Duolingo Inc – May 04, 2023

Education can open a world of opportunities, yet it remains a key factor in equality. The privileged can receive the best in the world, while others cannot even access basic schooling. Democratizing learning is at the heart of Duolingo’s mission. And for the first time in history, technology in the hands of billions of people is making learning accessible and effective like never before.

Building products that are native to smartphones, Duolingo creates bite-sized, on-demand, and engaging ways for users to learn new languages through gamified lessons and exercises. The platform covers an extensive range of languages, from widely spoken ones such as English, Spanish, and French, to lesser-known ones like Navajo, Esperanto, and even High Valyrian. Serving a diverse user base, Duolingo’s customers include students, professionals, travelers, and language enthusiasts from various backgrounds and geographies, the platform has attracted over half a billion users from all around the globe.

While smartphones were a seminal change that allowed Duolingo to become what it is today, the company now believes that artificial intelligence will drive the next wave of innovation. Having invested in AI for the last decade to power its learning app and testing capabilities, the technology is now advancing to a level that Duolingo believes is within striking distance of its vision to teach as well as a human tutor.

Currently in a stage of rapid growth, Duolingo is consistently expanding its offerings to further accelerate this success. As a result, the company continues to focus on core strategies which include expanding and refining its language catalog, enhancing the user experience, and ultimately increasing its market presence.

Duolingo was founded in 2011 by Carnegie Mellon University professor, Luis von Ahn, and his post-graduate student, Severin Hacker, who were inspired to create a free and effective language learning platform. With initial support from von Ahn’s MacArthur fellowship and a National Science Foundation grant, the company’s first revenue stream began with a crowdsourced translation service, however, this has been replaced by subscription, advertising, and other certification program revenue.

In its early years, Duolingo was primarily a web-based application offering a limited set of languages. However, as user demand grew, the company started expanding its language offerings and launched mobile apps for iOS and Android. This move led to an explosion in user growth, as millions of people around the world could now access Duolingo’s language courses on their smartphones.

New features such as supplementary learning materials, podcasts, and proficiency exams that are officially accepted by universities around the world further bolstered Duolingo’s offerings.

The company went public in 2021, raising $521 million and further solidifying its position as a leading language learning platform.

Duolingo continues to be led by co-founder and now chief executive officer, Luis von Ahn. An esteemed computer scientist and entrepreneur, von Ahn is also known for inventing CAPTCHA and reCAPTCHA, the latter of which was acquired by Google in 2009. As a professor at Carnegie Mellon, von Ahn has been recognized with numerous awards, such as the MacArthur, Sloan, and the Packard Fellowships. Under his leadership, Duolingo has experienced tremendous growth, expanding its product offerings and user base while maintaining its commitment to accessible education.

Alongside von Ahn is fellow co-founder and now chief technology officer, Severin Hacker, who has played a crucial role in developing Duolingo’s innovative technology. Hacker holds a Ph.D. in computer science from Carnegie Mellon, where he focused on machine learning and natural language processing. As CTO, Hacker oversees all technical aspects of Duolingo, ensuring that the platform remains cutting-edge and user-friendly.

Duolingo’s language learning platform offers a comprehensive suite of products catering to the diverse needs of its users. Through its innovative and engaging approach, the platform not only helps users acquire new language skills, but also enhances communication and cultural understanding.

The language learning app provides gamified lessons covering speaking, listening, reading, and writing skills, offering courses in over 40 languages to more than 60 million monthly active users. While all course content on Duolingo can be accessed for free, the company’s subscription offering, Super Duolingo, offers learners additional features to enhance their learning experience.

To supplement the main language courses, Duolingo Stories were introduced, a feature that offers immersive, contextual reading and listening exercises. Users can explore a series of short stories in their target language, helping them improve their comprehension skills while gaining cultural insights. Stories is particularly popular among intermediate and advanced learners seeking to enhance their language proficiency beyond the basics.

Expanding into the audio realm, Duolingo launched its podcast series, starting with Spanish in 2017 and French in 2019. These podcasts provide learners with real-life stories and conversations, catering to those looking to improve their listening skills and gain exposure to authentic language usage. The podcasts have garnered a loyal following of users who incorporate them into their daily routines.

Recognizing the demand for accessible and affordable English proficiency testing, the Duolingo English Test (DET) was introduced in 2017. As an alternative to traditional language exams like the TOEFL and IELTS, the DET offers a user-friendly and cost-effective solution for students and professionals needing to demonstrate their English proficiency for academic or work purposes. The test can be taken online at any time and is accepted by numerous educational institutions and organizations worldwide.

In 2020, Duolingo ventured into early education with the release of Duolingo ABC, an app designed to teach children aged 3 to 6 how to read and write in English. Through engaging, interactive lessons, Duolingo ABC fosters a love for reading and writing in young learners, making it an attractive tool for parents and educators alike. While last year, Duolingo Math added a free app where students can focus on elementary math covering classroom topics, or adults can focus on brain training, which strengthens mental math skills.

Duolingo’s diverse product offerings have attracted a wide range of customers from various backgrounds and geographies. Students use the platform to supplement their language classes or prepare for studying abroad, while professionals utilize it to enhance their communication skills in the workplace or expand their career opportunities. Travelers and language enthusiasts also benefit from Duolingo, as it helps them connect with people from different cultures and navigate foreign environments with ease.

Duolingo’s commitment to providing a high-quality free product, coupled with a data-driven approach to improving user engagement has facilitated impressive organic growth of over 90% over the years. Its freemium business model has led to a vast user base that has generated more data on how people learn languages than any other entity, creating a virtuous cycle for effectiveness and engagement, in which the product continually improves as more data is gathered.

Looking ahead, in addition to the thousands of tests Duolingo normally runs to improve its products, it is now particularly focused on two emerging opportunities – generative artificial intelligence and English language learners.

Working closely with OpenAI has enabled the development of Duolingo Max, a higher subscription tier above Super Duolingo, featuring advanced AI features like Explain My Answer and Roleplay. Explain My Answer will provide in-depth explanations, generated by AI, to help learners understand their mistakes in a Duolingo lesson. While Roleplay will give learners a chance to chat with Duolingo characters in order to help build critical conversation skills. These features aim to bring the user experience closer to that of a human tutor while maintaining the platform’s engaging and fun nature.

The company has also recognized the importance of catering to English language learners. The vast majority, nearly 90%, of language learners in the world are learning English, while only about 45% of Duolingo users are doing so. The company sees a clear opportunity to expand its presence in the English-learning market and drive international monetization by broadening English learning course offerings. Consequently, Duolingo is aiming to better serve advanced learners and unlock incremental user and bookings growth. By embracing AI and other unique teaching methods, it is also creating scalable intermediate content to reach a broader range of English learners.

Since going public, Duolingo has continued its strong trajectory of rapid growth, ending the 2022 year outperforming the company’s expectations and setting new records for active users and bookings. Marking its sixth quarter in a row for accelerating user growth, daily active users increased 62% to 16.3 million, while monthly active users increased 43% to 60.7 million, compared to the prior year. The company also added a record number of paid Super Duolingo subscribers, which totaled 4.2 million at the end of the year, an increase of 67% compared to 2021.

Total bookings, which represent the amounts Duolingo receives from a purchase of a subscription to Super Duolingo, Duolingo English Tests, in-app purchases, and from advertising, and which the company believes provides the most accurate indication of trends in operating results, surged to $428.6 million, up 46% on 2021.

While heavy investment in R&D over the years has kept Duolingo running at a loss, which totaled $59.6 million in 2022, essentially flat on 2021, the company expenses nearly all R&D spend as it is incurred. Consequently, it is beginning to see operating leverage as the improvements from these investments continue to provide value for many years.

Looking ahead, Duolingo has noted that the infrastructure it has built to drive innovation and operating efficiency is poised to help deliver higher incremental profits in 2023 and beyond. Management is forecasting to close out FY23 with total revenue of $530 million to $542 million, representing year-over-year growth of almost 45%, albeit more enthusiastic than consensus expectations at 34% growth year-on-year. Analysts are also expecting strong upswings in full-year losses per share coming in at $0.87 and $0.28, representing improvements of 43% and 38% for FY23 and FY24 respectively.

Duolingo faces competition from a diverse range of companies, from well-established players to emerging start-ups such as Rosetta Stone, Babbel, Memrise, and Busuu, among others. These companies offer various language learning solutions, targeting different user segments and learning approaches, while the number of languages offered, learning methodologies, pricing, and additional resources provided are key factors for users.

A major competitive advantage for Duolingo however, is its freemium model allows users to access a significant portion of the platform’s content without charge, making it an attractive option for budget-conscious learners. This approach has allowed Duolingo to amass a large and diverse user base, as well as generate valuable data to refine and improve the platform. The company’s efforts to leverage artificial intelligence and machine learning are also enabling the company to develop adaptive learning algorithms that provide personalized and superior learning experiences for users.

Duolingo’s commitment to democratizing language learning, innovative use of AI, and expanding product offerings have made it a leading force in accessible and effective language learning. And with over half a billion users worldwide, its still-growing user base that is generating invaluable data to drive continuous improvement and personalization are further strengthening this position in the market.