Duolingo(US:DUOL) Tianfeng Securities·2025-05-26 11:48Investment Rating - The report assigns a "Buy" rating for the stock, expecting a relative return of over 20% within the next six months [10]. Core Insights - Duolingo reported Q1 2025 revenue of $230 million, a 38% year-over-year increase, surpassing market expectations by 3.7%. The gross margin for the quarter was 71.1%, down from 73.0% in the same period last year, primarily due to increased costs associated with the expansion of the Duolingo Max subscription tier [1]. - The adjusted EBITDA for the quarter was $62.8 million, significantly up from $44 million year-over-year, with an adjusted EBITDA margin of 27.2% compared to 26.3% in the previous year. Net profit reached $35.1 million, notably higher than $27 million in the same quarter last year [1]. - Daily active users (DAUs) grew to 46.6 million, a 49% increase year-over-year, while monthly active users (MAUs) reached 130.2 million, up 33% year-over-year. The total number of paid subscribers was 10.3 million, reflecting a 40% year-over-year growth, with Max subscribers accounting for 7% of total subscriptions [1][2]. Summary by Sections Performance Overview - Duolingo's Q1 2025 revenue was $230 million, a 38% increase year-over-year, exceeding market expectations. The gross margin decreased to 71.1% due to rising AI costs [1]. - Adjusted EBITDA rose to $62.8 million, with a margin of 27.2%, and net profit increased to $35.1 million [1]. User Growth and Engagement - DAUs reached 46.6 million, a 49% increase, and MAUs were 130.2 million, up 33%. Paid subscribers totaled 10.3 million, a 40% increase, with Max subscriptions at 7% of the total [1][2]. Future Outlook - Duolingo expects Q2 2025 revenue between $238.5 million and $241.5 million, with an annual revenue guidance raised to $987 million to $996 million [2]. - The company is testing pricing strategies for the Max subscription and anticipates price reductions as AI costs optimize. New features like 3D video calls are being tested to enhance user engagement and retention [2][3].