Duolingo Ramps AI Investment as User Count Soars

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David Kretzmann, The Motley Fool

Tue, Mar 4, 2025, 3:15 AM 4 min read

Duolingo (NASDAQ: DUOL) held its fourth-quarter 2024 earnings call on February 27, 2025, reporting what CEO Luis von Ahn described as "an outstanding record quarter." The company saw daily active users (DAUs) surge 51% year over year to 40 million and delivered record quarterly bookings, revenue, and adjusted EBITDA. Here are three key insights from the call for long-term investors.

Duolingo Max Gaining Significant Traction With Strong Growth Runway

Max -- Duolingo's premium AI-powered subscription tier -- is showing strong early adoption, helping drive top-line growth and representing a key area of focus for 2025.

Since launching Video Call, our GenAI-powered conversation feature, user engagement has grown meaningfully. Max is now available to the majority of our DAUs and represents about 5% of total subscribers. We're still very early in driving Max monetization and believe there is a lot of room to grow.

According to CFO Matt Skaruppa, Max will temporarily impact gross margins by 170 basis points in 2025, with margins expected to improve in the second half of the year as the company optimize AI costs. Max presents a meaningful growth opportunity, particularly among English learners who, as von Ahn noted, use the Video Call feature at twice the rate of non-English learners.

Strategic Investment in AI Drives Content Expansion and Long-Term Growth

Duolingo is leveraging AI to dramatically accelerate content creation, enhance learning experiences, and extend its reach beyond languages into new subjects.

AI and automation tools are also allowing us to expand content and courses faster than ever before. We believe this will help us reach more learners globally. This includes also scaling our courses for Math and Music, which are showing strong early adoption. Today, these subjects have a combined 3 million DAUs, and we see a lot of room to grow, though as I've said before, this will take time.

The company's content generation capacity has increased approximately tenfold over the past two years, as von Ahn stated during the call. This accelerated content creation enables more advanced lessons and faster development of new language pairs. This expansion is particularly strategic for capturing intermediate English learners, which von Ahn identified as "a huge part of the market" the business previously weren't serving effectively.

Family Plan and Geographic Expansion Powering Sustainable Growth

Beyond its AI initiatives, Duolingo is seeing strong performance from its Family Plan offering and continued international expansion, particularly in less-penetrated Asian markets.

The Family Plan is also delivering strong results. It now makes up 23% of total subscribers and continues to show higher retention and LTV than individual plans.

With Family Plan subscriptions now accounting for 23% of subscribers and delivering higher retention and lifetime value than individual plans, Duolingo is building a more durable subscription base. Growth is strong across all regions, with Latin America--their most mature market--growing at approximately 80% year-over-year. As von Ahn explained, this demonstrates Duolingo is "far from saturating any of our markets." He specifically identified Asia as the company's least penetrated region, noting opportunities in Japan, Korea, India, and China.

Looking Ahead

For 2025, Duolingo management is projecting bookings growth of 25% year over year at the midpoint (27% on a constant currency basis), with subscription bookings anticipated to grow around 31%. This guidance puts the business on track to surpass $1 billion in bookings this year.

The company outlined three strategic priorities for 2025: driving subscription bookings through user growth and Max promotion, leveraging generative AI to enhance the Video Call experience and scale content creation, and maintaining disciplined investments to balance growth with profitability targets.

As von Ahn emphasized in the call, "The market opportunity in both language learning and other subjects remains substantial, and we're making strategic investments now in order to fuel growth for years to come."

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