Duolingo Mixed Q4: Paid Subscriber Base Grows 43%, But AI-Driven Costs Hit Margins

by Lekha Gupta Benzinga Editor

Zinger Key Points

Duolingo Q4 revenue rose 39% Y/Y to $209.6M, beating estimates, but EPS missed at $0.28 vs. $0.50 expected.
Shares down premarket as gross margin contracted due to higher generative AI costs.
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Duolingo, Inc. DUOL shares are trading lower premarket on Friday after the company reported mixed fourth-quarter results on Thursday.

The company reported a revenue increase of 39% year over year to $209.6 million, beating the consensus of $205.4 million. This increase was led by a 48% rise in subscription revenue.

Total bookings surged 42% Y/Y to $271.6 million, with Subscription bookings rising 50% to $236.5 million in the quarter.

Paid subscribers totaled 9.5 million at the end of the quarter, an increase of 43% from the prior year. The increase in both subscription bookings and subscription revenue was aided by a higher average number of paid subscribers.

In the quarter, subscription revenue per average subscriber increased 2% on a higher mix of both family plan and Duolingo Max subscribers.

Daily active users (DAUs) stood at 40.5 million, an increase of 51% and monthly active users (MAUs) came in at 116.7 million, up 32% in the quarter.

Gross margin contracted by around 120 basis points Y/Y to 71.9% owing to a decline in subscription margins from increased generative AI costs.

Adjusted EBITDA rose to $52.3 million from $35.2 million in the prior year quarter, with a margin of 25.0% versus 23.3% in the fourth quarter of 2023.

EPS $0.28 missed the consensus estimate of $0.50.

Operating cash flow stood at $83.3 million, and free cash flow came in at $87.8 million in the quarter.

Luis von Ahn, Co-Founder and CEO of Duolingo said, “We intend to continue to invest in our product in order to drive engagement and user growth, as well as in features like Video Call to drive adoption of Duolingo Max.”

Outlook: Duolingo sees revenues of $220.5 million -$223.5 million for the first quarter (vs. consensus of $221.069 million) and $962.5 million – $978.5 million for FY25 (vs. estimate of $965.882 million).

The company projects bookings of $252 million – $255 million for first-quarter and $1.082 billion- $1.098 billion for FY25.

Price Action: DUO shares are down 9.81% at $338.92 premarket at the last check Friday.

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