Duolingo, Inc. Q1 FY2025 earnings call

• AI is transformative for Duolingo, aiding in data creation (enabling near-100% automated content for subjects), creating new features like Video Call with Lily, and improving efficiencies across the company. For example, chess was developed with AI by non-engineers. • Added 148 new language courses using AI, filling gaps in existing languages and improving advanced content. These courses are for existing languages but for different base languages. • DAUs have shown strong growth, with a 49% year-over-year increase, and all regions growing, including mature markets. Growth driven by product improvements and marketing campaigns. • New subjects like math, music, and soon chess are growing fast. They have monetization through subscriptions, though smaller than language learning. These subjects aim to expand Duolingo beyond language learning to teach long-learning subjects. • Duolingo Max has 7% of subscribers, driving engagement and retention. Plans to lower prices in some regions like India. Video Call with Lily is being improved for better engagement.

• Full-year gross margin expected to decline ~150 basis points year-over-year. Q1 came in better than expected (300 basis point decline expected vs 200 basis point actual). Q2 is expected to decline 50 bps sequentially from Q1, then gross margin will ramp up in Q3 and Q4 to end the year roughly where it started at the end of Q4 last year. • Confident in 2025 roadmap with strong Q1 results and guidance, seeing no macro softness affecting trends.

Q: Curtis Nagle asks about gross margin cadence and language modules.

A: Matt Skaruppa discusses gross margin guidance, stating full-year expected 150 basis point decline, Q1 better than expected, Q2 expected to decline 50 bps sequentially, then ramp up in Q3/Q4. Luis von Ahn talks about language modules like chess, math, music being engagement tools with monetization via subscriptions.

Q: Ralph Schackart asks about macro softness and gen AI.

A: Matt Skaruppa says no macro softness seen, DAUs trends unchanged. Luis von Ahn explains gen AI helps in data creation (near-100% automated content), creating new features (like Video Call with Lily), and efficiencies across the company.