Core Insights - Duolingo's Q4 sales reached $209.6 million, surpassing Wall Street's expectation of $205.5 million, but the stock fell 14.6% due to concerns over earnings performance [1] - Year-over-year sales growth for Q4 was 39%, while earnings only improved by 15% to $13.9 million, resulting in earnings per share of $0.28, significantly below the expected $1.09 [3] - Full-year earnings for Duolingo were $88.6 million, marking a 450% increase year-over-year, with earnings per share of $1.79, outpacing the 41% revenue growth to $748 million in 2024 [4] Financial Performance - Duolingo generated $274.9 million in positive free cash flow (FCF) in 2024, a growth rate of over 90% compared to $144.3 million in 2023 [4] - Management forecasts revenue of approximately $970 million for 2025, indicating a growth rate of just under 30% [5] - The current valuation stands at roughly 51.5 times trailing free cash flow, suggesting that earnings need to grow faster than sales for the stock to be considered a bargain [5]

Core Insights - Duolingo, Inc. reported a revenue of $209.55 million for the quarter ended December 2024, marking a 38.8% increase year-over-year [1] - The company's EPS was $0.31, up from $0.26 in the same quarter last year, but fell short of the consensus estimate of $0.50, resulting in an EPS surprise of -38.00% [1] - The revenue exceeded the Zacks Consensus Estimate of $205.27 million by 2.09% [1] Financial Performance Metrics - Paid subscribers reached 9.5 million, surpassing the average estimate of 9.29 million [4] - Daily active users (DAUs) were reported at 40.5 million, slightly below the estimated 41.09 million [4] - Monthly active users (MAUs) totaled 116.7 million, exceeding the average estimate of 110.08 million [4] - Subscription bookings amounted to $236.50 million, higher than the average estimate of $208.12 million [4] - Subscription revenue was reported at $174.30 million, reflecting a 48.4% year-over-year increase and exceeding the average estimate of $169.02 million [4] - Other revenues, including advertising, totaled $27 million, which was below the estimated $35.80 million but represented a 9.7% increase from the previous year [4] Stock Performance - Duolingo's shares have returned +3.4% over the past month, contrasting with a -2.4% change in the Zacks S&P 500 composite [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating potential underperformance relative to the broader market in the near term [3]

Financial Overview - Duolingo's total revenue for Q4 2024 reached $209.6 million, reflecting a year-over-year growth of 38.8% [1] - The company reported a gross profit of $150.6 million in Q4 2024, with a gross margin of 71.9% [1] - Adjusted EBITDA for Q4 2024 was $52.3 million, with an adjusted EBITDA margin of 25.0% [1] - Free cash flow for Q4 2024 was $87.8 million, indicating a strong cash generation capability [1] - Total bookings in Q4 2024 amounted to $271.6 million, a 42.2% increase year-over-year [2] User Growth and Engagement - Daily active users (DAU) reached 40.5 million in Q4 2024, a 51% increase year-over-year [2] - The total number of monthly active users (MAU) was 116.7 million, with a DAU/MAU ratio of 34.7% [1][2] - The number of paid subscribers at the end of Q4 2024 was 9.5 million, with a net addition of 0.9 million subscribers in the quarter [1] 2025 Guidance - For 2025, Duolingo expects total bookings to grow by approximately 25% year-over-year, with subscription bookings anticipated to increase by about 31% [3] - The company projects an adjusted EBITDA margin of 27.5% for 2025, an increase of nearly 200 basis points [5] - Gross margin is expected to be impacted by 170 basis points year-over-year, primarily due to product innovation initiatives [5] Product and Innovation Focus - Duolingo Max has shown strong performance, with a significant increase in user engagement following the introduction of video call features [5][6] - The company plans to leverage generative AI to enhance the video call experience and expand content offerings in language, math, and music courses [7] - The family plan subscription model has demonstrated higher retention rates and lifetime value compared to individual plans, accounting for 23% of total subscribers [5] Share Dilution and Capital Structure - By the end of 2024, the fully diluted share count is expected to be 49.5 million, with an anticipated dilution of about 1% in 2025 [4]

Core Viewpoint - Duolingo's Q4 2024 performance exceeded expectations in revenue but fell short in profit guidance, leading to potential disappointment among investors due to lower profit margins and increased costs [1][2][3] Financial Performance Summary - **Disappointment in Guidance**: The guidance for Q1 and full-year 2025 shows revenue growth rates of 28% and 25%, respectively, which are acceptable but not exceptional. However, the adjusted EBITDA guidance for Q1 is between $54 million and $57 million, below market expectations of $61.4 million, indicating a significant profit margin gap [2][3] - **Subscription Business Growth**: Q4 subscription revenue grew by 50%, driven by both user growth and pricing. The total user base reached approximately 117 million, with a 32% year-over-year increase. The paid subscriber count rose to 9.5 million, slightly exceeding market expectations [3][15] - **Other Revenue Streams**: Other revenue sources, including advertising and in-app purchases, grew only 5% in Q4, indicating a slowdown compared to previous quarters. This segment is not expected to significantly support future growth [5][17] Profitability and Cash Flow - **Profit Margin Pressure**: The adjusted EBITDA margin for Q4 was impacted by increased costs associated with the MAX subscription and lower average revenue per user from family plans. The gross margin fell below 72% [6][18] - **Healthy Free Cash Flow**: Free cash flow increased to $88 million, representing 42% of revenue, highlighting the strength of the subscription model and its contribution to cash flow stability [7][22] User Engagement and Market Position - **User Growth and Engagement**: The platform's monthly active users (MAU) grew by 32% year-over-year, with improved user engagement metrics. The DAU/MAU ratio increased to 34.7%, indicating higher user retention [14][15] - **Market Strategy**: Duolingo's strategy focuses on expanding into lower-paying markets, which may dilute profit margins but aims to increase overall user base and market penetration [10][11] Long-term Outlook - **Sustainable Growth Potential**: The company is positioned well in the online education market, leveraging a gamified learning approach that enhances user engagement and retention. The long-term growth potential remains strong despite short-term profitability pressures [9][11]

Financial Data and Key Metrics Changes - In Q4 2024, total bookings grew by 42% year-over-year, while revenue increased by 39% year-over-year [18][19] - The adjusted EBITDA margin expanded by about 8 percentage points for the full year, reaching 25.7% in 2024 [7][19] - The company expects bookings to grow by 25% year-over-year in 2025, with subscription bookings projected to grow around 31% [20][21] Business Line Data and Key Metrics Changes - Duolingo Max subscriptions contributed significantly to Q4 performance, with Max now representing about 5% of total subscribers [10][19] - The Family Plan accounted for 23% of total subscribers, showing higher retention and lifetime value compared to individual plans [11] - Daily active users (DAUs) reached 40 million, growing 51% year-over-year [9][51] Market Data and Key Metrics Changes - The growth rate of DAUs was broad-based across regions, with Latin America growing at approximately 80% year-over-year [52][53] - The company noted that growth in mature markets is not correlated with saturation, indicating ongoing opportunities for expansion [52][128] Company Strategy and Development Direction - The company aims to drive subscription bookings by increasing user growth, improving subscriber conversion, and promoting Duolingo Max [12] - Generative AI will be leveraged to enhance the Video Call experience and scale content across language, math, and music courses [13][14] - The focus remains on balancing top-line growth with long-term profitability targets, with a more moderate pace of profit growth expected compared to previous years [17][24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the momentum going into 2025, driven by strong adoption of Duolingo Max and the Family Plan [19] - The company anticipates a temporary impact on gross margin due to AI costs associated with Max, but expects margins to improve in the second half of 2025 [23][24] - Management highlighted the importance of ongoing marketing efforts and user engagement strategies to sustain growth [88][130] Other Important Information - The company ended 2024 with a fully diluted share count of 49.5 million and expects dilution of around 1% in 2025 [29] - Duolingo's mascot, Duo, returned after a marketing campaign that engaged users globally, reflecting the company's innovative approach to user engagement [30] Q&A Session Summary Question: Can you help us understand which cohorts are exhibiting the strongest growth by language or geo? - Management noted that Japan has a higher share of Max subscribers than Super subscribers, with strong adoption from both new subscribers and upgrades from existing Super subscribers [34][35] Question: Should we think about the AI investments this year as mainly Duo Max and Voice Calls? - Management clarified that AI investments are focused on automating internal processes and enhancing features like Video Call, with a significant increase in content generation capabilities [40][41] Question: Can you give us a sense of DAU growth and how international markets are performing? - Management reported 51% year-over-year DAU growth, with all regions experiencing growth, particularly Latin America [51][52] Question: How do you see user growth coming from next? - Management indicated that Asia represents a significant opportunity for growth, with ongoing marketing efforts to penetrate less developed markets [128][130] Question: How did Max perform during the promotional period? - Management stated that Max and the Family Plan both outperformed expectations during the promotional period, contributing to strong user growth [136] Question: What is the expected impact of AI costs on gross margins? - Management expects a temporary impact on gross margins due to AI costs but anticipates improvements as efficiencies are realized [23][55]

Financial Data and Key Metrics Changes - Duolingo reported a record quarter in Q4 2024, with total bookings growing by 42% year-over-year and revenue increasing by 39% year-over-year [18][19] - The adjusted EBITDA margin expanded by about 8 percentage points for the full year, reaching 25.7% in 2024 [7][19] - The company expects bookings to grow by 25% year-over-year in 2025, with subscription bookings projected to grow around 31% [20][21] Business Line Data and Key Metrics Changes - Duolingo Max subscriptions saw stronger-than-expected growth, contributing significantly to the overall performance [9][19] - The Family Plan now accounts for 23% of total subscribers, showing higher retention and lifetime value compared to individual plans [11] Market Data and Key Metrics Changes - Daily active users (DAUs) reached 40 million, reflecting a 51% year-over-year growth [9][51] - Growth was observed across all regions, with Latin America growing at approximately 80% year-over-year [52] Company Strategy and Development Direction - The company aims to drive subscription bookings by increasing user growth, improving subscriber conversion, and promoting Duolingo Max [12] - Investments in generative AI will enhance the Video Call experience and accelerate content scaling across language, math, and music courses [13][14] - The focus remains on balancing strong top-line growth with measured progress toward long-term profitability targets [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the momentum going into 2025, despite a more moderate pace of profit growth compared to previous years [19][24] - The company anticipates a temporary impact on gross margin due to AI costs associated with Duolingo Max, but expects margins to improve in the second half of the year [23][55] Other Important Information - Duolingo's mascot, Duo, returned after users completed 50 billion XP, highlighting user engagement [30] Q&A Session Summary Question: Can you help us understand which cohorts are exhibiting the strongest growth by language or geo for Duolingo Max? - Management noted that Japan has a higher share of Max subscribers than Super subscribers, with strong adoption from both new subscribers and upgrades from existing Super subscribers [34][35] Question: Should we think about the AI investments this year as mainly for Duolingo Max and Voice Calls? - AI investments are focused on automating internal processes and enhancing features like Video Call, with expectations for cost optimization over time [40][43] Question: Can you give us a sense of DAU growth and how international markets are performing? - DAU growth was broad-based, with every region experiencing growth, particularly Latin America [51][52] Question: How do you see user growth coming from next, and what markets are underpenetrated? - Asia is identified as a less penetrated market, with significant growth opportunities in countries like Japan, Korea, and India [128][129] Question: How did Max perform during the promotional period? - The promotional period exceeded expectations for both Max and the Family Plan, indicating strong user growth throughout the quarter [136] Question: What is the ideal number of languages available on the Duolingo Max tier? - The largest languages by demand are already available, with ongoing efforts to add more content, particularly for languages that are harder to learn [141][143]

User Engagement and Growth - As of December 31, 2024, Duolingo has over 100 million monthly active users and offers courses in over 40 languages[28]. - Approximately 9% of monthly active users are paid subscribers, with significant growth in subscriber penetration since the launch of the paid subscription in 2017[32]. - Duolingo learners complete over a billion exercises daily, creating the world's largest learning dataset[31]. - As of December 31, 2024, Duolingo had approximately 32 million daily active users with a 7-day streak or longer, and about 10 million daily active users with a 365-day streak or longer[38]. - The Duolingo App offers courses in over 40 languages to more than 100 million monthly active users, making it the top-grossing app globally in the Education category[42]. Financial Performance - Total revenues for the year ended December 31, 2024, reached $748,024 thousand, representing a 40.9% increase from $531,109 thousand in 2023[397]. - Gross profit for 2024 was $544,379 thousand, up 39.9% from $389,004 thousand in 2023[397]. - Net income for 2024 was $88,574 thousand, compared to a net income of $16,067 thousand in 2023, marking a significant increase[397]. - Total current assets increased to $1,101,588 thousand in 2024, up from $897,798 thousand in 2023, reflecting a growth of 22.6%[395]. - Deferred revenues rose to $372,884 thousand in 2024, a 49.8% increase from $249,192 thousand in 2023[395]. Product and Service Expansion - Duolingo launched a math course in 2022 and a music course in 2023, expanding its platform beyond language learning to additional subjects[36]. - Duolingo Max, launched in 2023, is a premium subscription tier that provides additional features powered by generative AI technology[44]. - The company aims to expand its addressable market by diversifying its product offerings and leveraging its scalable technology platform[36]. Market and Competitive Landscape - The online language learning industry is highly competitive, with low switching costs and constant innovation from competitors[19]. - Consumer spending on online and offline language learning is projected to reach about $123 billion by 2027[27]. Technology and Innovation - Duolingo's focus on data analytics and AI aims to enhance user engagement and learning efficacy, supported by a strong roadmap for future feature improvements[33]. - The company capitalized $9.0 million in software development costs during the year ended December 31, 2024, bringing total capitalized software development costs to $35.7 million[381]. - The company’s technology platform focuses on AI, machine learning, and data analytics to enhance the learning experience and optimize user engagement[40]. Regulatory and Compliance - The company is subject to various data protection regulations, including GDPR in the EEA and U.K., which impose strict compliance requirements[63]. - The company has implemented age-gating procedures for its Duolingo App to comply with COPPA regulations for users under 13[62]. - The company is subject to evolving laws and regulations regarding consumer protection and data privacy, which may impact its business operations[61]. Cash Flow and Investments - Cash and cash equivalents at the end of 2024 were $785,791 thousand, up from $747,610 thousand in 2023, showing a growth of 5.1%[395]. - The company reported a net cash used for investing activities of $217,330,000 in 2024, significantly higher than $13,584,000 in 2023, primarily due to purchases of investments[403]. - The company’s cash, cash equivalents, and restricted cash at the end of the period totaled $788,526,000, up from $750,345,000 in 2023, reflecting a strong liquidity position[403]. Stock-Based Compensation and Equity - The total stock-based compensation expense for the year ended December 31, 2024, was $110,477, an increase of 16.1% from $95,221 in 2023 and up 49.6% from $73,820 in 2022[509]. - The intrinsic value of options exercised was approximately $365,484 for the year ended December 31, 2024, compared to $192,456 in 2023 and $140,884 in 2022[500]. - As of December 31, 2024, there were 1,802 restricted stock units (RSUs) outstanding with a weighted average grant date fair value of $143.96 per share[500]. Acquisitions and Strategic Growth - The company completed two acquisitions in July 2024 for a total consideration of $7,500,000, with $6,600,000 paid in cash[464]. - The company’s acquisitions of companies net of cash acquired amounted to $6,595,000 in 2024, indicating strategic growth through acquisitions[403]. Risks and Challenges - The company has experienced operating losses in the past and may face challenges in achieving or maintaining profitability in the future[19]. - The company relies on third-party platforms for product distribution and payment collection, which poses risks to its business[21]. - The company has not entered into any hedging arrangements regarding foreign currency risk, which may affect its operating results due to fluctuations in exchange rates[370].

User Engagement Metrics - Daily Active Users (DAUs) increased to 40.5 million in Q4 2024, a 51% year-over-year growth[4] - Monthly Active Users (MAUs) reached 116.7 million, reflecting a 32% year-over-year increase[4] - Monthly Active Users (MAUs) and Daily Active Users (DAUs) are key metrics for measuring user engagement, with MAUs defined as unique users engaging monthly[57][58] Financial Performance - Total revenue for Q4 2024 was $209.6 million, up 39% year-over-year, while FY 2024 revenue was $748.0 million, a 41% increase[4] - Net income for Q4 2024 was $13.9 million, compared to $12.1 million in Q4 2023, marking a 15% increase[4] - Adjusted EBITDA for Q4 2024 was $52.3 million, a 49% increase year-over-year, with a margin of 25.0%[4] - Total bookings in Q4 2024 reached $271.6 million, a 42% increase year-over-year, driven by a 50% rise in subscription bookings[4] - Free cash flow for Q4 2024 was $87.8 million, an 84% increase year-over-year[4] - Revenues for Q4 2024 reached $209,550, a 38.7% increase from $150,985 in Q4 2023[69] - Net income for Q4 2024 was $13,907, compared to $12,117 in Q4 2023, reflecting a 14.8% growth[69] - Free cash flow for 2024 was $274,937, up from $144,273 in 2023, representing an increase of 90.5%[81] Subscriber Growth - Paid subscribers grew to 9.5 million at the end of Q4 2024, a 43% increase from the previous year[4] - The introduction of Duolingo Max contributed to significant user growth and accounted for 5% of paid subscribers by year-end[4] Future Projections - For Q1 2025, the company expects bookings between $252 million and $255 million, representing a year-over-year growth of 27.6% to 29.2%[49] - For FY 2025, the company projects revenues between $962.5 million and $978.5 million, with a year-over-year growth of 28.7% to 30.8%[49] - On a constant currency basis, FY 2025 bookings growth is estimated at 26.2% to 28.1% and revenue growth at 30.1% to 32.2%[50] Expense Management - In Q4, GAAP R&D expense decreased from 33% to 32% of revenue year over year, and in FY 2024, it decreased from 37% to 31% of revenue[42] - In Q4, GAAP S&M expense decreased from 13% to 12% of revenue year over year, and in FY 2024, it decreased from 14% to 12%[43] - In Q4, GAAP G&A expense decreased from 24% to 22% of revenue year over year, and in FY 2024, it decreased from 25% to 21%[44] Adjusted EBITDA - Adjusted EBITDA in Q4 increased by $17.1 million year over year to $52.3 million, representing a 25.0% margin; for FY 2024, it increased by $98.3 million to $191.9 million, with a 25.7% margin[46] - The adjusted EBITDA margin improved from 23.3% in Q4 2023 to 25.0% in Q4 2024[75] Assets and Liabilities - Total assets increased from $953,957 in 2023 to $1,301,728 in 2024, marking a 36.4% rise[68] - Cash and cash equivalents rose from $747,610 in 2023 to $785,791 in 2024, an increase of 5.5%[68] - The company reported total liabilities of $477,178 in 2024, up from $298,456 in 2023, a 60.0% increase[68] - Deferred revenues increased from $249,192 in 2023 to $372,884 in 2024, a growth of 49.7%[68] Research and Development - Research and development expenses for 2024 totaled $235,298, up from $194,352 in 2023, a 21.1% increase[77]

Core Insights - Duolingo achieved record quarterly bookings, revenue, daily active users (DAUs), and net new subscribers in Q4 2024, reflecting the effectiveness of its product-led strategy and focus on user engagement [2] - The company plans to continue investing in product development and features like Video Call to enhance user engagement and drive growth in 2025 [2] Financial Performance - The fourth quarter of 2024 marked the highest performance in terms of bookings and revenue for Duolingo, indicating strong market demand and user adoption [2] - The company emphasizes its commitment to long-term growth through strategic investments in its platform and user experience [2] Company Overview - Duolingo is recognized as the leading mobile learning platform globally, with its app being the most popular for language learning and the top-grossing app in the Education category on major app stores [4] - The company focuses on leveraging technology to provide an engaging and effective learning experience, aligning with its mission to make quality education universally accessible [4]

Core Viewpoint - Wall Street analysts predict Duolingo, Inc. (DUOL) will report quarterly earnings of $0.50 per share, reflecting a year-over-year increase of 92.3%, with revenues expected to reach $205.27 million, a 36% increase from the previous year [1] Earnings Estimates - Over the last 30 days, the consensus EPS estimate has been revised downward by 0.8%, indicating a collective reassessment by analysts [2] - Changes in earnings estimates are crucial for predicting investor reactions, as empirical studies show a strong correlation between earnings estimate revisions and short-term stock performance [3] Revenue Projections - Analysts estimate 'Revenues- Other (including Advertising, DET and others)' to be $35.80 million, representing a 45.4% increase from the year-ago quarter [5] - 'Revenues- Subscription' is projected to reach $169.02 million, indicating a 43.9% increase from the prior-year quarter [5] User Metrics - Total bookings are expected to be $62.69 billion, compared to $191.03 million reported in the same quarter last year [6] - Daily active users (DAUs) are forecasted to reach 41.09 million, up from 26.9 million a year ago [6] - Monthly active users (MAUs) are anticipated to be 110.08 million, compared to 88.4 million in the same quarter last year [6] Subscriber Estimates - The consensus estimate for 'Paid subscribers (at period end)' is 9.29 million, up from 6.6 million a year ago [7] - 'Subscription bookings' are expected to be $208.12 million, compared to $157.78 million reported in the same quarter last year [7] Stock Performance - Duolingo shares have increased by 17.3% over the past month, contrasting with a -0.5% change in the Zacks S&P 500 composite [7]