Language-learning app Duolingo (NASDAQ: DUOL) reported Q3 CY2024 results beating Wall Street’s revenue expectations, with sales up 39.9% year on year to $192.6 million. Guidance for next quarter’s revenue was better than expected at $204 million at the midpoint, 1.2% above analysts’ estimates. Its GAAP profit of $0.49 per share was also 37% above analysts’ consensus estimates.
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Duolingo (DUOL) Q3 CY2024 Highlights:
- Revenue: $192.6 million vs analyst estimates of $189.2 million (1.8% beat)
- EPS: $0.49 vs analyst estimates of $0.36 (37% beat)
- EBITDA: $47.51 million vs analyst estimates of $42.57 million (11.6% beat)
- Revenue Guidance for Q4 CY2024 is $204 million at the midpoint, above analyst estimates of $201.7 million
- EBITDA guidance for the full year is $189.4 million at the midpoint, above analyst estimates of $183.2 million
- Gross Margin (GAAP): 72.9%, in line with the same quarter last year
- Operating Margin: 7%, up from -3.4% in the same quarter last year
- EBITDA Margin: 24.7%, up from 17.7% in the same quarter last year
- Free Cash Flow Margin: 27.3%, down from 30.1% in the previous quarter
- Monthly Active Users: 113.1 million, up 30 million year on year
- Market Capitalization: $13.19 billion
"We performed superbly across all of our key operating metrics this quarter, with DAU and bookings growth exceeding our expectations,” said Luis von Ahn, Co-Founder and CEO of Duolingo.
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
Reviewing a company’s long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Luckily, Duolingo’s sales grew at an incredible 45% compounded annual growth rate over the last three years. This is a great starting point for our analysis because it shows Duolingo’s offerings resonate with customers.
This quarter, Duolingo reported wonderful year-on-year revenue growth of 39.9%, and its $192.6 million of revenue exceeded Wall Street’s estimates by 1.8%. Management is currently guiding for a 35.1% year-on-year increase next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 29.5% over the next 12 months, a deceleration versus the last three years. Still, this projection is commendable and illustrates the market is factoring in 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 42.9% annually to 113.1 million in the latest quarter. This growth rate is among the fastest of any consumer internet business and indicates its platform's popularity is exploding. 
In Q3, Duolingo added 30 million monthly active users, leading to 36.1% 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 internet 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 $1.70. It grew 2.8% year on year, slower than its user growth.
Key Takeaways from Duolingo’s Q3 Results
We were impressed by how significantly Duolingo blew past analysts’ revenue, EPS, and EBITDA expectations this quarter. We were also glad its full-year revenue and EBITDA guidance exceeded Wall Street’s estimates. Zooming out, we think this was a solid quarter. The stock had quite the run-up going into the print, however, so expectations were sky-high. DUOL traded down 6.7% to $297.50 immediately after reporting.
So do we think Duolingo is an attractive buy at the current price? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
