Duolingo, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Comparisons are with Q1 2023 unless otherwise noted. Duolingo operates a freemium learning platform, subscription services, and the Duolingo English Test.
Financial and operating performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $167.6 million | $115.7 million | +45% |
| Gross profit / margin | $122.4 million / 73.0% | $84.2 million / 72.8% | Margin +0.2 percentage points |
| Operating income (loss) | $16.4 million | $(8.5) million | Turned profitable |
| Net income (loss) | $27.0 million | $(2.6) million | Turned profitable |
| Diluted EPS | $0.57 | $(0.06) | Turned positive |
| Operating cash flow | $83.5 million | $29.6 million | +182% |
| Free cash flow (non-GAAP) | $79.6 million | $28.8 million | +177% |
| Adjusted EBITDA (non-GAAP) | $44.0 million | $15.1 million | +191% |
Subscription revenue was $131.7 million, up 53%; advertising revenue was $13.0 million, up 11%; Duolingo English Test revenue was $12.8 million, up 28%; and in-app purchases were $9.9 million, up 26%. Subscription bookings were $161.5 million (+47%) and total bookings were $197.5 million (+41%); bookings are operating metrics, not GAAP revenue.
Average monthly active users were 97.6 million (+35%) and daily active users were 31.4 million (+54%). Period-end paid subscribers were 7.4 million (+54%). The DAU/MAU ratio rose to 32.1% from 28.0%.
Financial position and liquidity
- Cash and cash equivalents were $829.7 million at March 31, 2024, versus $747.6 million at year-end 2023; cash, cash equivalents and restricted cash totaled $832.4 million.
- Current assets were $977.3 million and current liabilities were $303.7 million. Deferred revenue, primarily advance subscription payments, was $279.3 million.
- Total liabilities were $357.6 million, including $56.6 million of operating lease liabilities. The filing reports no borrowings or other financial debt on the balance sheet.
- Operating activities provided $83.5 million; investing activities used $5.0 million, primarily for software development and equipment; financing activities provided $3.6 million, mainly from option exercises.
- Stock-based compensation expense was $25.0 million, compared with $21.1 million. It is a material noncash expense and is excluded from Adjusted EBITDA.
Material changes and management commentary
- Revenue growth was driven mainly by a higher average number of paid subscribers. Management attributed user growth to product initiatives, marketing, course improvements, and reengagement of former users.
- Operating expenses rose 14% to $105.9 million, slower than revenue growth. Research and development remained the largest operating expense. Operating expenses declined to 63% of revenue from 80%.
- Management expects research and development to decline as a percentage of revenue over the long term, sales and marketing to decline as a percentage over the near term, and general and administrative expense to decline as a percentage over the long term. These are directional statements, not numerical guidance.
- Management believes cash and operating cash flows will be sufficient for working capital and capital expenditure needs for at least the next 12 months. Cash generation can vary with payment-provider settlement timing.
- Interest income increased 78% to $10.0 million, reflecting higher rates and average cash balances. A discrete stock-compensation tax benefit contributed to the reported $1.1 million income tax benefit; the company continues to maintain a full valuation allowance on U.S. federal and state deferred tax assets.
Risks, contingencies, and unusual items
- Platform and payment-provider dependence is significant: Apple, Google, and Stripe processed 59.3%, 23.7%, and 12.9% of Q1 revenue, respectively. App-store fees, policy changes, or interruptions could affect revenue and cash receipts.
- Duolingo reported no material legal proceedings and no subsequent events. It identifies broad risks involving user retention and monetization, competition, privacy and cybersecurity, AI regulation and performance, international operations, and reliance on third-party platforms and cloud providers.
- New and expanded office leases increased operating lease right-of-use assets and liabilities. The company disclosed total undiscounted future operating lease payments of $83.1 million, with $48.5 million due thereafter; rent commencement for the New York sub-sublease is deferred.
- Management says its operating metrics are based on internal analytics and have not been independently validated; methodologies may change and affect comparability.
- Class B shares carry 20 votes per share. Insiders and certain large holders controlled 79.3% of voting power at March 31, 2024, limiting other shareholders’ influence.
Key facts investors should verify
- Whether paid-subscriber growth, renewals, and subscription bookings continue to translate into recognized revenue and cash generation.
- How much profitability and free cash flow depend on interest income, payment-provider settlement timing, and exclusions from non-GAAP measures.
- The sustainability of user engagement and monetization, including advertising revenue per user and the performance of newer products such as Duolingo Max, Math, and Music.
- The effect of platform concentration, app-store fees, and payment or cloud-provider changes on margins and liquidity.
- The scale and timing of lease commitments and future facility costs, alongside ongoing stock-based compensation and share dilution.
- Any developments in AI accuracy, privacy and cybersecurity, regulatory compliance, or acceptance of the Duolingo English Test that could affect growth or costs.