Duolingo (DUOL 3.64%) stock gained 22.1% in Wednesday's after-hours trading, following the educational technology company's release of a strong fourth-quarter 2023 report.
The stock's big rise is attributable to the quarter's revenue and earnings beating Wall Street's consensus estimates, along with first-quarter and full-year 2024 revenue guidance coming in higher than analysts had been expecting.
Duolingo's key quarterly numbers
| Metric | Q4 2022 | Q4 2023 | Change |
|---|---|---|---|
| Revenue | $103.8 million | $151.0 million | 45% |
| Operating income | ($18.2 million) | $4.8 million | Flipped to positive from negative. |
| Net income | ($13.9 million) | $12.1 million | Flipped to positive from negative. |
| Earnings per share (EPS) | ($0.35) | $0.26 | Flipped to positive from negative. |
Data source: Duolingo.
Wall Street was looking for EPS of $0.17 on revenue of $148.1 million. So Duolingo exceeded both expectations, and its bottom-line beat was a particularly sizable one.
Revenue growth (year over year) by product type:
- Subscriptions -- 50% to $117.5 million
- Advertising -- 21% to $13.5 million
- Duolingo English test -- 29% to $10.8 million
- In-app purchases -- 52% to $8.9 million
- Other -- 12% to $315,000
In Q4 2023, Duolingo generated $49.2 million in cash from running its operations, up 324% from the year-ago period. Free cash flow was $47.7 million, up 322% year over year.
The company's balance sheet is pristine. It ended the year with $747.6 million in cash and cash equivalents and no long-term debt.
Key operational and user stats
| Metric | Q4 2023 | Change YOY |
|---|---|---|
| Total bookings | $191.0 million | 51% |
| Subscription bookings | $157.8 million | 57% |
| Paid subscribers | 6.6 million | 57% |
| Daily active users (DAUs) | 26.9 million | 65% |
| Monthly active users (MAUs) | 88.4 million | 46% |
Data source: Duolingo. YOY = year over year.
All the above metrics grew robustly, with DAUs' 65% increase particularly powerful. This metric reflects an extremely engaged user base. A more engaged user base is likely to lead to higher conversion rates of free users to paid subscribers.
What the CEO had to say
Here's most of CEO Luis von Ahn's statement from the earnings release:
2023 was an exceptional year that exceeded our own high expectations. It was capped off with a very strong Q4 that saw us achieve record bookings, revenue and profitability. We accelerated DAU growth in each quarter of 2023, and in Q4 achieved record-high user engagement and a record number of subscribers. Our performance resulted from our pursuit of product excellence and innovation, the progress we've made building an iconic brand, and disciplined execution.
Q1 and full-year 2024 guidance
First-quarter 2024 guidance:
- Revenue of $164 million to $167 million, which equates to growth of 42% to 44% year over year. This outlook is higher than the 38% growth Wall Street had expected.
Full-year 2024 guidance:
- Revenue of $717.5 million to $729.5 million, which equates to growth of 35% to 37% year over year. This outlook beats the 32% growth Wall Street had projected.
- Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of 21.5% to 23.5%. For context, this key profitability metric (calculated by dividing revenue by adjusted EBITDA) was 17.6% in 2023.
A stellar quarter for this cash-flow machine of a company
In short, Duolingo turned in a stellar quarter, and its better-than-expected outlook suggests management is optimistic about its future growth.
Revenue and earnings per share are usually the dynamic duo when it comes to headline metrics for quarterly reports. But don't overlook cash flows, which are arguably more important than reported "earnings" over the long term. Duolingo churns out powerful cash flows. In Q4 2023, its free-cash-flow margin (revenue divided by free cash flow) was 31.6%. This is super strong, particularly for a relatively newly public company (it held its initial public offering in July 2021) that spends heavily on research and development.
