Duolingo, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. The filing also reports operating metrics for the three months ended December 31; annual financial results below compare FY 2022 with FY 2021. Amounts are in U.S. dollars.
Business context
Duolingo operates a freemium learning platform, with revenue primarily from Super Duolingo subscriptions and additional revenue from advertising, the Duolingo English Test, and in-app purchases. It reported more than 60 million average monthly active users in Q4 and offers learning products including Duolingo ABC and Duolingo Math.
Financial and operating performance
| Metric | FY 2022 | FY 2021 | Change |
|---|---|---|---|
| Revenue | $369.5 million | $250.8 million | +47% |
| Gross profit / gross margin | $270.1 million / 73.1% | $181.6 million / 72.4% | Margin +0.7 percentage points |
| Operating loss | $(65.2) million | $(60.0) million | Loss widened |
| Net loss | $(59.6) million | $(60.1) million | Nearly unchanged |
| Net loss per share, diluted | $(1.51) | $(2.57) | Improved |
| Cash from operations | $53.7 million | $9.2 million | Increased |
| Free cash flow, non-GAAP | $46.2 million | $12.7 million | Increased |
| Adjusted EBITDA, non-GAAP | $15.5 million | $(1.1) million | Improved |
FY 2022 revenue included subscriptions of $273.5 million (+51%), advertising of $44.7 million (+16%), Duolingo English Test of $32.7 million (+33%), and other revenue of $18.5 million (+168%). Subscription revenue was the largest contributor to growth. Reported revenue growth was 47%, or 51% on a constant-currency basis.
Operating expenses rose 39% to $335.3 million, including research and development of $150.4 million (+45%), sales and marketing of $67.0 million (+13%), and general and administrative of $117.8 million (+50%). Stock-based compensation expense increased to $73.8 million from $40.8 million. Interest income was $7.2 million, versus $0.02 million in FY 2021; the company remained GAAP-loss-making.
At year-end, cash and cash equivalents were $608.2 million, compared with $553.9 million a year earlier. Current assets were $697.2 million and current liabilities $181.8 million. Deferred revenue was $157.6 million, expected to be recognized within 12 months. The balance sheet reports operating lease liabilities but no borrowings or other debt. Operating cash flow was $53.7 million; investing cash outflow was $14.2 million, including $4.1 million for the Gunner acquisition; financing cash inflow was $14.8 million, primarily from option exercises. The filing says available cash and operating cash flow should fund working capital and capital expenditures for at least 12 months.
Q4 operating metrics showed average MAUs of 60.7 million (+43% year over year), DAUs of 16.3 million (+62%), and a DAU/MAU ratio of 26.9%, versus 23.8%. Paid subscribers at year-end were 4.2 million (+67%); subscribers represented 7.8% of average MAUs over the preceding 12 months, versus 6.2% in FY 2021. FY 2022 subscription bookings were $331.8 million (+48%) and total bookings $428.6 million (+46%). Bookings are not GAAP revenue.
Changes, outlook, and risks
- Revenue and user metrics grew substantially, and gross margin improved modestly. However, operating loss widened as expenses increased, while net loss was broadly flat. Positive Adjusted EBITDA and free cash flow are non-GAAP measures; the filing cautions they should not replace GAAP results.
- Management expects to continue significant research and development investment, and expects sales and marketing to decline as a percentage of revenue over the long term. These are general expectations, not quantified formal guidance; the filing provides no specific revenue or earnings guidance.
- Cash from operations benefited in part from a $59.3 million increase in deferred revenue. Subscription billings and bookings are recognized as revenue over time, so cash-flow and revenue trends may differ.
- In October 2022, Duolingo acquired Gunner Made assets for $4.0 million cash, with another $0.45 million contingent on employee service. The purchase price was allocated to goodwill. The acquisition added design and animation staff.
- Material risks include retaining and engaging users and converting them to paid subscribers; intense competition; dependence on Apple and Google for distribution, payments, and a substantial share of revenue; reliance on AWS and Google Cloud; privacy, cybersecurity, and evolving regulation; and acceptance of the Duolingo English Test by institutions. Apple processed 54% and Google 20% of FY 2022 revenue. App-store fees were generally 15%–30% of applicable transactions.
- The company reports no material legal proceedings. It also reports $52.7 million of contractual obligations, including $40.2 million of operating lease commitments and $12.5 million of remaining hosting commitments. No off-balance-sheet financing arrangements were reported.
- The dual-class structure gives Class B shares 20 votes per share; directors, executive officers, 5% stockholders, and affiliates held 85.2% of voting power at year-end. Management and the auditor concluded internal control over financial reporting was effective as of December 31, 2022.
Important facts for investors to verify
- Whether continued subscriber conversion and retention can sustain subscription growth, and how bookings translate into recognized revenue and cash flow.
- How much of reported profitability and cash generation depends on adjustments that exclude stock-based compensation and other costs; compare non-GAAP measures with GAAP results.
- Whether operating expense growth, particularly stock-based compensation and general and administrative costs, moderates as revenue scales.
- Exposure to Apple and Google distribution, payment terms, fees, and policy changes, as well as cloud-provider concentration and service continuity.
- Progress on institutional acceptance and test volume for the Duolingo English Test, and the costs and returns of newer products and the Gunner acquisition.
- Potential effects of privacy, data-transfer, children’s privacy, and AI regulation, alongside the company’s ability to protect user data and maintain reliable operating metrics.