• Daily Active Users (DAU): Increased by 54% year-over-year.
• Bookings Growth: Increased by 38% year-over-year.
• Revenue Growth: Increased by 40% year-over-year.
• Adjusted EBITDA Margin: 24.7% for Q3.
• Family Plan Subscribers: Grew to 21% of total subscriptions, up from 18% at the end of last year.
• Full Year Revenue Guidance: Projected growth of 40%.
• Full Year Bookings Guidance: Projected growth of 36%.
• 2024 Adjusted EBITDA Margin Guidance: Raised to 25.5% at the midpoint.
• Q4 Adjusted EBITDA Margin Guidance: 24.4% at the midpoint.
• Fully Diluted Shares Outstanding: Approximately 49.6 million at the end of Q3.

• Warning! GuruFocus has detected 4 Warning Sign with CERT.

Release Date: November 06, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Duolingo Inc (NASDAQ:DUOL) reported a 54% year-over-year increase in daily active users, showcasing strong user growth.
• The company raised its full-year guidance for bookings and revenue growth to 36% and 40%, respectively.
• Duolingo Max, the highest subscription tier, has been rolled out faster than expected and is now available to roughly half of daily active users.
• The introduction of AI-powered features, such as video calls with Lily, has been well-received and is expected to drive further engagement and subscriptions.
• Duolingo Inc (NASDAQ:DUOL) has maintained a strong adjusted EBITDA margin of 24.7%, reflecting efficient scaling and profitability.

Negative Points

• The Q4 guidance includes a projected decline in gross margin due to higher generative AI and amortization costs related to scaling Max and its video call feature.
• Despite strong growth, the company faces challenges in converting free users to paid subscribers, particularly in regions with lower purchasing power.
• The rollout of new features on Android lags behind iOS, which may affect user experience and adoption rates on the platform.
• Duolingo Inc (NASDAQ:DUOL) has not yet optimized pricing and costs for its Max tier, which could impact future profitability.
• The company relies heavily on word-of-mouth growth, which, while cost-effective, may not scale as quickly as paid marketing strategies.

Q & A Highlights

Q: What are Duolingo's plans to reach 20 million subscribers, and how do they plan to achieve this growth? A: Luis Von Ahn, CEO, explained that Duolingo will continue its current strategies, which include increasing user engagement and improving conversion rates. The company plans to enhance its product offerings and leverage social marketing to grow its user base. The introduction of the Duolingo Max plan, which includes features like video calls, is expected to attract more subscribers, particularly in regions where English learners are interested in conversational practice.

Q: How is Duolingo addressing the opportunity with English learners, and what progress has been made? A: Luis Von Ahn highlighted that English learners represent a significant opportunity, as 80% of the language learning market spend is on English. Duolingo has developed intermediate and advanced English content and improved user placement to cater to this audience. The company is seeing growth in daily active users for English courses and expects word-of-mouth to further drive awareness and adoption.

Q: What is the impact of the new Duolingo Max features on user engagement and conversion? A: Luis Von Ahn noted that the video call feature with Lily has significantly enhanced the appeal of the Max plan. This feature is particularly popular among English learners, who use it twice as much as learners of other languages. The feature's simplicity and effectiveness in promoting conversational practice have led to increased subscriptions to the Max plan.

Q: How is Duolingo's international growth strategy progressing, and what role do country managers play? A: Luis Von Ahn stated that Duolingo's international growth is strong, with country-specific marketing managers contributing to localized strategies. The company has recently added managers in France and Korea and plans to expand to Italy and Turkey. This approach has been successful in increasing user engagement and growth across various regions.

Q: How does Duolingo plan to balance growth and profitability, and what are the expectations for margins? A: Matthew Skaruppa, CFO, emphasized that Duolingo is scaling both growth and profitability effectively. The company plans to continue investing in R&D to drive growth while maintaining a focus on profitability. Duolingo's adjusted EBITDA margin guidance for 2024 is set at 25.5%, with a long-term target range of 30% to 35%.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.