Duolingo raises annual revenue forecast above estimates
AI-powered tiers attract more paying subscribers, boosting revenue
Partnership with Luckin Coffee boosts brand visibility in China
Nov 5 (Reuters) - Duolingo DUOL.O forecast fourth-quarter bookings below Wall Street estimates on Wednesday as the company prioritizes user growth and teaching quality on its app, sending its shares tumbling 22% in trading after the bell.
The company forecast bookings to be between $329.5 million and $335.5 million for the quarter, below estimates of $343.6 million, according to analysts polled by Visible Alpha.
"We will focus on monetization, but the balance is shifting a little bit. On a relative basis, we're going to work more on teaching quality than we have in the recent past," CEO Luis von Ahn told Reuters.
The downbeat bookings projections overshadowed an annual revenue forecast raise following a third-quarter beat.
The company operates on a "freemium" model and has sought to convert free users to paid subscriptions, such as "Super Duolingo" for an ad-free experience, and "Duolingo Max," which incorporates generative AI features.
"We are one of the few companies that has found a way to make profit off of AI. This is actually profitable for us," von Ahn said.
While the AI additions resulted in a lower profit margin in the third quarter of 72.5%, it was still higher than estimates of 71.4%, according to data compiled by LSEG.
A growing user base continued to drive conversions from free users to paid subscribers. Paid users jumped 34% to 11.5 million in the third quarter.
Growth was bolstered by outsized performance in China. A partnership with Luckin Coffee in July helped boost visibility in the region.
In the third quarter, revenue of $271.7 million beat estimates of $260.3 million. Duolingo has topped revenue estimates every quarter since the company went public in 2021.
The company raised its annual revenue forecast to between $1.028 billion and $1.032 billion, from $1.01 billion to $1.02 billion. Analysts on average were expecting $1.02 billion, according to LSEG data.