February 27 (Reuters) – Duolingo (DUOL.O), the popular language learning app, anticipates a surge in annual revenue, exceeding Wall Street projections, according to a Thursday forecast. The boost is attributed to heightened adoption of its subscription tier, which utilizes artificial intelligence.
Based in Pittsburgh, Pennsylvania, Duolingo operates a “freemium” model. This offers users a suite of basic features at no charge, with the option to unlock additional capabilities through paid monthly or annual subscriptions. The company’s shares rose approximately 4% during extended trading following the announcement.
Duolingo provides two subscription levels: Super, catering to frequent users, and Max, which incorporates a generative AI-driven feature. This feature simulates natural conversations through video calls.
Over the past few months, Duolingo has expanded the AI video call feature to a variety of languages. This strategic move aims to attract more subscribers and boost revenue, although the video call component of the Max subscription has added to operational costs. The company projects 2025 revenue to reach between $962.5 million and $978.5 million. This forecast surpasses the average analyst estimate of $965.9 million, as compiled by LSEG data.
For the initial quarter, Duolingo anticipates revenue ranging from $220.5 million to $223.5 million. Analysts, on average, were expecting $221.1 million.
“There’s a marginal cost to Max, and that marginal cost is we call generative AI models to power what is the most important part of Max, which is the video call, and that did have about a 100-basis-point impact to gross margin,” stated Chief Financial Officer Matt Skaruppa in an interview with Reuters. “The first priority is innovating as quickly as possible, experimenting as quickly as possible to drive more engagement, and then the costs will come down over time.”
The company also anticipates adjusted core profit for the current year to fall between $259.9 million and $274 million. This falls slightly below the estimated $272.1 million, primarily due to expenses related to its AI-powered video call feature.
The company also noted that a marketing campaign and the attention surrounding the potential TikTok ban in January increased user engagement in February. In the campaign, the app’s mascot, Duo, feigned his death and later returned.
Reporting by Akash Sriram in Bengaluru; Editing by Alan Barona
