02-05-2025
Duolingo Inc (DUOL) Q1 2025 Earnings Call Highlights: Strong User Growth and AI-Driven Expansion
Release Date: May 01, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Duolingo Inc (NASDAQ:DUOL) reported strong growth in daily active users (DAUs), with a 49% year-over-year increase, indicating robust user engagement.
The company successfully launched 148 new language courses using AI, significantly speeding up content creation compared to previous years.
Duolingo Inc (NASDAQ:DUOL) is expanding its offerings with new subjects like chess, math, and music, which are already being monetized similarly to language learning.
AI is playing a transformative role in Duolingo Inc (NASDAQ:DUOL)'s operations, enhancing content creation, feature development, and overall efficiency.
The company is seeing positive trends in its Duolingo Max subscription, which now accounts for 7% of subscribers, contributing to strong financial performance.
Despite the growth in new subjects, they remain significantly smaller in scale compared to language learning, limiting their immediate impact on revenue.
Duolingo Inc (NASDAQ:DUOL) faces challenges in converting users in low GDP per capita regions, affecting overall monetization potential.
The company anticipates a 150 basis point decline in gross margin year-over-year, with some sequential declines expected in the second quarter.
Pricing for Duolingo Max remains high in certain markets like India, potentially limiting adoption until costs can be reduced.
The company acknowledges that it will take time, potentially years, for word of mouth to significantly boost the adoption of its intermediate and advanced English content.
Warning! GuruFocus has detected 6 Warning Signs with DUOL.
Q: Could you discuss the cadence of gross margin for the year and expectations for the second quarter? A: Matthew Skaruppa, CFO: We expect a 150 basis point decline year-over-year in gross margin. Q1 performed better than expected with a 200 basis point decline instead of the anticipated 300. For Q2, we foresee a 50 basis point sequential decline compared to Q1, with improvements expected in Q3 and Q4, bringing us back to the levels at the end of last year.
Q: What are your expectations for the new language modules like chess, music, and math in terms of engagement and monetization? A: Luis Von Ahn, CEO: We're excited about these modules, especially chess, which will soon be live. Initially, these are aimed at increasing user engagement, as there's significant demand. We are monetizing these subjects similarly to language learning, through subscriptions that remove ads. While they are smaller compared to language learning, they are growing well.
Q: Are you seeing any macroeconomic softness affecting your business, and how is GenAI impacting your product development? A: Matthew Skaruppa, CFO: We haven't observed any significant macroeconomic impact on our metrics. Our global presence and value proposition help maintain stability. Luis Von Ahn, CEO: GenAI is transformative for us, aiding in content creation, new feature development, and operational efficiencies. It allows us to produce content faster and cheaper, enhancing our product offerings.
Q: Can you provide an update on retention trends for Duolingo Max and the expansion of language courses? A: Matthew Skaruppa, CFO: Max accounts for about 7% of subscribers, with retention rates as expected. Luis Von Ahn, CEO: We've added 148 new language courses using AI, significantly speeding up content creation. These courses fill gaps in our offerings, allowing more users to learn popular languages from different base languages.
Q: How are you approaching the pricing and packaging of your subscription tiers, and what have you learned from recent tests? A: Luis Von Ahn, CEO: We continuously test pricing and packaging across different geographies. Recently, we increased the price for new Super Duolingo users based on test results. We may adjust features between tiers, such as moving less costly features from Max to Super or even free, but no changes have been finalized yet.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
