Duolingo Inc
For the period ended Dec 31, 2024. Filed Feb 28, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Feb 28, 2025
DUOL$160.42+2.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-02-29.
0001562088-24-000050
Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-02-28.
0001562088-25-000042
Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 186 previous paragraphs and 152 current paragraphs.
74 unchanged; 65 reworded; 12 added; 44 removed; 3 previous and 1 current paragraphs rearranged.
Tables are not compared: 13 previous and 13 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (12)
Current report
(6)Represents impairment of capitalized software, which is included within Research and development expense within our Consolidated Statements of Operations and Comprehensive Income (Loss).
Current report
(1)Represents costs incurred related to acquisitions, including integration costs.
Current report
Total bookings were $870.6 million for the year ended December 31, 2024, which represents an increase of 40% on a reported basis and 42% on a constant currency basis, over the year ended December 31, 2023. Subscription bookings totaled $730.7 million for the year ended December 31, 2024, which represents an increase of 47% on a reported basis and 49% on a constant currency basis, over the year ended December 31, 2023.
Current report
(1) Other revenue is comprised mainly of Advertising, Duolingo English Test, and In-App Purchases.
Current report
Cost of Revenues and Gross Margin. Total gross margin decreased slightly to 72.8% from 73.2% during the years ended December 31, 2024 and 2023. This was due to lower advertising gross margin, partially offset by an increase in subscription revenue as a percentage of total revenue.
Current report
•Increased net personnel costs of $39.5 million, driven primarily by the growth in headcount. Total gross personnel costs increased by $37.9 million, of which $15.6 million of the increase was related to stock-based compensation expense. Additionally, there was an increase of $1.6 million due to a reduction in wages recorded as capitalized software as compared to the prior year;
Current report
•Increased net personnel costs of $11.6 million, including an increase of $4.4 million in stock-based compensation related expense;
Current report
•Increased facility-related costs of $2.8 million;
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•Increased other expenses of $2.4 million.
Current report
Interest income increased by $11.6 million, or 37%, to $42.7 million during the year ended December 31, 2024, from $31.1 million during the year ended December 31, 2023. The increase was due to higher average interest-bearing balances and higher average yields.
Current report
Cash used for investing activities increased by $203.7 million to $217.3 million for the year ended December 31, 2024, from $13.6 million for the year ended December 31, 2023. The increase was primarily driven by purchases of investments of $193.3 million, followed by additions of property and equipment, as well as acquisitions in the current period. These increases were partially offset by decreased capitalized software and maturities of investments during the period.
Current report
Given the Company’s recent history of earnings, management believes that there is a reasonable possibility that, within the next twelve months, sufficient positive evidence may become available to allow management to reach a conclusion that a significant portion of the valuation allowance recorded against the deferred tax assets held will be reversed. The reversal would result in an income tax benefit for the quarterly and annual fiscal period in which the Company releases the valuation allowance. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that the Company actually achieves.
Removed paragraphs (44)
Previous report
Initial Public Offering
Previous report
On July 30, 2021, Duolingo completed its Initial Public Offering (“IPO”) of 5.9 million shares of its Class A common stock at a price to the public of $102.00 per share, 4.5 million of which were sold by the Company and 1.4 million of which were sold by certain selling stockholders, which includes the exercise in full by the underwriters of their option to purchase from the Company an additional 0.8 million shares of the Company’s Class A common stock. The gross proceeds to the Company from the IPO were $455.5 million, before deducting underwriting discounts and commissions and offering expenses payable by the Company. The Company did not receive any proceeds from the sale of shares of Class A common stock in the offering by the selling stockholders. Immediately prior to the completion of the IPO, all convertible preferred stock outstanding, totaling approximately 19.1 million shares, was automatically converted into an equivalent number of shares of Class B common stock on a one-to-one basis and their carrying value of $182.6 million was reclassified to additional paid-in capital within stockholders’ equity. Additionally, on July 15, 2021, 6.9 million shares held by our founders were exchanged from Class A common stock into Class B common stock.
Previous report
(2)Public company costs include costs associated with the establishment of our public company structure and processes, including consultant costs, a one-time fee associated with the set-up of our initial proxy statement, and fees paid to consultants and Deloitte for work in connection with remediation of the material weakness disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. These costs are included in General and administration expense within our Consolidated Statements of Operations and Comprehensive Income (Loss).
Previous report
(1)Public company costs include costs associated with the establishment of our public company structure and processes, including consultant costs, a one-time fee associated with the set-up of our initial proxy statement, and fees paid to consultants and Deloitte for work in connection with remediation of the material weakness disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Previous report
(2)Represents costs incurred related to an acquisition, including integration costs.
Previous report
Results of Operations
Previous report
•Advertising revenue increased by $5.1 million during the year ended December 31, 2023. This increase was driven by the increase in DAUs, which resulted in increased advertisements served, partially offset by the decline in advertising pricing;
Previous report
•In-App Purchases revenue increased by $16.8 million during the year ended December 31, 2023. This increase was driven primarily due to the increase in DAUs and average in-app purchase revenue per user, and
Previous report
•Other revenue increased by $0.1 million during the year ended December 31, 2023, primarily due to increases in revenue from Duo’s Taquería.
Previous report
Cost of Revenues and Gross Margin. Total gross margin increased slightly to 73.2% from 73.1% during the year ended December 31, 2023 and 2022. This was primarily due to higher subscription margins as a result of a reduction in third-party payment processing fees per subscriber in addition to higher margins on the Duolingo English Test as a result of an increase in the average test price. This increase in gross margin was partially offset by a decline in Advertising margins, which was due to decreases in average revenue per DAU.
Previous report
•Increased net personnel costs of $40.0 million. Total gross personnel costs, including capitalized wages and $19.7 million of increased stock-based compensation expense, increased by $46.7 million, which was partially offset by a $6.7 million increase in wages capitalized into capitalized software compared to the prior year;
Previous report
•Increased travel and meal costs of $1.5 million;
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Direct marketing spend and other marketing expenses as a percentage of revenue decreased as a result of applying learnings from past years, which enabled us to spend marketing expenses more efficiently.
Previous report
•Increased personnel costs of $3.9 million, including increased stock-based compensation expense of $2.2 million;
Previous report
•Net increases in other costs of $3.5 million were due to increases in facility-related costs, sales and VAT taxes and charitable contributions.
Previous report
Interest income increased by $23.9 million during the year ended December 31, 2023, due to an increase in interest rates earned on our money market funds and higher average balances.
Previous report
In 2021, as part of the Organization for Economic Co-operation and Development's ("OECD") Inclusive Framework, 140 member countries agreed to the implementation of the Pillar Two Global Minimum Tax ("Pillar Two") of 15%. The OECD continues to release additional guidance, including administrative guidance on how Pillar Two rules should be interpreted and applied by jurisdictions as they adopt Pillar
Previous report
Two. A number of countries have utilized the administrative guidance as a starting point for legislation that is effective January 1, 2024. We are continuing to evaluate the potential impact on future periods of Pillar Two, pending legislative adoption by individual countries.
Previous report
Cash used for investing activities decreased by $0.6 million, or 4%, to $13.6 million for the year ended December 31, 2023, from $14.2 million for the year ended December 31, 2022. The decrease was due to the absence of any acquisitions during the current period in addition to decreased capital expenditures of purchase property and equipment as compared to the prior period. These decreases were partially offset by increased costs from capitalization of software development.
Previous report
Revenue Recognition
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Nature of Revenue
Previous report
We account for revenue contracts with customers by applying the five step model in Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. Our predominant sources of revenue are time-based subscriptions, in-app advertising placement by third parties, the Duolingo English Test, and In-App purchases. Revenue is recognized upon transfer of control of promised goods or services to customers in an amount that reflects the consideration expected to be received in exchange for those goods or services. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.
Previous report
Revenue from time-based subscriptions includes a stand-ready obligation to provide hosting services that are consumed by the customer over the subscription period. Users can purchase our premium subscriptions monthly or a year-long subscription and pay for the subscription at the time of purchase. Under the year-long subscription, users can purchase a single plan or a family plan. The family plan includes up to six users on one subscription. Such payments are initially recorded to deferred revenue. The user has the ability to download limited content offline. However, as there is a significant level of integration and interdependency with the online functionality, we consider the service to be a single performance obligation for the online and offline content.
Previous report
We enter into arrangements with advertising networks to monetize the in-app advertising inventory. Revenue from in-app advertising placement is recognized at a point in time when the advertisement is placed and is based upon the amount received.
Previous report
Duolingo English Test revenue is generally recognized once the tests have gone through the proctoring process and a certification decision has been made. This process usually takes less than 48 hours after the test has been completed and uploaded. Customers have 21 days from the date of purchase to take the exam or their purchase will expire and revenue will be recognized. The vast majority of customers complete their exams prior to expiration. Sometimes organizations may purchase tests in bulk via coupons with a one year expiration date. We defer revenue from all tests that have neither been proctored nor expired.
Previous report
Our users have the option to purchase consumable in-app virtual goods. We recognize revenue over the period in which the user consumes the virtual good, which is generally within a month.
Previous report
Principal Agent Considerations—We make our application available to be downloaded through third-party digital distribution service providers. Users who purchase subscriptions also pay through the respective app stores. We evaluate the purchases via third-party payment processors to determine whether its revenues should be reported gross or net of fees retained by the payment processor. We are the principal in the transaction with the end user as a result of controlling, hosting, and integrating the delivery of the virtual items to the end user. We record revenue gross as a principal and record fees paid to third-party payment processors as Cost of revenues.
Previous report
Significant Judgment Around Revenue Arrangements with Multiple Deliverables
Previous report
Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Our time-based subscriptions allow users the ability to download limited content offline. Significant judgment is required to determine whether this offline content should be considered distinct and accounted for separately, or not distinct and accounted for together with the online functionality provided and recognized over time. As there is a significant level of integration and interdependency with the online functionality, which is not the case with the offline functionality, we believe we have a single performance obligation for the online functionality and offline content.
Previous report
Common Stock Valuations
Previous report
Subsequent to our IPO in July 2021, the fair value of common stock is determined based upon the closing price of our Class A common stock immediately prior to the grant date.
Previous report
Prior to our IPO, determining the fair value of our common stock requires complex and subjective judgment and estimates. There is inherent uncertainty in making these judgments and estimates. The absence of an active market for our common stock required our board of directors to estimate the fair value of the common stock for purpose of setting the exercise price of the options and estimating the fair value of the common stock at the time options were granted based on factors such as valuations of comparable companies, the status of our development and sales efforts, revenue growth, and additional objective and subjective factors relating to our business. We performed its analysis in accordance with applicable elements of the practice aid issued by the American Institute of Certified Public Accountants’ (“AICPA”) Practice Guide, Valuation of Privately Held Company Equity Securities Issued as Compensation; with this guidance, our board of directors exercised reasonable judgment and considered numerous and subjective factors to determine the best estimate of fair value of our common stock, including the following:
Previous report
Company Specific Factors
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•Actual and forecasted operating and financial performance based on management’s estimate;
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•The development and maintenance of client relationships;
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•Client and industry recognition;
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•The hiring and retention of key personnel;
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•The historical lack of a public market for our common stock;
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General Economic Factors
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•Industry trends and competitive environment;
Showing the first 40 of 44 passages. Open the source sections for the rest.
Reworded paragraphs (65)
Previous wording
Our flagship app has organically become the world’s most popular way to learn languages and the top-grossing Education app in the App Stores, offering courses in over 40 languages to over 85 million monthly active users for the three months ended December 31, 2023. We believe that we have become the preeminent online destination for language learning due to our beautifully designed products, exceptional user engagement, and demonstrated learning efficacy.
Current wording
Our flagship app has organically become the world’s most popular way to learn languages and the top-grossing Education app in the App Stores, offering courses in over 40 languages to over 100 million monthly active users for the three months ended December 31, 2024. We believe that we have become the preeminent online destination for language learning due to our beautifully designed products, exceptional user engagement, and demonstrated learning efficacy.
Previous wording
•Free Users: Since none of our learning content is behind a paywall, anyone can download the Duolingo App, use it for as long as they like, and complete any of our courses free of charge. This has allowed us to scale to more than 85 million MAUs for the three months ended December 31, 2023. These millions of learners provide two benefits to our business model:
Current wording
•Free Users: Since none of our learning content is behind a paywall, anyone can download the Duolingo App, use it for as long as they like, and complete any of our courses free of charge. This has allowed us to scale to more than 100 million MAUs for the three months ended December 31, 2024. These millions of learners provide two benefits to our business model:
Previous wording
•Paid Subscriber Conversion: As learners tend to use our product for months or even years before they decide to subscribe, we enjoy economic benefits from users well into their tenure on the platform. As of December 31, 2023, subscribers made up 8.3% of our average MAUs over the last twelve months as compared to 7.8% of our average MAUs during the year ended December 31, 2022.
Current wording
•Paid Subscriber Conversion: As learners tend to use our product for months or even years before they decide to subscribe, we enjoy economic benefits from users well into their tenure on the platform. As of December 31, 2024, subscribers made up 8.8% of our average MAUs over the last twelve months as compared to 8.3% of our average MAUs during the year ended December 31, 2023.
Previous wording
Our subscription offerings as of the date of this filing are called Super Duolingo and Duolingo Max. Super Duolingo offers learners additional features to enhance their learning experience. Duolingo Max, which is available to a portion of our user base, gives learners access to the existing features of Super Duolingo in addition to incremental features and exercises powered by generative AI technology.
Current wording
Our subscription offerings as of the date of this filing are called Super Duolingo and Duolingo Max. Super Duolingo offers learners additional features to enhance their learning experience. Duolingo Max gives learners access to the existing features of Super Duolingo in addition to incremental features and exercises powered by generative AI technology.
Previous wording
In-app purchases consist of learners purchasing one-time benefits within the app, such as “Streak Freezes” and “Timer Boosts.”
Current wording
We also offer in-app purchases, which consist of learners purchasing one-time benefits within the app, such as “Streak Freezes” and “Timer Boosts.”
Previous wording
In addition to monetizing the Duolingo App, we generate revenue from the Duolingo English Test by charging test takers a one-time fee that generally costs $59. University program acceptance is a driver of Duolingo English Test revenue. As of December 31, 2023, over 4,000 higher education programs around the world accept the Duolingo English Test results as proof of English proficiency for international student admissions, including the top 25 undergraduate programs in the U.S. ranked by international enrollment, as well as top schools such as Yale, Stanford, MIT, Duke and Columbia.
Current wording
In addition to monetizing the Duolingo App, we generate revenue from the Duolingo English Test by charging test takers a one-time fee. University program acceptance is a driver of Duolingo English Test revenue. As of December 31, 2024, over 5,600 education programs around the world accept the Duolingo English Test results as proof of English proficiency for international student admissions, with over 4,700 of those being higher education programs. These include 24 of the top 25 undergraduate programs in the U.S. ranked by international enrollment, as well as top schools such as Yale, Stanford, MIT, Duke and Columbia.
Previous wording
We regularly review a number of key operating metrics and non-GAAP financial measures to evaluate our business, measure our performance, identify trends, prepare financial projections and make business decisions. The measures set forth below should be considered in addition to, not as a substitute for or in isolation from, our financial results prepared in accordance with GAAP. Monthly active users (MAUs) and daily active users (DAUs), along with paid subscribers, subscription bookings and total bookings, are operating metrics that help inform management about the underlying growth in users of our platform, and are a measure of our monetization efforts. To calculate the year-over-year change in MAUs and DAUs for a given period, we subtract the average for the same period in the previous year from the average for the same period in the current year and divide the result by the average for the same period in the previous year. Other companies, including companies in our industry, may calculate these measures differently or not at all, which reduces their usefulness as comparative measures.
Current wording
We regularly review a number of key operating metrics and non-GAAP financial measures to evaluate our business, measure our performance, identify trends, prepare financial projections and make business decisions. The measures set forth below should be considered in addition to, not as a substitute for or in isolation from, our financial results prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”). Monthly active users (MAUs) and daily active users (DAUs), along with paid subscribers, subscription bookings and total bookings, are operating metrics that help inform management about the underlying growth in users of our platform, and are a measure of our monetization efforts. To calculate the year-over-year change in MAUs and DAUs for a given period, we subtract the average for the same period in the previous year from the average for the same period in the current year and divide the result by the average for the same period in the previous year. Other companies, including companies in our industry, may calculate these measures differently or not at all, which reduces their usefulness as comparative measures.
Previous wording
We had approximately 88.4 million and 60.7 million MAUs for the three months ended December 31, 2023 and 2022, respectively, representing an increase of 46% from the prior year period. We grew MAUs through product initiatives designed to make the app more social and engaging, through marketing, and through improving our courses, all of which we believe helped us attract new users, retain existing users, and reengage the millions of former users who return to our Duolingo App.
Current wording
We had approximately 116.7 million and 88.4 million MAUs for the three months ended December 31, 2024 and 2023, respectively, representing an increase of 32% from the prior year period. We grew MAUs through product initiatives designed to make the app more social and engaging, through marketing, and through improving our courses, all of which we believe helped us attract new users, retain existing users, and reengage the millions of former users who return to our Duolingo App.
Previous wording
We had approximately 26.9 million and 16.3 million DAUs for the three months ended December 31, 2023 and 2022, respectively, representing an increase of 65% from the prior year period. The DAU / MAU ratio, which we believe is an indicator of user engagement, increased to 30.4% from 26.9% a year ago. We grew DAUs through many of the same product initiatives as we grew MAUs, such as making the product more fun and engaging.
Current wording
We had approximately 40.5 million and 26.9 million DAUs for the three months ended December 31, 2024 and 2023, respectively, representing an increase of 51% from the prior year period. The DAU / MAU ratio, which we believe is an indicator of user engagement, increased to 34.7% from 30.4% a year ago. We grew DAUs through many of the same marketing and product initiatives as we grew MAUs, such as making the product more fun and engaging.
Previous wording
As of December 31, 2023 and 2022, we had approximately 6.6 million and 4.2 million paid subscribers, respectively, representing an increase of 57% from the prior year period. We grew paid subscribers through product initiatives designed to make Duolingo subscription offerings more appealing including by improving our subscription pricing, packaging, and features, all of which we believe helped us attract new subscribers and retain existing subscribers.
Current wording
As of December 31, 2024 and 2023, we had approximately 9.5 million and 6.6 million paid subscribers, respectively, representing an increase of 43% from the prior year period. We grew paid subscribers through product initiatives designed to make Duolingo subscription offerings more appealing, which we believe helped us attract new subscribers and retain existing subscribers.
Previous wording
For the years ended December 31, 2023 and 2022, we generated $495.5 million and $331.8 million of subscription bookings, respectively, representing an increase of 49% from the prior year period. We grew subscription bookings by selling more first-time and renewal subscriptions.
Current wording
For the years ended December 31, 2024 and 2023, we generated $730.7 million and $495.5 million of subscription bookings, respectively, representing an increase of $235.2 million, or 47% from the prior year period. We grew subscription bookings by selling more first-time and renewal subscriptions.
Previous wording
For the years ended December 31, 2023 and 2022, we generated $622.2 million and $428.6 million total bookings, respectively, representing an increase of 45% from the prior year period. We grew total bookings through growth in subscription bookings noted above, in addition to growth in the Duolingo English Test and other bookings, primarily related to in-app purchases.
Current wording
For the years ended December 31, 2024 and 2023, we generated $870.6 million and $622.2 million total bookings, respectively, representing an increase of $248.4 million, or 40% from the prior year period. We grew total bookings primarily through growth in subscription bookings as noted above.
Previous wording
We use certain non-GAAP financial measures to supplement our Consolidated Financial Statements, which are presented in accordance with GAAP. These non-GAAP financial measures include Adjusted EBITDA and free cash flow. We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. By excluding certain items that may not be indicative of our recurring core operating results, we believe that Adjusted EBITDA and free cash flow provide meaningful supplemental information regarding our performance. Accordingly, we believe these non-GAAP financial measures are useful to investors and others because they allow for additional information with respect to financial measures used by management in its financial and operational decision-making and they may be used by our institutional investors and the analyst community to help them analyze the health of our business. However, there are a number of limitations related to the use of non-GAAP financial measures, and these non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, our financial results prepared in accordance with GAAP. Other companies, including companies in our industry, may calculate these non-GAAP financial measures differently or not at all, which reduces their usefulness as comparative measures.
Current wording
We use certain non-GAAP financial measures to supplement our Consolidated Financial Statements, which are presented in accordance with GAAP. These non-GAAP financial measures include Adjusted EBITDA, free cash flow and constant currency. We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. By excluding certain items that may not be indicative of our recurring core operating results, we believe that Adjusted EBITDA, free cash flow and constant currency provide meaningful supplemental information regarding our performance. The effect of currency exchange rates on our business is an important factor in understanding period to period comparisons. We use non-GAAP constant currency measures and non-GAAP percentage change in constant currency measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Accordingly, we believe these non-GAAP financial measures are useful to investors and others because they allow for additional information with respect to financial measures used by management in its financial and operational decision-making and they may be used by our institutional investors and the analyst community to help them analyze the health of our business. However, there are a number of limitations related to the use of non-GAAP financial measures, and these non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, our financial results prepared in accordance with GAAP. Other companies, including companies in our industry, may calculate these non-GAAP financial measures differently or not at all, which reduces their usefulness as comparative measures.
Previous wording
Adjusted EBITDA. Adjusted EBITDA is defined as net income (loss) excluding interest income, income taxes, depreciation and amortization, stock-based compensation expenses related to equity awards, IPO and public company costs, transaction costs related to an acquisition, acquisition earn-out costs, gain on sale of capitalized software and loss on disposal of leasehold improvements. Adjusted EBITDA is used by management to evaluate the financial performance of our business and we present Adjusted EBITDA because we believe it is helpful in highlighting trends in our operating results and that it is frequently used by analysts, investors and other interested parties to evaluate companies in our industry. The following table presents a reconciliation of our net income (loss), the most directly comparable financial measure presented in accordance with GAAP, to Adjusted EBITDA.
Current wording
Adjusted EBITDA. Adjusted EBITDA is defined as net income excluding interest income, income taxes, depreciation and amortization, stock-based compensation expenses related to equity awards, transaction costs related to acquisitions, acquisition earn-out costs, gain on sale of capitalized software, loss on disposal of leasehold improvements and impairment of capitalized software. Adjusted EBITDA is used by management to evaluate the financial performance of our business and we present Adjusted EBITDA because we believe it is helpful in highlighting trends in our operating results and that it is frequently used by analysts, investors and other interested parties to evaluate companies in our industry. The following table presents a reconciliation of our net income, the most directly comparable financial measure presented in accordance with GAAP, to Adjusted EBITDA.
Previous wording
(1)In addition to stock-based compensation expense of $95.2 million and $73.8 million for the years ended December 31, 2023 and 2022, this includes costs incurred related to taxes paid on equity transactions as follows:
Current wording
(1)In addition to stock-based compensation expense of $110.5 million and $95.2 million for the years ended December 31, 2024 and 2023, respectively, this includes costs incurred related to taxes paid on equity transactions as follows:
Previous wording
(3)Represents costs incurred related to an acquisition, including integration costs. These costs are included in General and administration expense within our Consolidated Statements of Operations and Comprehensive Income (Loss).
Current wording
(2)Represents costs incurred related to acquisitions, including integration costs, which are included in General and administration expense within our Consolidated Statements of Operations and Comprehensive Income (Loss).
Previous wording
(4)Represents costs incurred related to the earn-out payment on an acquisition, which is included within General and administrative within our Consolidated Statements of Operations and Comprehensive Income (Loss).
Current wording
(3)Represents costs incurred related to the earn-out payments on acquisitions, which is included within General and administrative expense within our Consolidated Statements of Operations and Comprehensive Income (Loss).
Previous wording
(5)Represents proceeds from a sale of capitalized software, which is included within Other (expense) income, net within our Consolidated Statements of Operations and Comprehensive Income (Loss).
Current wording
(4)Represents proceeds from a sale of capitalized software, which is included within Other (expense) income, net within our Consolidated Statements of Operations and Comprehensive Income (Loss).
Previous wording
(6)Represents a loss on disposal of leasehold improvements, which is included within Other (expense) income, net within our Consolidated Statements of Operations and Comprehensive Income (Loss).
Current wording
(5)Represents a loss on disposal of leasehold improvements, which is included within Other (expense) income, net within our Consolidated Statements of Operations and Comprehensive Income (Loss).
Previous wording
For the years ended December 31, 2023 and 2022, we generated net income of $16.1 million and net loss of $59.6 million, respectively. Our generation of net income as compared to a net loss in the comparative period was due to a combination of our growth in revenue, a reduction in operating expenses as a percentage of revenue as compared to the prior year period, and an increase in interest income of $23.9 million during the year ended December 31, 2023.
Current wording
For the years ended December 31, 2024 and 2023, we generated net income of $88.6 million and $16.1 million, respectively, representing an increase of $72.5 million. The increase in net income as compared to the comparative period was due to a combination of our growth in revenue and interest income in addition to a reduction in operating expenses as a percentage of revenue as compared to the prior year period.
Previous wording
For the years ended December 31, 2023 and 2022, we generated Adjusted EBITDA of $93.7 million and $15.5 million, respectively. Adjusted EBITDA increased due to a combination of our growth in revenue and a reduction in operating expenses as a percentage of revenue as compared to the prior year periods.
Current wording
For the years ended December 31, 2024 and 2023, we generated Adjusted EBITDA of $191.9 million and $93.7 million, respectively, representing an increase of $98.3 million. Adjusted EBITDA increased due to a combination of our growth in revenue and a reduction in operating expenses as a percentage of revenue as compared to the prior year periods.
Previous wording
Free Cash Flow. Free cash flow represents net cash provided by operating activities, reduced by capitalized software development costs and purchases of property and equipment and increased by taxes paid related to stock-based compensation equity awards, IPO and public company costs, transaction costs related to an acquisition and an acquisition earn-out payment as we believe they are not indicative of future liquidity. We believe that free cash flow is a measure of liquidity that provides useful information to our management, investors and others in understanding and evaluating the strength of our liquidity and future ability to generate cash that can be used for strategic opportunities or investing in our business. Free cash flow has certain limitations in that it does not represent our residual cash flow for discretionary expenditures and our non-discretionary commitments. The following table presents a reconciliation of net cash provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP, to free cash flow:
Current wording
Free Cash Flow. Free cash flow is defined as net cash provided by operating activities, reduced by capitalized software development costs and purchases of property and equipment and increased by taxes paid related to stock-based compensation equity awards, transaction costs related to acquisitions and acquisition earn-out payments as we believe such items are not indicative of future liquidity. We believe that free cash flow is a measure of liquidity that provides useful information to our management, investors and others in understanding and evaluating the strength of our liquidity and future ability to generate cash that can be used for strategic opportunities or investing in our business. Free cash flow has certain limitations in that it does not represent our residual cash flow for discretionary expenditures and our non-discretionary commitments. The following table presents a reconciliation of net cash provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP, to free cash flow:
Previous wording
(3)Represent payments related to the earn-out on the acquisition.
Current wording
(2)Represent payments related to the earn-out on acquisitions.
Previous wording
For the years ended December 31, 2023 and 2022, we generated $153.6 million and $53.7 million of net cash provided by operating activities, respectively. The increase in net cash provided by operating activities was mainly due to our generation of positive net income as discussed under the heading Adjusted EBITDA above.
Current wording
For the years ended December 31, 2024 and 2023, we generated $285.5 million and $153.6 million of net cash provided by operating activities, respectively, representing an increase of $131.9 million. The increases in both periods were mainly due to our increase in net income as discussed under the heading Adjusted EBITDA.
Previous wording
For the years ended December 31, 2023 and 2022, we generated $144.3 million and $46.2 million of free cash flow, respectively. The increase in free cash flow was mainly attributable to the increase in net cash provided by operating activities.
Current wording
For the years ended December 31, 2024 and 2023, we generated $274.9 million and $144.3 million of free cash flow, respectively, representing an increase of $130.7 million. The increase in free cash flow was mainly attributable to the increase in net cash provided by operating activities.
Previous wording
The effect of currency exchange rates on our business is an important factor in understanding period to period comparisons. We use non-GAAP percentage change in constant currency revenues, which exclude the impact of fluctuations in foreign currency exchange rates, for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe this information is useful to investors to facilitate comparisons and better identify trends in our business. The impact of changes in foreign currency may vary significantly from period to period, and such changes generally are outside of the control of our management. We calculate constant currency revenues by using current period foreign currency revenues and translating them to constant currency using prior year comparable period exchange rates for the entire period of related bookings. Constant currency revenue percentage change is calculated by determining the change in current period revenues over prior year comparable period revenues where current period foreign currency revenues are translated using prior year comparable period exchange rates.
Current wording
Constant Currency. The effect of currency exchange rates on our business is an important factor in understanding period to period comparisons. We use non-GAAP percentage change in constant currency revenues and bookings, which exclude the impact of fluctuations in foreign currency exchange rates, for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe this information is useful to investors to facilitate comparisons and better identify trends in our business. The impact of changes in foreign currency may vary significantly from period to period, and such changes generally are outside of the control of our management. We calculate constant currency revenues by using current period foreign currency revenues and translating them to constant currency using prior year comparable period exchange rates for the entire period of related bookings. We calculate constant currency bookings by using current period foreign currency bookings and translating them to constant currency using prior year comparable period exchange rates. The constant currency percentage change for revenues and bookings is calculated by dividing the difference between the constant currency amount and the prior year comparable period amount by the prior year comparable period amount.
Previous wording
Total revenues were $531.1 million for the year ended December 31, 2023, which represents an increase of 44% (on both a reported and constant currency basis) over the year ended December 31, 2022. Subscription revenues totaled $404.7 million for the year ended December 31, 2023, which represented an increase of 48% (on both a reported and constant currency basis) over the year ended December 31, 2022.
Current wording
Total revenues were $748.0 million for the year ended December 31, 2024, which represents an increase of 41%, on both a reported and constant currency basis, over the year ended December 31, 2023. Subscription revenues totaled $607.5 million for the year ended December 31, 2024, which represents an increase of 50% on a reported basis and 51% on a constant currency basis over the year ended December 31, 2023.
Previous wording
We experience some seasonality in both user growth and monetization on our platform. Historically, the number of users on our platform and the number of subscribers we have increase in the beginning of the year and then moderate throughout the first quarter and second quarter back to our secular growth trend. In the third quarter, historically, we’ve seen the number of users on our platform increase in part because our product is used by students that return to school in certain geographies. Finally, in the latter part of December, as the new year approaches, we see an increase in usage as people make New Years resolutions, including resolutions to learn new things like languages. Monetization, through an increase in subscribers, also increases at the end of December and into January when we run a promotion tied to the New Year holiday.
Current wording
We experience some seasonality in both user growth and monetization on our platform. Historically, the number of users on our platform and the number of subscribers we have increase in the beginning of the year and then moderate throughout the first quarter and second quarter. In the third quarter, historically, we’ve seen the number of users on our platform increase in part because our product is used by students that return to school in certain geographies. Finally, in the latter part of December, as the new year approaches, we see an increase in usage as people make New Years resolutions, including resolutions to learn new things like languages. Monetization, through an increase in subscribers, also increases at the end of December and into January when we run a promotion tied to the New Year holiday.
Previous wording
We generate revenues primarily from the sale of subscriptions. The term-length of our subscription agreements are primarily monthly or annual, with the family plan offered as an annual subscription. We also generate revenue from advertising, the in-app sale of virtual goods, and the Duolingo English Test.
Current wording
We generate revenues primarily from the sale of subscriptions. The term-length of our subscription agreements are primarily monthly or annual, with the family plan offered as an annual subscription. We also generate revenue from advertising, the in-app sale of virtual goods, and the Duolingo English Test, as well as from Duo’s Taquería.
Previous wording
Cost of revenues predominantly consists of third-party payment processing fees charged by various distribution channels, and also includes hosting fees. To a much lesser extent, cost of revenues includes costs for contractors, wages and stock-based compensation for certain employees in the capacity of customer support, amortization of revenue generating capitalized software, and depreciation of certain property and equipment.
Current wording
Cost of revenues predominantly consists of third-party payment processing fees charged by various distribution channels in addition to hosting fees and generative AI costs. To a much lesser extent, cost of revenues includes customer support costs, such as contractor fees, wages and stock-based compensation for certain employees working in customer support. It also includes the amortization of revenue generating capitalized software, and depreciation of certain property and equipment.
Previous wording
We intend to continue to invest additional resources in our infrastructure and our customer support and success organization to expand the capabilities of our platform and ensure that our users are realizing the full benefit of our products. The level, timing, and relative investment in these areas could affect our cost of revenues in the future.
Current wording
We intend to continue to invest additional resources in our infrastructure to expand the capabilities of our platform and ensure that our users are realizing the full benefit of our products. The level, timing, and relative investment in these areas could affect our cost of revenues in the future.
Previous wording
Research and Development. We invest heavily in research and development to create new products and product features that help us grow our base, engage our users, monetize our users, and teach our users. This, in turn, drives additional growth in, and better lifetime value of, our paid subscribers, as well as increased advertising revenue from impressions from our free users. Expenses are primarily made up of costs incurred for the development of new and improved products and features in our applications. Such expenses include employee-related compensation, including stock-based compensation, of engineers, designers, and product managers, in addition to materials, travel and direct costs associated with the design and required testing of our platform. We typically capitalize a small portion of research and development costs, mostly consisting of wages, each year into capitalized software when the work is specific to launching a new product, or making major upgrades to our existing products or platforms. We expect engineers, designers, and product managers to represent a significant portion of our employees for the foreseeable future. We regularly test product improvements with our users. Many of these tests start by making small changes in the product that affect small numbers of users. As the tests evolve, they can require increasing investment and can impact more users. This process of constant testing is how we implement many of our new products and improvements to our platform and, in total, require large investments and involve substantial time and risks to develop and launch. Some of these products and product improvements may not be well received or may take a long time for users to adopt. As a result, the benefits of our research and development investments may be difficult to forecast. We expect research and development to continue to be our largest operating expense, but expect that it will decline as a percentage of revenues over the long-term.
Current wording
Research and Development. We invest heavily in research and development to create new products and product features that help us grow our user base, engage our users, monetize our users, and teach our users. This, in turn, drives additional growth in, and better lifetime value of, our paid subscribers, as well as increased advertising revenue from impressions from our free users. Expenses are primarily made up of costs incurred for the development of new and improved products and features in our applications during the preliminary product development stage. Such expenses include employee-related compensation, including stock-based compensation, of engineers, designers, and product managers, in addition to materials, travel and direct costs associated with the design, required testing of our platform and depreciation of certain property and equipment. We expect engineers, designers, and product managers to represent a significant portion of our employees for the foreseeable future. We typically capitalize a small portion of research and development costs once the product has reached application development phase, mostly consisting of wages, each period into capitalized software when the work is specific to launching a new product, or making major upgrades to our existing products or platforms. We regularly test product improvements with our users. Many of these tests start by making small changes in the product that affect small numbers of users. As the tests evolve, they can require increasing investment and can impact more users. This process of constant testing is how we implement many of our new products and improvements to our platform and, in total, require large investments and involve substantial time and risks to develop and launch. Some of these products and product improvements may not be well received or may take a long time for users to adopt. As a result, the benefits of our research and development investments may be difficult to forecast.
Previous wording
Sales and Marketing. Sales and marketing expenses are expensed as incurred and consists primarily of brand advertising, marketing, digital and social media spend, field marketing, travel, trade show sponsorships and events, conferences, and employee-related compensation, including stock-based compensation for personnel engaged in sales and marketing functions, and amortization of non-revenue generating capitalized software used to promote Duolingo. We expect our sales and marketing expenses will decline as a percentage of revenues over the long-term.
Current wording
Sales and Marketing. Sales and marketing expenses are expensed as incurred and consists primarily of new user acquisition, brand marketing, digital and social media content, and employee-related compensation, including stock-based compensation, for personnel engaged in sales and marketing functions, amortization of non-revenue generating capitalized software used to promote Duolingo and depreciation of certain property and equipment.
Previous wording
General and Administrative. General and administrative expenses primarily consist of employee-related compensation, including stock-based compensation, for management and administrative functions, including our finance and accounting, legal, and people teams. General and administrative expenses also include certain professional services fees, general corporate and director and officer insurance, our facilities costs, public company costs to comply with the rules and regulations of the SEC and the Listing Rules of the Nasdaq Global Select Market, and other general overhead costs that support our operations. We expect that our general and administrative expenses will increase in absolute dollars as our business grows. However, we expect that our general and administrative expenses will remain steady or decrease as a percentage of our revenues as our revenues grow faster than these expenses over the long-term.
Current wording
General and Administrative. General and administrative expenses primarily consist of employee-related compensation, including stock-based compensation, for management and administrative functions, including our finance and accounting, legal, and people teams. General and administrative expenses also include certain professional services fees, general corporate and director and officer insurance, our facilities costs, public company costs to comply with the rules and regulations of the Securities and Exchange Commission (“SEC”) and the Listing Rules of the Nasdaq Global Select Market, and other general overhead costs that support our operations.
Previous wording
Interest income consists of income earned on our money market funds included in cash and cash equivalents and on our marketable securities.
Current wording
Interest income consists of income earned on our money market funds included in cash and cash equivalents and income earned and net accretion on our marketable securities.
Previous wording
The following table sets forth our Consolidated Statements of Operations and Comprehensive Income (Loss) data, including year-over-year change, for the periods indicated:
Current wording
The following table sets forth our Consolidated Statements of Operations and Comprehensive Income data, including year-over-year change, for the periods indicated:
Previous wording
The following table sets forth the components of our Consolidated Statements of Operations and Comprehensive Income (Loss) for each of the periods presented as a percentage of revenue.
Current wording
The following table sets forth the components of our Consolidated Statements of Operations and Comprehensive Income for each of the periods presented as a percentage of revenue.
Previous wording
Revenues increased $161.6 million, or 44%, to $531.1 million during the year ended December 31, 2023, from revenues of $369.5 million during the year ended December 31, 2022. The main drivers of the increase were:
Current wording
Revenues increased by $216.9 million, or 41%, to $748.0 million during the year ended December 31, 2024, from revenues of $531.1 million during the year ended December 31, 2023. The main drivers of the increase were:
Previous wording
•Subscription revenue increased by $131.2 million during the year ended December 31, 2023, primarily due to an increase in the average number of paid subscribers during the period;
Current wording
•Subscription revenue increased by $202.8 million, or 50%, to $607.5 million during the year ended December 31, 2024, primarily due to an increase in the average number of paid subscribers during the period;
Previous wording
•Duolingo English Test revenue increased by $8.5 million during the year ended December 31, 2023. The increase was driven by increases in the average revenue per test and increases in test volume;
Current wording
•Other revenue increased by $14.1 million, or 11%, to $140.5 million during the year ended December 31, 2024, driven by increased advertising revenue of $5.0 million and In-App Purchases of $4.0 million, both of which were primarily driven by the increase in DAUs. Additionally, other revenue increased by $4.4 million from Duolingo English Test revenue, which was driven by increases in the average revenue per test.
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Current report — wording carried from elsewhere
•Increased travel and other costs of $2.0 million.
Rearranged previous paragraphs (3)
Previous report — wording carried elsewhere
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Previous report — wording carried elsewhere
Constant Currency. The effect of currency exchange rates on our business is an important factor in understanding period to period comparisons. We use non-GAAP constant currency revenues and non-
Previous report — wording carried elsewhere
GAAP percentage change in constant currency revenues for financial and operational decision-making and as a means to evaluate period-to-period comparisons.