Q4 2024 Earnings Summary
- Strong DAU Growth Across All Regions: Duolingo reported a 51% year-over-year increase in Daily Active Users (DAUs), with growth in every region, including mature markets like Latin America growing at 80% year-over-year. This widespread growth suggests significant potential for continued user expansion and market penetration.
- Increased Adoption of Higher-Tier Subscriptions Boosting ARPU: The company is experiencing higher Average Revenue Per User (ARPU) due to greater adoption of premium subscriptions like Duolingo Max, which now represents 5% of total subscribers , and the Family Plan, which makes up 23% of total subscribers. Higher-priced plans are driving increased lifetime value and revenue growth, as evidenced by positive ARPU trends expected throughout the year.
- Enhanced Content Creation Through AI Driving Engagement: Duolingo is leveraging AI to significantly increase content creation, allowing them to publish more course units and expand into new subjects like Math and Music, which now have a combined 3 million DAUs. This expansion is expected to drive higher user engagement and attract new learners, supporting overall growth.
- Temporary Gross Margin Compression Due to High AI Costs from Duolingo Max: The introduction of Duolingo Max, which leverages generative AI features like Video Call, is incurring significant marginal AI costs that are impacting gross margins. The company expects a temporary 170 basis point year-over-year impact on gross margin in 2025, with a 300 basis point impact in the first half as they prioritize product innovation over cost optimization. This could pressure profitability if AI costs do not decrease as anticipated. ,
- Deceleration of Bookings and Revenue Growth Rates Throughout 2025: Duolingo forecasts that its bookings growth rate will decelerate each quarter in 2025, stepping down by about 3.5 percentage points in Q2 from Q1, and further in subsequent quarters. Consequently, revenue growth is expected to step down throughout the year. This deceleration could indicate slowing momentum and may impact investor sentiment.
- Lower Ad Revenue and Reduced Focus on Advertising Business: The company reported that ad revenue came in lower and that ads are less of a focus as they prioritize subscription revenue. This shift may limit diversification of revenue streams and expose the company to higher risk if subscription growth slows.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +38.7% YoY (Q4 2024: $209.5M vs. Q4 2023: $150.99M) | Total revenue increased substantially as gains in subscription revenue (+48% YoY) and enhancements in user engagement drove stronger overall performance compared to the previous period, building on the revenue momentum seen in Q3 2024 vs.. |
Subscription Revenue | +48% YoY (Q4 2024: $174.3M vs. Q4 2023: $117.44M) | The subscription segment benefitted from an expanded paid subscriber base and higher premium plan adoption—an evolution from Q3 2024’s growth trends where subscriber numbers had increased markedly—resulting in stronger revenue even with continued regional pricing variations vs.. |
Cost of Goods Sold | More than doubled in Q4 2024 ($105.9M vs. Q3 2024: ~$52.2M) | COGS surged as a consequence of an increased share of higher-cost subscription revenue and the launch of new features (e.g., Video Call with LLM-backed functionalities) that raised computational expenses, in contrast to the relatively lower costs in prior periods vs.. |
Operating Income | +138% Q-to-Q (Q4 2024: $32.4M vs. Q3 2024: $13.6M) | Operating income saw a dramatic turnaround driven by robust revenue growth from subscriptions, improved operating leverage, and disciplined expense management compared to Q3 2024, indicating that the company’s efficiency gains continued to improve even as revenues expanded significantly vs.. |
Earnings Per Share | Declined >40% (Q4 2024: $0.31 vs. Q3 2024: 0.54 basic/0.49 diluted) | Despite higher operating income, EPS dropped sharply due to factors such as increased share dilution or extraordinary expense adjustments that offset net income improvements seen previously, diverging from earlier period trends where net income gains positively influenced EPS vs.. |
Net Change in Cash | Worsened to –$68.6M in Q4 2024 vs. –$33.8M in Q3 2024 | The net change in cash deteriorated as higher cash outflows in investing activities—reflecting increased capital expenditures and additional investment purchases—more than offset improvements in operating cash generation, marking a reversal from the better cash dynamics in Q3 2024 vs.. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Bookings Growth | Q1 2025 | no prior guidance | Expected to grow approximately 28% year-over-year, or 32% in constant currency | no prior guidance |
Subscription Bookings Growth | Q1 2025 | no prior guidance | Projected to grow about 35% year-over-year | no prior guidance |
Daily Active Users (DAU) Growth | Q1 2025 | no prior guidance | Expected to be in the mid-40% range | no prior guidance |
Adjusted EBITDA Margin | Q1 2025 | no prior guidance | Guided to 25% | no prior guidance |
Bookings Growth | FY 2025 | no prior guidance | Expected to grow 25% year-over-year at the midpoint, or 27% on a constant currency basis | no prior guidance |
Subscription Bookings Growth | FY 2025 | no prior guidance | Projected to grow around 31% | no prior guidance |
Total Bookings | FY 2025 | no prior guidance | On track to surpass $1 billion | no prior guidance |
Adjusted EBITDA Margin | FY 2025 | no prior guidance | Expected to expand by nearly 200 basis points to 27.5% | no prior guidance |
Incremental Margin | FY 2025 | no prior guidance | Anticipated to be between 30% and 35% | no prior guidance |
Dilution | FY 2025 | no prior guidance | Expected to be around 1% for the year | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Consistent DAU Growth and Engagement with Saturation Concerns | Q1 through Q3 earnings calls consistently highlighted strong DAU growth (ranging from 54% to 60% YoY) and addressed saturation concerns as being minimal. | Q4 emphasized a 51% YoY DAU growth across all regions with clear evidence that even mature markets like Latin America are growing robustly, dismissing saturation risks. | Recurring with sustained positive sentiment and broad-based regional strength. |
Expansion and Monetization of Premium Subscriptions | Q1–Q3 discussed the rollout of Duolingo Max and increasing Family Plan adoption with expectations for ARPU growth, though early rollout limitations were noted. | Q4 showed Duolingo Max reaching 5% of subscribers and Family Plan accounting for 23%, with clear focus on driving positive ARPU growth and higher LTV. | Recurring with expanding rollout and improved monetization sentiment. |
AI-Driven Content Creation and Accelerated Product Innovation | Earlier calls (Q1–Q3) noted the introduction of generative AI to speed up content and enhance product features, reducing cost and time significantly. | Q4 highlighted a dramatic 10x increase in content production and accelerated product innovation (e.g., AI-powered Video Call), underscoring a mature AI strategy. | Recurring and increasingly prominent, with stronger emphasis and efficiency gains. |
Content Expansion into New Verticals (Math, Music) and Advanced Language Learning | Q1–Q2 introduced new math and music courses and advanced English content with initial rollout and experimental features. | Q4 detailed broader expansion in math (from grade 3–5 to K-12 and potential college-level) and refined strategies for advanced English, while continuing music course enhancements. | Recurring with evolving scope and deeper strategic focus on broader educational verticals. |
Gross Margin Pressure and Profitability Challenges due to High AI Costs | Q1 raised concerns over lower margins from AI-driven Max costs; Q2 and Q3 reiterated similar challenges with incremental costs and LLM call impacts. | Q4 explicitly cited a projected 170 bps YoY gross margin impact (up to 300 bps in H1) due to AI features while balancing with margin improvement targets. | Recurring with continued caution but confidence in gradual cost declines and profitability improvements. |
Deceleration in Revenue, Bookings, and Overall Growth Momentum | Q1 and Q2 provided guidance for deceleration (e.g., Q1 strong growth with later moderated guidance; Q2 noted slower H2 growth), while Q3 focused on strong growth without emphasis on deceleration. | Q4 discussed deceleration as a natural outcome of past tailwinds, FX effects, and the mathematical lag from bookings to revenue, with moderated forecasts. | Recurring with a shift from exuberant growth to a more pragmatic, sustainable outlook. |
Uncertainty in Subscriber Retention and Conversion Data for Duolingo Max | Q1 through Q3 indicated early-stage uncertainty in retention and conversion due to the new rollout and mixed upgrade patterns. | Q4 acknowledged that while early retention for Max looks good, full data is still pending; the uncertainty remains but with encouraging early signals. | Recurring cautious sentiment with slight positive indications as data accumulates. |
Reliance on Organic Marketing and Limited Paid Marketing Strategies | Q1, Q2, and Q3 emphasized organic social media strategies (e.g., TikTok, YouTube Shorts) with explicitly low reliance on paid marketing. | Q4 maintained that organic marketing (including in Asian markets) remains the primary approach, reinforcing the same cost-effective strategy. | Recurring with stable sentiment and continued strategic consistency. |
Reduced Focus on Advertising Revenue and Strategic Shift Away from Ad Business | Q2 briefly noted ads contributed a small revenue share (~8%) while Q1 and Q3 did not emphasize this topic. | Q4 clearly stated that ad revenue is secondary to subscription growth, emphasizing a strategic shift away from heavy ad investment. | Emerging as a more explicit strategic narrative, underscoring a sharper focus on subscriptions. |
Monetization Challenges in Emerging Markets (e.g., India) | Q1 highlighted low payer conversion, lower subscription prices, and longer market maturity in India; Q3 touched on geographic differences such as Android monetization challenges. | Q4 did not explicitly mention emerging market monetization challenges, indicating a de‐emphasis of the topic in the current period. | No longer explicitly mentioned, suggesting a possible shift in focus or resolution of earlier concerns. |
Shifting Sentiment: Balancing Growth Potential with Rising Costs | Q1 discussions acknowledged strong growth and high incremental margins but noted heavy reinvestments (including AI) would temper margins; Q2 and Q3 reiterated rising AI costs and investment pressures. | Q4 presented a balanced view with strong growth figures juxtaposed against clear cost pressures from AI investments, along with targeted margin expansion plans. | Recurring with increasing detail, reflecting a more nuanced and balanced long-term outlook. |
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Max Subscriber Growth
Q: How is Max subscriber adoption impacting revenue and margins?
A: Duolingo's Max subscribers have reached 5% of total paid subscribers. This growth comes from both new subscribers and upgrades from existing Super subscribers. English learners have a slightly higher propensity to buy Max due to features like Video Call with Lily, which they use twice as much as non-English learners. Markets like Japan show higher Max penetration than Super , contributing to increased ARPU and making Max the "undeniably our highest LTV tier". While Max has higher marginal costs due to AI, it's expected to be a significant part of bookings in 2025. -
AI Investments Affecting Margins
Q: How are AI investments impacting costs and margins?
A: Duolingo is investing in AI to automate processes, reducing costs and increasing content creation speed by over 10 times. They're also developing live features like Video Call, which adds expenses due to querying large language models in real time. These AI costs will be higher in the first half of the year but are expected to decrease as they optimize and as AI costs naturally decline. There's a structural difference due to marginal AI costs, but Duolingo expects gross margins to return to historical levels by the back half of the year. They're prioritizing rapid feature development over cost optimization for now. -
DAU Growth Across Regions
Q: How did DAU growth perform across regions?
A: Duolingo experienced 51% year-over-year growth in daily active users, with every region showing growth. Remarkably, Latin America, a mature market, is growing at 80% year-over-year. Growth rates per region aren't correlated with market maturity, indicating significant untapped potential. -
ARPU Growth with Max
Q: Is ARPU expected to continue growing due to Max?
A: Subscription revenue per average subscriber has increased, and ARPU is expected to see positive year-over-year growth throughout the year. The shift towards Max and Family Plan is contributing to this increase. Max offers a higher LTV, being the "undeniably our highest LTV tier". Early retention for Max looks good, and Duolingo believes that increasing Max adoption will enhance overall revenue. -
Revenue Growth Rate Guidance
Q: Why is revenue growth expected to step down?
A: The revenue guidance reflects the bookings growth rate, a composite of the last four quarters' bookings growth. Additionally, there's a significant FX impact affecting revenue. Despite this, Duolingo expects Max to grow nicely and be a material part of bookings in 2025. -
Expansion in Asia
Q: Where is user growth coming from next?
A: Duolingo sees significant growth opportunities in underpenetrated markets like Japan, Korea, India, and China. Asia is the least penetrated region due to later market entry. Duolingo is setting up marketing efforts similar to the U.S., focusing on social media campaigns to tap into these markets. -
Intermediate English Learners Focus
Q: How is Duolingo focusing on intermediate English learners?
A: Duolingo has added more advanced English content, addressing a previously underserved segment. They're changing marketing tactics to inform advanced learners about the new content. Over time, they expect a significant increase in advanced English learners, which is a huge part of the market. -
Monetization of Math and Music
Q: How are Math and Music apps being monetized?
A: Math and Music apps are monetized similarly to language courses, through ads and subscriptions like Super. They have about 3 million daily active users and are growing faster than language courses. AI is accelerating content creation in Math, enabling them to add new topics more quickly. -
Max Retention and Engagement
Q: How is Max retention and user engagement progressing?
A: Early retention for Max subscribers looks good, though it's still early days. Features like Video Call with Lily are highly engaging, especially for English learners who use it twice as much as others. Duolingo aims to make Lily more dynamic and interactive, enhancing user engagement. -
Shift from Ads to Subscriptions
Q: Is ad revenue decreasing due to less focus?
A: Duolingo is primarily focusing on subscriptions over ads. Ad revenue was lighter partly because they are showing more Duolingo ads to encourage users to subscribe to Super or Max. They don't expect ads to fundamentally shift upwards, as their energy is on optimizing subscriptions.