) New guide
Revenue ($M)Q1 2025—$220.5–$223.5 (2/27/25) New guide
Adj. EBITDA ($M)Q1 2025—$54.0–$57.0 (2/27/25) New guide
Bookings ($M)FY 2025—$1,082–$1,098 (2/27/25) New guide
Revenue ($M)FY 2025—$962.5–$978.5 (2/27/25) New guide
Adj. EBITDA ($M)FY 2025—$259.9–$274.0; margin 27–28% (2/27/25) New guide

Notes: Management highlighted ~170 bps FY25 gross margin impact (≈300 bps in 1H) from Max-related AI costs, with optimization in 2H25; incremental margins ~30–35% in FY25 .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024, Q3 2024)Current Period (Q4 2024)Trend
AI & Duolingo Max (Video Call/Lily)Q2: Max in 27 countries/5 courses; experimenting with real-time speaking . Q3: Video Call launched; strong engagement; scaling Max availability; family plan penetration high .Max ~5% of subs; Video Call drives higher English learner engagement; majority of DAUs have access; plan to make Lily more dynamic .Accelerating adoption and product iteration .
Margins & AI cost impactQ2/Q3: Margin expansion via OpEx leverage; ad RPM softness noted .FY25 guide includes temporary GM compression (–170 bps YoY; ~–300 bps in 1H) due to Max AI costs; expect improvement in 2H as costs optimize .Near-term headwind, medium-term normalization .
User Growth & RegionsQ2: DAUs +59% YoY; Japan spotlight with +93% DAU YoY; country marketing playbook . Q3: DAUs +54% YoY; returning users key; social impressions up 80% YoY .DAUs +51% YoY; growth broad-based; Latin America growing ~80% YoY despite maturity; Asia under-penetrated opportunity .Broad-based strength, emerging focus on Asia .
Product & Content PipelineQ2: Friend Streak; social features boost engagement . Q3: Course content ramp; Max availability to ~half of DAUs .DAU/MAU up ~4 pts YoY to 34.7%; focus on advanced English; AI-powered content scaling across languages, Math/Music .Ongoing engagement enhancement .
Monetization & ARPU/LTVQ2/Q3: Subscription mix up; family plan ~20% of subs with higher retention .ARPU up; Max has highest LTV; Family Plan 23% of subs; emphasize mix shift to Max/Family Plan .Mix shift boosting ARPU/LTV .
AdvertisingQ2/Q3: Other revenue growing modestly; ad margins pressured .Ads lighter in Q4 (volume/RPM), reflecting subscription focus; lower ad RPM impacted gross margin .De-prioritized vs subs .
Math & Music—3M combined DAUs; AI to accelerate Math content; monetized like languages (ads/subs) .Building optionality .

Management Commentary

  • “We closed out 2024 with an outstanding record quarter. Daily active users hit 40 million, growing 51% year-over-year… Duolingo Max… represents about 5% of total subscribers.” — Luis von Ahn .
  • “Our full year guidance has bookings growing 25%… and puts us on track to surpass $1 billion in bookings this year.” — CFO Matt Skaruppa .
  • “In 2025, we expect a temporary 170 basis point year-over-year impact on gross margin, primarily due to Max… roughly a 300 basis point… in the first half… margins to improve in the second half… as we work to improve AI costs.” — CFO Matt Skaruppa .
  • “English learners… really like… Video Call with Lily… used twice as much by English learners versus non-English learners.” — Luis von Ahn .
  • “Max is undeniably our highest LTV tier… retention so far looks good… the more we can shift there, the better.” — CFO Matt Skaruppa .

Q&A Highlights

  • Duolingo Max cohorts: adoption strong both from new subs and upgrades; Japan shows higher Max penetration versus Super; English learners demonstrate 2x Video Call usage vs non-English learners .
  • AI investment focus: near-term priority on feature velocity (Video Call/Lily) rather than cost optimization; inference costs expected to decline over time; pricing calibrated to avoid losses (e.g., higher pricing in lower-income markets until costs fall) .
  • Regional growth: broad-based; maturity not correlated with growth; Latin America ~80% YoY DAU growth; Asia (Japan/Korea/India/China) represents under-penetrated future growth .
  • ARPU trajectory: positive YoY driven by mix shift to Family Plan and Max; ads lighter as subscription experiments take priority .
  • Math/Music: 3M DAUs combined; AI reasoning advances to accelerate Math content; monetization via ads/subs mirrors language courses .

Estimates Context

  • S&P Global (Capital IQ) consensus for Q4 2024 and Q1 2025 EPS/revenue could not be retrieved at time of analysis due to request limits; therefore, explicit beat/miss versus Street estimates is unavailable. Values retrieved from S&P Global were unavailable at the time of request.
  • Directionally, Q4 actuals exceeded Q3-issued guidance midpoints on Revenue, Bookings, and Adjusted EBITDA (see Guidance Changes), indicating operational outperformance versus company’s prior outlook .

Key Takeaways for Investors

  • Duolingo’s Q4 momentum is anchored in subscription mix shift (Max/Family) and engagement gains, delivering record bookings/revenue and strong FCF despite near-term gross margin headwinds from AI costs .
  • The Max tier (higher price, higher LTV) is scaling and English learners over-index on Video Call engagement; continued feature velocity should support ARPU expansion and bookings growth in 2025 .
  • FY25 guide signals strong top-line growth (+29–31% revenue) alongside moderated margin expansion (Adj. EBITDA ~27–28%), with cost optimization expected in 2H25; incremental margin 30–35% implies disciplined growth .
  • Ads will likely remain a tactical lever rather than a strategic growth driver near term; subscription revenue will continue to dominate (83% of revenue in Q4) .
  • Regional opportunity is significant: Asia is under-penetrated, while mature regions like Latin America still grow rapidly, supporting sustained DAU expansion .
  • Product/marketing engine (“Green Machine”) and social-first campaigns (e.g., Netflix Squid Game Korean push) reinforce brand engagement and top-of-funnel growth, aiding conversion .
  • Near-term stock reaction catalysts: rapid Max feature iteration, higher penetration, and demonstration of AI cost normalization in 2H25; watch Q1/Q2 margins versus guide and DAU growth pacing mid-40s as management targets .

Appendix: Additional Data Points

  • Q4 revenues by product type: Subscription $174.3M (+48% YoY) and Other $35.2M (+5% YoY); subscription comprised 83% of revenues .
  • Q4 free cash flow $87.8M (41.9% margin), operating cash flow $83.3M .
  • Diluted shares outstanding at FY24-end ~49.5M; expected ~1% dilution in FY25 .
  • Balance sheet strengthened: Cash & cash equivalents $785.8M; total assets $1.30B at 12/31/24 .