Duolingo - $DUOL - Earnings Analysis: Exceptional growth in daily active users (DAUs) and monthly active users (MAUs), indicating strong user engagement.

By sagebytes in Technology — 28 Feb 2025

Business Model

Duolingo generates revenue primarily through subscription services, advertising, the Duolingo English Test, and in-app purchases of virtual goods.

Revenue Sources

Subscription revenue: Users pay for access to premium features and ad-free learning.
Advertising revenue: Generated from ads served to users who do not have a subscription.
Duolingo English Test: Revenue from individuals taking the Duolingo English Test.
In-app purchases: Revenue from users purchasing virtual goods within the app.

Income Statement Analysis

Revenues increased by 39% year-over-year, driven by growth in subscription revenue.
Gross profit increased by 36% year-over-year.
Total operating expenses increased by 29% year-over-year.
Net income increased by 15% year-over-year.

Balance Sheet Analysis

Total assets increased by 36.45% from December 31, 2023, to December 31, 2024.
Total stockholders' equity increased by 25.78% from December 31, 2023, to December 31, 2024.
Total liabilities increased by 59.88% from December 31, 2023, to December 31, 2024.

Cash Flow Analysis

Net cash provided by operating activities increased significantly, driven by higher net income and adjustments for non-cash items.
Net cash used for investing activities increased substantially due to investments in short term investments, potentially related to capitalized software development costs
Net cash provided by (used for) financing activities decreased significantly.
Net increase in cash, cash equivalents and restricted cash decreased, but overall cash position remains strong.

Capital Allocation

Duolingo is investing in its core product, especially Duolingo Max and Video Call, and promoting it globally. The company is also laying the foundation for longer-term initiatives like Math and Music. These investments are made to leverage advancements in generative AI to boost user engagement and monetization.

Management Commentary

We closed out 2024 with a record-breaking quarter. We surpassed 40 million DAUs; added our largest-ever number of net paid subscribers; achieved our highest-ever quarterly bookings, revenue and Adjusted EBITDA; and delivered 42% free cash flow margin.

Duolingo Max, our highest subscription tier, helped drive this growth by exceeding our expectations.

We gained operating leverage across Research and development (R&D), Sales and marketing (S&M), and General and administrative (G&A) expenses thanks to efficiency gains as we’ve scaled that helped us grow revenues faster than operating expenses.

Overall Sentiment: Positive, reflecting strong performance in 2024 and optimism for future growth and profitability, balanced with a measured approach to margin expansion due to strategic investments in AI and new products.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.