Language-learning app Duolingo (NASDAQ:DUOL) reported Q4 CY2024 results exceeding the market’s revenue expectations, with sales up 38.8% year on year to $209.6 million. Guidance for next quarter’s revenue was better than expected at $222 million at the midpoint, 0.6% above analysts’ estimates.
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Duolingo (DUOL) Q4 CY2024 Highlights:
- Revenue: $209.6 million vs analyst estimates of $205.2 million (38.8% year-on-year growth, 2.1% beat)
- Adjusted EBITDA: $52.31 million vs analyst estimates of $50.75 million (25% margin, 3.1% beat)
- Management’s revenue guidance for the upcoming financial year 2025 is $970.5 million at the midpoint, beating analyst estimates by 0.7% and implying 29.7% growth (vs 41% in FY2024)
- EBITDA guidance for the upcoming financial year 2025 is $267 million at the midpoint, below analyst estimates of $272.3 million
- Operating Margin: 6.6%, up from 3.2% in the same quarter last year
- Free Cash Flow Margin: 41.9%, up from 26.6% in the previous quarter
- Monthly Active Users: 116.7 million, up 28.3 million year on year
- Market Capitalization: $17 billion
Company Overview
Founded by a Carnegie Mellon computer science professor and his Ph.D. student, Duolingo (NASDAQ:DUOL) is a mobile app helping people learn new languages.
Consumer Subscription
Consumers today expect goods and services to be hyper-personalized and on demand. Whether it be what music they listen to, what movie they watch, or even finding a date, online consumer businesses are expected to delight their customers with simple user interfaces that magically fulfill demand. Subscription models have further increased usage and stickiness of many online consumer services.
Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last three years, Duolingo grew its sales at an incredible 44% compounded annual growth rate. Its growth surpassed the average consumer internet company and shows its offerings resonate with customers, a great starting point for our analysis.
This quarter, Duolingo reported wonderful year-on-year revenue growth of 38.8%, and its $209.6 million of revenue exceeded Wall Street’s estimates by 2.1%. Company management is currently guiding for a 32.5% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 28.5% over the next 12 months, a deceleration versus the last three years. Still, this projection is commendable and implies the market sees success for its products and services.
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Monthly Active Users
User Growth
As a subscription-based app, Duolingo generates revenue growth by expanding both its subscriber base and the amount each subscriber spends over time.
Over the last two years, Duolingo’s monthly active users, a key performance metric for the company, increased by 41.5% annually to 116.7 million in the latest quarter. This growth rate is among the fastest of any consumer internet business and indicates its offerings have significant traction. 
In Q4, Duolingo added 28.3 million monthly active users, leading to 32% year-on-year growth. The quarterly print was lower than its two-year result, suggesting its new initiatives aren’t accelerating user growth just yet.
Revenue Per User
Average revenue per user (ARPU) is a critical metric to track for consumer subscription businesses like Duolingo because it measures how much the average user spends. ARPU is also a key indicator of how valuable its users are (and can be over time).
Duolingo’s ARPU has been roughly flat over the last two years. This isn’t great, but the increase in monthly active users is more relevant for assessing long-term business potential. We’ll monitor the situation closely; if Duolingo tries boosting ARPU by taking a more aggressive approach to monetization, it’s unclear whether users can continue growing at the current pace. 
This quarter, Duolingo’s ARPU clocked in at $1.80. It grew by 5.1% year on year, slower than its user growth.
Key Takeaways from Duolingo’s Q4 Results
We were very impressed by Duolingo’s user growth this quarter, which enabled it to beat on revenue and EBITDA. We were also happy its full-year revenue guidance topped Wall Street’s estimates. On the other hand, its full-year EBITDA forecast fell short. Overall, this was decent. The stock traded up 1.5% to $380 immediately following the results.
Is Duolingo an attractive investment opportunity right now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.