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What changed in Duolingo, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Duolingo, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+543 added−493 removedSource: 10-K (2024-02-29) vs 10-K (2023-03-01)

Top changes in Duolingo, Inc.'s 2023 10-K

543 paragraphs added · 493 removed · 407 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeLearners can spend as much time learning as they want and complete any and every course without paying. This lowers barriers to start learning and to keep learning. In a world where people are increasingly engaged in immersive, bite-sized, mobile-first experiences, we provide such an experience that also results in learning valuable skills.
Biggest changeIn a world where people are increasingly engaged in immersive, bite-sized, mobile-first experiences, we provide such an experience that also results in learning valuable skills. Indeed, many of our learners prefer to spend time on Duolingo rather than on social media or mobile games because they can learn while still feeling entertained.
Item 1. Business Our Mission Our mission is to develop the best education in the world and make it universally available.
Item 1. Business Our mission is to develop the best education in the world and make it universally available.
The more engaging our products are, and the more effectively we teach, the more our learners tell their friends about Duolingo and the more we continue to grow our learner base. • Investment flywheel: The scale of our learner base and word-of-mouth growth allow us to focus our capital investments on product innovation and data analytics, as opposed to brand or performance marketing.
The more engaging our products are, and the more effectively we teach, the more our learners tell their friends about Duolingo and the more we continue to grow our learner base. • Investment flywheel: The scale of our learner base and word-of-mouth growth allow us to focus our capital investments on product innovation and data analytics, as opposed to relying on brand or performance marketing.
For many, Duolingo has become synonymous with language learning: for example, on Google, people search the term “Duolingo” approximately sixteen times more often than “learn Spanish.” We are particularly proud that our learners come from the entire socioeconomic spectrum, ranging from billionaires and celebrities to recently resettled refugees, a rare instance in which more money does not imply better access to a high quality educational platform.
For many, Duolingo has become synonymous with language learning: for example, on Google, people search for the term “Duolingo” approximately eighteen times more often than “learn Spanish.” We are particularly proud that our learners come from the entire socioeconomic spectrum, ranging from billionaires and celebrities to recently resettled refugees, a rare instance in which more money does not imply better access to a high quality educational platform.
We believe that by using modern technology, the very best engineering talent, and a mission-driven approach, we can create better learning experiences and meaningful improvements in efficacy.
We believe that by using modern technology, the very best talent, and a mission-driven approach, we can create better learning experiences and meaningful improvements in efficacy.
For example, the US Federal Trade Commission (“FTC”) and many state attorneys general are applying federal and state consumer protection laws to require that the online collection, use and dissemination of data, the presentation of website or other electronic content, and broad commercial and digital marketing activities, comply with certain standards for notice, choice, security and access, among other things.
Federal Trade Commission (“FTC”) and many state attorneys general are applying federal and state consumer protection laws to require that the online collection, use and dissemination of data, the presentation of website or other electronic content, and broad commercial and digital marketing activities, comply with certain standards for notice, choice, security and access, among other things.
We believe that consumers turning to online learning will not only prefer the convenience and control that mobile apps provide, but also expect experiences to be highly engaging. • Artificial intelligence will increasingly shape online learning. Rapid advances in generative AI, particularly large language models (LLMs), will change how people use technology to learn.
We believe that consumers turning to online learning will not only prefer the convenience and control that mobile apps provide, but also expect experiences to be highly engaging. • AI will increasingly shape online learning. Rapid advances in generative AI, particularly large language models (LLMs), will change how people use technology to learn.
Other laws such as the Restore Online Shoppers' Confidence Act ("ROSCA") and analogous state laws require certain and consent mechanisms, among other things, in relation to recurring payments and subscription based products or services. These rules are enforcement by federal and state regulators and can subject companies to significant penalties, fines and injunctive relief.
Other laws such as the Restore Online Shoppers' Confidence Act ("ROSCA") and analogous state laws require certain and consent mechanisms, among other things, in relation to recurring payments and subscription based products or services. These rules are enforced by federal and state regulators and can subject companies to significant penalties, fines and injunctive relief.
We may consider pursuing trademark registrations for additional marks and for additional jurisdictions if and to the extent we believe such registrations would be beneficial to our business and cost-effective. We have registered several domain names, including www.duolingo.com, and we own several registered copyrights covering logos and characters used in our business, including Duo.
We may consider pursuing trademark registrations for additional marks and for additional jurisdictions if and to the extent we believe such registrations would be beneficial to our business and cost-effective. We have registered several domain names, including www.duolingo.com, and we own several copyrights (both registered and unregistered) covering logos and characters used in our business, including Duo.
These include the top 25 undergraduate programs ranked by international enrollment, as well as top schools such as Yale, Stanford, MIT, Duke and Columbia. We believe that there is an opportunity to diversify the scope of our platform beyond language learning to a variety of subjects, using the same product-focused, mobile-first, gamified approach to education.
These include the top 25 undergraduate programs in the U.S. ranked by international enrollment, as well as top schools such as Yale, Stanford, MIT, Duke and Columbia. We believe that there is an opportunity to diversify the scope of our platform beyond language learning to a variety of subjects, using the same product-focused, mobile-first, gamified approach to education.
The foundation of our product strategy is our relentless focus on improving learner engagement through A/B testing, and we run hundreds of A/B tests on new product features each quarter. Experiments can be as simple as changing the text or color of a button, or as complex as adding a major new feature like Leaderboards.
The foundation of our product strategy is our relentless focus on improving learner engagement through A/B testing, and we run hundreds of A/B tests on new 9 Table of Contents product features each quarter. Experiments can be as simple as changing the text or color of a button, or as complex as adding a major new feature like Leaderboards.
Accessible for free, as of December 2022 it offers courses in over 40 languages to more than 60 million monthly active users. It is also the top-grossing app globally in the Education category on both Google Play and the Apple App Store. Duolingo can also be accessed by desktop computers via a web browser at https://duolingo.com.
Accessible for free, as of December 2023 it offers courses in over 40 languages to more than 85 million monthly active users. It is also the top-grossing app globally in the Education category on both Google Play and the Apple App Store. Duolingo can also be accessed by desktop computers via a web browser at https://duolingo.com.
For example, the Children’s Online Privacy Protection Act (“COPPA”) applies to operators of commercial websites and online services directed to US children under the age of 13 that collect personal information from children and to operators of general audience sites that have actual knowledge that they are collecting information from US children under the age of 13.
For example, the Children’s Online Privacy Protection Act (“COPPA”) applies to operators of commercial websites and online services directed to U.S. children under the age of 13 that collect personal information from children and to operators of general audience sites that have actual knowledge that they are collecting information from U.S. children under the age of 13.
In addition, federal and state agencies regularly investigate and bring enforcement actions under general unfair or deceptive acts or practices laws (referred to as "UDAP" statutes) in relation to a broad array of sales, marketing and advertising activities. We also have many subscribers who access and pay for our services from outside the United States.
In addition, federal and state agencies regularly investigate and bring enforcement actions under general unfair or deceptive acts or practices laws (referred to as "UDAP" statutes) in relation to a broad array of sales, marketing and advertising activities. We also have many subscribers who access and pay for our services from outside the U.S.
The reference to our website address does not constitute incorporation by reference of the information contained on or available through our website, and you should not consider such information to be a part of this Annual Report on Form 10-K.
The contents of, or information accessible through, our website are not part of this Annual Report on Form 10-K. The reference to our website address does not constitute incorporation by reference of the information contained on or available through our website, and you should not consider such information to be a part of this Annual Report on Form 10-K.
We collect and use personal information to create online accounts, process e-commerce transactions, provide customer service, support, and for other purposes. The regulatory framework for data protection, privacy and information security is evolving rapidly.
We collect and use personal information to create online accounts, process e-commerce transactions, provide customer service, support, and for other purposes. The regulatory framework for data protection, privacy and information security is evolving rapidly. For example, the U.S.
As an example, #duolingo on TikTok has approximately two billion views, and our official account has been highlighted by numerous press outlets. All of this has allowed us to grow our business organically, primarily relying on word-of-mouth virality rather than paid user acquisition.
As an example, #duolingo on TikTok has over four billion views, and our official account has been highlighted by numerous press outlets. All of this has allowed us to grow our business organically, primarily relying on word-of-mouth virality rather than paid user acquisition.
By offering a more accessible, online option that is both rigorous and accurate, we provide greater opportunities for aspiring students and professionals dependent on successful completion of these high stakes assessments. As of December 2022, over 3,800 higher education programs around the world accept the Duolingo English Test results as proof of English proficiency for international student admissions.
By offering a more accessible, online option that is both rigorous and accurate, we provide greater opportunities for aspiring students and professionals dependent on the successful completion of these high stakes assessments. As of December 2023, over 4,000 higher education programs around the world accept the Duolingo English Test results as proof of English proficiency for international student admissions.
For information regarding risks related to our intellectual property, please see “Risk Factors—Risks Related to Our Intellectual Property.” 13 Table of Contents Government Regulation We are subject to many US federal and state and foreign laws and regulations, including those related to privacy, rights of publicity, data protection, payment processing, disability rights, digital accessibility standards, content regulation, intellectual property, health and safety, competition, protection of minors, consumer protection, and taxation.
For information regarding risks related to our intellectual property, please see “Risk Factors—Risks Related to Our Intellectual Property.” Government Regulation We are subject to many U.S. federal and state and foreign laws and regulations, including those related to privacy, rights of publicity, data protection, payment processing, disability rights, digital accessibility standards, content regulation, intellectual property, health and safety, competition, protection of minors, consumer protection, and taxation.
In markets where our organic awareness is relatively low and opportunity for growth is strong, we hire experienced local marketing managers and engage in localized social media and influencer-led campaigns, app store optimization, and paid advertising to generate interest in our products and drive new learner growth.
In markets where our organic awareness is relatively low and the opportunity for growth is strong, we hire experienced local marketing managers and engage in 12 Table of Contents localized social media and influencer-led campaigns, app store optimization, and paid advertising to generate interest in our products and drive new learner growth.
Foreign data protection, e-commerce, privacy, consumer protection, content regulation and other laws and regulations are often more restrictive or burdensome than those in the United States, and those governments may attempt to apply such laws extraterritorially or through treaties or other arrangements with US governmental entities.
Foreign data protection, e-commerce, privacy, consumer protection, content regulation and other laws and regulations are often more restrictive or burdensome than those in the U.S., and those governments may attempt to apply such laws extraterritorially or through treaties or other arrangements with U.S. governmental entities.
Luis and Severin bonded over the dream of building an intelligent learning system informed by massive amounts of user engagement data that could deliver superior learning outcomes. Our team, which as of December 31, 2022, consisted of over 600 passionate employees, including more than 270 engineers, aims to build the most sophisticated education platform in the world.
Luis and Severin bonded over the dream of building an intelligent learning system informed by massive amounts of user engagement data that could deliver superior learning outcomes. Our team, which as of December 31, 2023, consisted of approximately 720 passionate employees, including more than 330 engineers, aims to build the most sophisticated education platform in the world.
Learning another language can unlock new experiences and deep 6 Table of Contents human connections, ranging from navigating a first trip to another country, to communicating with family members of an older generation. As of December 31, 2022, Duolingo offers courses in over 40 languages to more than 60 million monthly active users.
Learning another language can unlock new experiences and deep human connections, ranging from navigating a first trip to another country, to communicating with family members of an older generation. As of December 31, 2023, Duolingo offers courses in over 40 languages to more than 85 million monthly active users.
Our language learning app is aimed at a general audience and we employ an age-gating procedure whereby anyone from the United States identifying themselves as being under the age of 13 during the registration process receives an ad-free version of the service, with special enrollment procedures and restricted information practices.
Our Duolingo App is aimed at a general audience and we employ an age-gating procedure whereby anyone from the U.S. identifying themselves as being under the age of 13 during the registration process receives an ad-free version of the service, with special enrollment procedures and restricted information practices.
Driving much of the demand for language learning is the reality that English can unlock tremendous economic opportunity. According to the World Economic Forum, job seekers around the world with exceptional English skills can expect to earn 30-50% higher salaries than their peers with average English ability. And the power of language learning is not limited to economic advancement.
According to the World Economic Forum, job seekers around the world with exceptional English skills can expect to earn 30-50% higher salaries than their peers with average English ability. And the power of language learning is not limited to economic advancement.
As of December 31, 2022, we had over 600 employees. Most of our employees are located at our headquarters in Pittsburgh, Pennsylvania, and we also have offices in New York, Seattle, Detroit, Beijing and Berlin. We believe that being located outside of Silicon Valley has helped us cultivate a unique company culture. Fundamental to Duolingo's culture is our mission orientation.
Most of our employees are located at our headquarters in Pittsburgh, Pennsylvania, and we also have offices in New York, Seattle, Detroit, Beijing and Berlin. We believe that being located outside of Silicon Valley has helped us cultivate a unique company culture. Fundamental to Duolingo's culture is our mission orientation. Our mission tends to attract a certain kind of person.
We are committed to abiding by the strictest privacy standards and do not sell personal data to outside parties. Our Solutions The Duolingo Language Learning App The Duolingo language learning app is the world’s most popular way to learn languages.
With our shared infrastructure, we are able to innovate at a higher velocity. • Strict data protection and privacy standards . We are committed to abiding by the strictest privacy standards and do not sell personal data to outside parties. Our Solutions The Duolingo App The Duolingo App is the world’s most popular way to learn languages.
We believe that our ability to compete successfully depends primarily on the following factors: • Continued growth in internet access and mobile adoption around the world; • Our ability to continue to increase our learner base through organic, word-of-mouth growth; • Our ability to maintain the value and reputation of our brand; • The scale, growth and engagement of our learners relative to those of our competitors; • Our ability to introduce new, and improve on existing, features and products in response to competition, learner preferences, and market and industry trends; and • Our ability to continue developing new monetization features and improving on existing features.
We believe that our ability to compete successfully depends primarily on the following factors: • Continued growth in internet access and mobile adoption around the world; • Our ability to continue to increase our learner base through organic, word-of-mouth growth; • Our ability to maintain the value and reputation of our brand; • The scale, growth and engagement of our learners relative to those of our competitors; • Our ability to introduce new, and improve on existing, features and products in response to competition, learner preferences, and market and industry trends; and • Our ability to continue developing new monetization features and improving on existing features. 13 Table of Contents Intellectual Property We own several trademarks that have been registered, or for which registration applications are pending, in the U.S. as well as in a number of foreign jurisdictions.
Our millions of learners complete over 900 million exercises every day, creating what we believe to be the world's largest learning dataset. This data powers the high volume A/B testing and novel artificial intelligence (“AI”) that we use to continually improve how well we teach.
Our millions of learners complete over a billion exercises every day, creating what we believe to be the world's largest learning dataset. This data powers the high volume A/B testing and novel AI that we use to continually improve how well we teach. A range of published research studies present compelling evidence supporting Duolingo's efficacy.
Our mission tends to attract a certain kind of person. Our employees have a very strong sense of social responsibility and are interested in solving hard problems for the benefit of humanity. Over time, we have also developed nine “operating principles” that articulate our values as a company and help guide how we make decisions. • Learners first.
Our employees have a very strong sense of social responsibility and are interested in solving hard problems for the benefit of humanity. Over time, we have developed a set of “operating principles” that define what we value as a company and guide how we make our decisions and spend our time. How we make hard choices • Learners first.
The GDPR and the UK GDPR impose strict data protection compliance requirements including: providing detailed disclosures about how personal data is collected and 14 Table of Contents processed (in a concise, intelligible and easily-accessible form); demonstrating that an appropriate legal basis is in place or otherwise exists to justify data processing activities; granting new rights for data subjects in regard to their personal data (including the right to be “forgotten” and the right to data portability), as well as enhancing data subject rights (e.g., data subject access requests); introducing the obligation to notify data protection regulators or supervisory authorities (and in certain cases, affected individuals) of significant data breaches; defining for the first time pseudonymized (i.e., key-coded) data; imposing limitations on retention of personal data; maintaining a record of processing activities; and complying with the principle of accountability and the obligation to demonstrate compliance through policies, procedures, training and audit.
GDPR impose strict data protection compliance requirements including: providing detailed disclosures about how personal data is collected and processed (in a concise, intelligible and easily-accessible form); demonstrating that an appropriate legal basis is in place or otherwise exists to justify data processing activities; compliance with rights for data subjects in regard to their personal data (including the right to be “forgotten” and the right to data portability), notifying data protection regulators or supervisory authorities (and in certain cases, affected individuals) of significant data breaches; confirming that appropriate safeguards are in place where personal data is transferred out of the EEA and the U.K.; limiting retention of personal data; maintaining a record of processing activities; and complying with the principle of accountability and the obligation to demonstrate compliance through policies, procedures, training and audit.
Investments in our brand enable us to drive long-term growth by attracting new learners to our platform and keeping existing learners engaged. We leverage our iconic brand on social media platforms to drive organic new user growth and engagement with entertaining content, instead of promotional content, that takes advantage of viral trends. • Owned media marketing .
We leverage our iconic brand on social media platforms to drive organic new user growth and engagement with entertaining content, instead of promotional content, that takes advantage of viral trends and Duolingo memes created by our community. • Owned media marketing .
Our freemium business model, which means allowing users to access our content for free and charging a subscription for additional features, is core to our success because it enables significant user scale.
We have a strong future roadmap of feature improvements and optimizations, and believe our subscriber base has strong growth ahead. Our freemium business model, which means allowing users to access our content for free and charging a subscription for additional features, is core to our success because it enables significant user scale.
The velocity of our A/B testing capabilities is a core competency that allows us to optimize the Duolingo learning experience at a rapid pace. 9 Table of Contents • Advanced data analytics and machine learning capabilities. Our machine learning capabilities allow us to leverage our data to optimize the learning experience.
The velocity of our A/B testing capabilities is a core competency that we believe allows us to optimize the Duolingo learning experience at a rapid pace and leads to compounding growth of core business metrics like DAUs and paid subscribers. • Advanced data analytics and machine learning capabilities.
Products across our platform, like our flagship Duolingo language learning app, Duolingo ABC, Duolingo Math and the Duolingo English Test, share a singular technology infrastructure, which allows us to leverage operational efficiencies in implementing new features for each. With our shared infrastructure, we are able to innovate at a higher velocity. • Strict data protection and privacy standards .
Products across our platform, like our flagship Duolingo App (including our Math and Music courses), Duolingo ABC, and the Duolingo English Test, share a singular technology infrastructure, which allows us to leverage operational efficiencies in implementing new features for each.
The Duolingo ABC app is aimed at users under the age of 13 but does not collect personal information directly from the user beyond that required to use the app.
We also apply age-gating for non-US users of the Duolingo App according to foreign laws. The Duolingo English Test service requires parental consent for users under the age of 13. The Duolingo ABC app is aimed at users under the age of 13 but does not collect personal information directly from the user beyond that required to use the app.
We have a very selective recruitment process: we hire one out of every 370 applicants. We recruit interns and new graduates from the top computer science, design, and business programs in the country. We also recruit experienced professionals from top technology companies—and many of them relocate from Silicon Valley to Pittsburgh.
We have a very selective recruitment process: we recruit interns and new graduates from the top computer science, design, and business programs in the country. We also recruit experienced professionals from top technology companies—and many of them relocate from other major tech hubs to Pittsburgh. Diversity, Equity, Inclusion, and Belonging (“DEIB”) is also core to who we are.
Our products are powered by sophisticated data analytics and artificial intelligence and delivered with world-class art, animation, and design to make it easier for learners to stay motivated, master new material, and achieve their learning goals.
Our products are powered by sophisticated data analytics and AI and delivered with world-class art, animation, and design to make it easier for learners to stay motivated, master new material, and achieve their learning goals. Our Business Our flagship app has organically become the world’s most popular way to learn languages and the top-grossing Education app in the app stores.
We utilize the latest in artificial intelligence, machine learning and data analytics, along with a relentless focus on A/B testing, to fuel our differentiated learning experience. Highlights of our technology platform include: • Large data moat. With almost a billion exercises completed every day on our platform, we believe we have built the world's largest collection of language-learning data.
Our Technology Platform Technology is at the core of everything we do. We utilize the latest in AI, machine learning and data analytics, along with a relentless focus on A/B testing, to fuel our differentiated learning experience. Highlights of our technology platform include: • Large data moat.
Competition We believe that our relentless focus on building an engaging and effective language learning product, powered by our freemium model, has led to a leading market position, as measured by downloads, active users, and brand awareness. However, learners have a variety of options when choosing to learn a language.
We believe that as subscriptions increase in popularity across categories, consumers will also gravitate towards subscription models in online learning. Competition We believe that our relentless focus on building an engaging and effective learning product, powered by our freemium model, has led to a leading market position, as measured by downloads, active users, and brand awareness.
The more learners use Duolingo and convert into paid subscribers, the more we are able to invest in creating an even more delightful, engaging and effective learning experience.
The more learners use Duolingo and convert into paid subscribers, the more we are able to invest in creating an even more delightful, engaging and effective learning experience. In turn, this increases our popularity and user scale, as well as the effectiveness of our data analytics and AI systems, further widening our data moat.
We started with a focus on teaching languages because of the profound impact learning a new language can have on people’s lives, as well as the large market opportunity. According to HolonIQ, approximately 2 billion people across the world are learning a new language, and consumer spend on both online and offline language learning represents about a $60 billion market.
We started with a focus on teaching languages because of the profound impact learning a new language can have on people’s lives, as well as the large market opportunity.
Every year, millions of people around the world seek to demonstrate English proficiency for a variety of reasons, including university admissions, work visas, and job applications. We developed the Duolingo English Test because language assessment has lacked innovation, with the most popular English proficiency tests still administered in physical testing centers and usually costing hundreds of dollars per test.
We developed the Duolingo English Test because language assessment has lacked innovation, with the most popular English 7 Table of Contents proficiency tests still administered in physical testing centers and usually costing hundreds of dollars per test.
We compete for learners’ time, attention, and share of wallet not only with other online and app-based language learning platforms but also with offline forms of language learning. Because of the extensibility of the Duolingo platform beyond language learning, we also compete with language learning assessment providers and literacy platforms.
However, learners have a variety of options when choosing to learn a language. We compete for learners’ time, attention, and share of wallet not only with other online and app-based language learning platforms but also with offline forms of language learning.
Anyone can download the Duolingo app, use it for as long as they like, and complete as many of our courses as they choose, all without paying anything.
Anyone can download the Duolingo App, use it for as long as they like, and complete as many of our courses as they choose, all without paying anything. Learners who use Duolingo for free see an ad at the end of each lesson, whereas learners who purchase our paid subscription enjoy an ad-free experience and access to additional features.
One example of this is our machine learning tools that evaluate every learner’s answer to every exercise every day and learns to predict the probability that any learner will answer any given exercise correctly. We use these tools to adaptively construct lessons where each exercise is “just right” in terms of difficulty for each learner.
Our machine learning capabilities allow us to leverage our data to optimize the learning experience. One example of this is our machine learning tools that evaluate every learner’s answer to every exercise every day and learn to predict the probability that any learner will answer any given exercise correctly.
And our expertise in AI and machine learning also allow us to effectively and efficiently integrate external AI models to improve our products. • Shared infrastructure.
We use these tools to adaptively construct lessons where each exercise is “just right” in terms of difficulty for each learner. And our expertise in AI and machine learning also allow us to effectively and efficiently integrate external AI models to improve our products. • Shared infrastructure.
Diversity, Equity, Inclusion, and Belonging is also core to who we are. We are proud to say that Duolingo was founded by two immigrants and that our employees come from over 30 countries. More than half of our employees are women-identifying or people of color.
We are proud to say that Duolingo was founded by two immigrants and that our employees come from over 40 countries. More than half of our employees are women-identifying or individuals from traditionally underrepresented racial/ethnic groups. Approximately 25% of our executive team are women-identifying, including our Chief People Officer and Chief Engineering Officer.
Duolingo For Schools Duolingo for Schools is a free, web-based tool that aims to make it easier for teachers to use the Duolingo platform in a structured learning environment, like a classroom. With Duolingo for Schools, teachers can create a dashboard for a class, assign specific Duolingo content to students and track students’ progress through the content.
With Duolingo for Schools, teachers can create a dashboard for a class, assign specific Duolingo content to students and track students’ progress through the content. Duolingo ABC Introduced in 2020, Duolingo ABC is a free app that teaches young children early literacy skills.
To put our scale in context, there are more people in the United States learning languages on Duolingo than there are foreign language learners in all United States high schools combined, and there are more people learning certain languages on Duolingo, like Irish and Hawaiian, than there are native speakers of those languages worldwide.
To provide perspective on our reach, in the United States (“U.S”), the number of people 6 Table of Contents learning a language using Duolingo is greater than the number of K-12 students taking a foreign language class in school, and there are more people learning certain languages on Duolingo, like Irish and Hawaiian, than there are native speakers of those languages worldwide.
The test is “computer adaptive,” meaning it gets harder or easier depending on the performance of the test taker, and can be completed in less than an hour. As of December 2022, it generally costs $49 per test.
Anyone with a computer, webcam, and reliable internet connection can take the test from anywhere, at any time. The test is “computer adaptive”, meaning it gets harder or easier depending on the performance of the test taker, and can be completed in less than an hour.
In many cases, the specific limitations imposed by these standards are subject to interpretation by courts and other governmental authorities. In addition, federal and state regulators have interpreted various rules and regulations as requiring companies like ours to implement reasonable data security controls and measures.
In addition, federal and state regulators have interpreted various rules and regulations as requiring companies like ours to implement reasonable data security controls and measures. 14 Table of Contents We are also subject to laws that govern specific types of data and/or specific types of marketing or other consumer engagement activities.
Intellectual Property We own several trademarks that have been registered, or for which registration applications are pending, in the United States as well as in a number of foreign jurisdictions. These trademarks include, among others, the word marks “Duolingo” and Duolingo in Chinese, and certain logos used in connection with our business, including our mascot Duo.
These trademarks include, among others, the word marks “Duolingo” and Duolingo in Chinese, and certain logos used in connection with our business, including our mascot Duo.
Our mission and reason for existing is to make sure everyone in the world has access to high-quality education. • Take the long view. If it works in the short-term but hurts Duolingo in the long-term, it’s not right. We make decisions that keep us moving toward our big goals. • Prioritize ruthlessly. We can’t execute on every good idea.
Our mission and reason for existing is to make sure everyone in the world has access to high-quality education. Until every person who wants to learn is doing so with Duolingo, we haven’t won yet. • Prioritize ruthlessly. We can’t execute on every good idea.
Our expert-designed courses help learners build robust speaking, reading, listening, and writing skills, and our data analytics power personalization and superior learning outcomes. For more information about the Duolingo Method please visit https://www.duolingo.com/efficacy. • It's free. Every language course on Duolingo is free to access.
Learners stick with Duolingo at first because it’s fun, and then over time also because they find that it works. Our expert-designed courses across languages, math, and music help learners build robust skills, and our AI technologies power personalization leading to superior learning outcomes. For more information, please visit https://www.duolingo.com/efficacy. • It's free.
Super Duolingo While all course content on Duolingo can be accessed for free, our subscription offering, Super Duolingo, offers learners additional features to enhance their learning experience. In 2021, we launched a family plan, which includes up to six subscribers under one annual plan.
As of November of 2023, both Math and Music courses were integrated into the Duolingo App and are available on iOS devices. Super Duolingo While all of Duolingo’s course content can be accessed for free, our subscription offering, Super Duolingo, offers learners additional features to enhance their learning experience.
As of December 2022, there were over 10 million daily active users with a 7-day streak or longer, and over 2.5 million daily active users with a 365-day streak or longer. • It's effective. Learners stick with Duolingo at first because it’s fun, and then over time also because they find that it works.
As of December 2023, there were about 20 million daily active users with a 7-day streak, or longer, and about 5 million daily active users with a 365-day streak or longer. A streak indicates the number of days in a row a lesson is completed. • It's effective.
According to an internal study, Duolingo learners who were assessed at the completion of our beginner-level content, learn as much as students taking four university semesters of language education. We intentionally do not put our learning content behind a paywall.
According to an internal study, learners who completed five sections of Duolingo achieved proficiency comparable to five university semesters of language education. Most recently, two independent semester-long studies found that users learning English on Duolingo outperformed students in traditional classroom settings in developing their English proficiency. We intentionally do not put our learning content behind a paywall.
Duolingo ABC Introduced in 2020, Duolingo ABC is a free app that teaches young children early literacy skills. Developed by learning experts, Duolingo ABC is aligned with the Common Core State Standards, and is designed based on recommendations by the National Reading Panel.
Developed by learning experts, Duolingo ABC is aligned with the Common Core State Standards, and is designed based on recommendations by the National Reading Panel. People and Culture Attracting and retaining amazing talent is key to our success. As of December 31, 2023, we had approximately 720 employees.
Our paid subscriber penetration has increased steadily since we launched Super Duolingo in 2017 and, combined with our user growth, has led to revenue growth each year since. We have a strong future roadmap of feature improvements and optimizations, and believe we are in the early stages of increasing our paid subscriber penetration.
As of December 31, 2023, approximately 8% of our monthly active users were paid subscribers. Our paid subscriber penetration has increased significantly since we launched our paid subscription in 2017 and, combined with our user growth, has driven strong revenue growth each year since.
We build things together with transparency and care for each other. We offer feedback compassionately but with excellence in mind, and receive it openly and as an opportunity to grow. As a result of our mission, our culture, and the challenges we work on every day, we believe we have had great success in attracting the best talent.
At every level of the Company, we stay engaged, roll up our sleeves to help, and make choices that benefit the greater good — because Duolingo’s success is our success. As a result of our mission, our culture, and the challenges we work on every day, we believe we have had great success in attracting the best talent.
In 2020 we launched Duolingo ABC, an app for young children that teaches early literacy skills, which won the 2020 Time Magazine “Best New Product” award. In 2022 we launched Duolingo Math, an app where students can focus on elementary math, which covers classroom topics, or adults can focus on brain training, which strengthens mental math skills.
In 2020 we launched Duolingo ABC, an app for young children that teaches early literacy skills. In 2022 we launched a math course that motivates both children and adults to sharpen their mental math skills in our standards-aligned curriculum.
Duolingo English Test: AI-Driven Language Assessment Launched in 2016, the Duolingo English Test is an online, on-demand, high-stakes English proficiency assessment. Anyone with a computer, webcam, and reliable internet connection can take the test from anywhere, at any time.
It gives learners access to the existing features of Super Duolingo in addition to incremental features and exercises powered by generative AI technology. Duolingo English Test: AI-Driven Language Assessment Launched in 2016, the Duolingo English Test is an online, on-demand, high-stakes (e.g., used for university admissions) English proficiency assessment.
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Our Business With over 800 million downloads to date, our flagship app has organically become the world’s most popular way to learn languages and the top-grossing Education app in the App Stores.
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According to the 2024 HolonIQ report, consumer spend on both online and offline language learning is expected to reach about $115 billion by 2025, with online accelerating significantly over the next five years. Driving much of the demand for language learning is the reality that English can unlock tremendous economic opportunity.
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Learners who use Duolingo for free see an ad at the end of each lesson, whereas learners who purchase Super Duolingo, our premium subscription, enjoy an ad-free experience and access to additional features. As of December 31, 2022 approximately 8% of our monthly active users were paid subscribers of Super Duolingo.
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In 2016, we launched the Duolingo English Test, an online, on-demand assessment of English proficiency. Every year, millions of people around the world seek to demonstrate English proficiency for a variety of reasons, including university admissions, work visas, and job applications.
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In turn, this increases our popularity and user scale, as well as the effectiveness of our data analytics, further widening our competitive moat. 7 Table of Contents In 2016, we launched the Duolingo English Test, an online, on-demand assessment of English proficiency.
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In 2023, we also launched a new music course that's designed to teach basic music literacy, including how to read music notes and play simple songs with an on-screen keyboard. The Math and Music courses have both been integrated into the Duolingo App.
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Indeed, many of our learners prefer to spend time on Duolingo rather than on social media or mobile games because they can learn while still feeling entertained. Each of our learning and gamification features is carefully crafted to contribute to a learner experience that is defined by several key principles: • Low friction.
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Every course on Duolingo is free to access. Learners can spend as much time learning as they want and complete any and every course without paying. This lowers barriers to start learning and to keep learning.
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Beginning the learning journey on Duolingo is easy. Learners select the language they want to learn and are asked to indicate a daily learning goal, which can be as little as five or ten minutes a day.
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The Duolingo Method The Duolingo Method, which is our approach to teaching, comprises five principles that guide how we create new learning content, design engaging lessons, and build courses that are as effective as they are fun.
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Duolingo is recognized as a gold standard for user experience design, with our onboarding flows used as examples of industry best practices. 8 Table of Contents • Motivating game mechanics. Because we believe that staying motivated is the hardest part of learning something new, we focus relentlessly on keeping learners engaged.
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Our learning, product, and design teams have developed this approach by combining research on 8 Table of Contents teaching and learning, our experiences as teachers, and the results of more than a decade studying how our self-guided learners learn best. • Learn by doing.
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Features like Streaks and Leaderboards motivate learners to come back to Duolingo every day, and to spend more time learning each time they do. Ultimately, the high engagement driven by gamification leads to consistent learning and demonstrable efficacy. • Beautiful design and engaging storytelling. We focus obsessively on every detail of design.
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Each Duolingo lesson is designed with interactive exercises that put learners at the center of their own learning and allows them to immediately use what they are learning. This type of learning-by-doing engages the brain and leverages its natural ability to pick up on patterns present in the surroundings, often without conscious realization—it's a fundamental way our minds operate.
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From the precise shape and color of each button, to the mood of the celebratory animations that congratulate learners upon finishing each lesson, our app is calibrated to maximize learners’ delight. • Diverse learning experiences informed by robust pedagogy. Our learning experiences are designed by an in-house team of experts in learning science and second language acquisition.
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Duolingo lessons draw learners' attention to important patterns (such as verb conjugations or word order rules for language, or fraction creation for math), helping to solidify these concepts over time so that learners are ready to use what they learn in the real world. • Learn in a personalized way.
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Content in our largest courses is aligned to the Common European Framework of Reference (“CEFR”), an international standard for language proficiency, and the pedagogical structure of each course is unique. For example, Spanish-speakers learning English will encounter a different curriculum than Chinese-speakers learning English. • Application of data analytics and artificial intelligence to optimize learning .

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAny number of factors can negatively affect user stickiness, growth, engagement and conversion, including if: • users increasingly engage with other competitive products or services instead of our own; • user behavior on any of our products changes, including decreases in the frequency and duration of use of our products and services; • users feel that their experience is diminished as a result of the decisions we make with respect to the frequency, prominence, format, size and quality of ads that we display; • users become concerned about our user data practices or other matters related to privacy and the sharing of user data; • users lose confidence in our ability to teach language or other subjects or have concerns related to security or other factors; • users are no longer willing to pay for subscriptions or in-app purchases; • users have difficulty installing, updating or otherwise accessing our products on mobile devices as a result of actions by us or third parties that we rely on to distribute our products and deliver our services; • we fail to introduce new features, products or services that users find engaging or if we introduce new products or services, or make changes to existing products and services, that are not favorably received; • initiatives designed to attract and keep users and increase engagement are unsuccessful or discontinued, whether as a result of actions by us, third parties or otherwise; • there is a decrease in user stickiness as a result of users no longer being interested in pursuing online language learning or reaching a point where they feel our product cannot advance their language ability; • third-party initiatives that may enable greater use of our products, including low-cost or discounted data plans, are discontinued; • we adopt terms, policies or procedures related to areas such as user data or advertising that are perceived negatively by our users or the general public; • we fail to combat inappropriate or abusive activity on our platform; • we fail to provide adequate customer service to users, marketers or other partners; • we fail to protect our brand image or reputation; • we, our partners, or companies in our industry are the subject of adverse media reports or other negative publicity, including as a result of our or their user data practices; • technical or other problems prevent us from delivering our products in a rapid and reliable manner or otherwise affect the user experience, such as unplanned site outages due to our failure or the failure of third-party systems we rely on, security breaches, distributed denial-of-service attacks or failure to prevent or limit spam or similar content; • there is decreased engagement with our products as a result of internet shutdowns or other actions by governments that affect the accessibility of our products in any of our markets; 16 Table of Contents • there is decreased engagement with our products, or failure to accept our terms of service, as part of changes that we have implemented, or may implement, in the future in connection with regulations, regulatory actions or otherwise; • there is decreased engagement with our products as a result of changes in prevailing social, cultural or political preferences in the markets where we operate; or • there are changes mandated by legislation, regulatory authorities or litigation that adversely affect our products or users.
Biggest changeAny number of factors can negatively affect user stickiness, growth, engagement and conversion, including if: • users increasingly engage with other competitive products or services instead of our own; • user behavior on any of our products changes, including decreases in the frequency and duration of use of our products and services; • users feel that their experience is diminished as a result of the decisions we make with respect to the frequency, prominence, format, size and quality of ads that we display; • users become concerned about our user data practices or other matters related to privacy, security and the sharing of user data; 16 Table of Contents • users lose confidence in our ability to teach language or there is a decrease in user stickiness as a result of users no longer being interested in pursuing online language learning or reaching a point where they feel our product cannot advance their language ability; • users are no longer willing to pay for subscriptions or in-app purchases or we are unable to increase the price of our subscriptions or in-app purchases; • users have difficulty installing, updating or otherwise accessing our products on mobile devices as a result of actions by us or third parties that we rely on to distribute our products and deliver our services; • we fail to introduce new features, products or services that users find engaging or that are well received, or if we introduce new products or services, or make changes to existing products and services, that are not favorably received or that we are not able to monetize; • initiatives designed to attract and keep users and increase engagement are unsuccessful or discontinued, whether as a result of actions by us, third parties or otherwise; • third-party initiatives that may enable greater use of our products, including low-cost or discounted data plans, are discontinued; • we adopt terms, policies or procedures related to areas such as user data or advertising that are perceived negatively by our users or the general public; • we fail to combat inappropriate or abusive activity on our platform; • we fail to provide adequate customer service to users, marketers or other partners; • we fail to protect our brand image or reputation; • we, our partners, or companies in our industry are the subject of adverse media reports or other negative publicity, including as a result of our or their user data practices; • technical or other problems prevent us from delivering our products in a rapid and reliable manner or otherwise affect the user experience, such as unplanned site outages due to our failure or the failure of third-party systems we rely on, security breaches, distributed denial-of-service attacks or failure to prevent or limit spam or similar content; • there is decreased engagement with our products as a result of internet shutdowns or other actions by governments that affect the accessibility of our products in any of our markets; • there is decreased engagement with our products, or failure to accept our terms of service, as part of changes that we have implemented, or may implement, in the future in connection with regulations, regulatory actions or otherwise; • there is decreased engagement with our products as a result of changes in prevailing social, cultural or political preferences in the markets where we operate; or • there are changes mandated by legislation, regulatory authorities or litigation that adversely affect our products or users.
If our operational metrics are not accurate representations of our business, or if investors do not perceive these metrics to be accurate, or if we discover material inaccuracies with respect to these figures, our reputation may be significantly harmed, our stock price could decline, we may be subject to stockholder litigation, and our business, results of operations, and financial condition could be materially adversely affected.
If our operational metrics are not accurate representations of our business, or if investors do not perceive these metrics to be accurate, or if we discover material inaccuracies with respect to these figures, our reputation may be significantly harmed, our stock price could decline, we may be subject to stockholder litigation, and our business, financial condition, and results of operations could be materially adversely affected.
The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our results of operations, financial condition and cash flows.
The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our financial condition, results of operations, and cash flows.
Any failure or perceived failure by us (or the third parties with whom we have contracted to process such information) to comply with applicable privacy and security laws, policies or related contractual obligations, or any compromise of security that results in unauthorized access, use or transmission of, personal user information, could result in a variety of claims against us, including governmental enforcement actions and investigations, class action privacy litigation in certain jurisdictions and proceedings by data protection authorities.
Any failure or perceived failure by us (or the third parties with whom we have contracted to process such information) to comply with applicable data, privacy and security laws, policies or related contractual obligations, or any compromise of security that results in unauthorized access, use or transmission of, personal user information, could result in a variety of claims against us, including governmental enforcement actions and investigations, class action privacy litigation in certain jurisdictions and proceedings by data protection authorities.
Any of the foregoing could adversely impact the value or enforceability of our intellectual property, and materially adversely affect our business, results of operations, and financial condition.
Any of the foregoing could adversely impact the value or enforceability of our intellectual property, and materially adversely affect our business, financial condition, and results of operations.
Our corporate governance documents provide for: • a dual-class structure; • a classified board of directors with three-year staggered terms, who can only be removed for cause, which may delay the ability of stockholders to change the membership of a majority of our board of directors; • no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; • the exclusive right of our board of directors to set the size of the board of directors and to elect a director to fill a vacancy, however occurring, including by an expansion of the board of directors, which prevents stockholders from being able to fill vacancies on our board of directors; • the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including voting or other rights or preferences, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror; • the ability of our board of directors to alter our amended and restated bylaws without obtaining stockholder approval; • in addition to our board of director’s ability to adopt, amend, or repeal our amended and restated bylaws, our stockholders may adopt, amend, or repeal our amended and restated bylaws only with the affirmative vote of the holders of at least 66 2/3% of the voting power of all our then-outstanding shares of capital stock; 52 Table of Contents • the required approval of (i) at least 66 2/3% of the voting power of the outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class, to adopt, amend, or repeal certain provisions of our restated certificate of incorporation and (ii) for so long as any shares of Class B common stock are outstanding, the holders of at least 80% of the shares of Class B common stock outstanding at the time of such vote, voting as a separate series, to adopt, amend, or repeal certain provisions of our restated certificate of incorporation; • the ability of stockholders to act by written consent only as long as holders of our Class B common stock hold at least 50% of the voting power of our capital stock; • the requirement that a special meeting of stockholders may be called only by an officer of our company pursuant to a resolution adopted by a majority of our board of directors then in office or the chairperson of our board; and • advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us.
Our corporate governance documents provide for: • a dual-class structure; • a classified board of directors with three-year staggered terms, who can only be removed for cause, which may delay the ability of stockholders to change the membership of a majority of our board of directors; • no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; • the exclusive right of our board of directors to set the size of the board of directors and to elect a director to fill a vacancy, however occurring, including by an expansion of the board of directors, which prevents stockholders from being able to fill vacancies on our board of directors; • the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including voting or other rights or preferences, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror; • the ability of our board of directors to alter our amended and restated bylaws without obtaining stockholder approval; • in addition to our board of director’s ability to adopt, amend, or repeal our amended and restated bylaws, our stockholders may adopt, amend, or repeal our amended and restated bylaws only with the affirmative vote of the holders of at least 66 2/3% of the voting power of all our then-outstanding shares of capital stock; • the required approval of (i) at least 66 2/3% of the voting power of the outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class, to adopt, amend, or repeal certain provisions of our restated certificate of incorporation and (ii) for so long as any shares of Class B common stock are outstanding, the holders of at least 80% of the shares of Class B common stock outstanding at the time of such vote, voting as a separate series, to adopt, amend, or repeal certain provisions of our restated certificate of incorporation; • the ability of stockholders to act by written consent only as long as holders of our Class B common stock hold at least 50% of the voting power of our capital stock; • the requirement that a special meeting of stockholders may be called only by an officer of our company pursuant to a resolution adopted by a majority of our board of directors then in office or the chairperson of our board; and • advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us.
Even if our users are not directly impacted by a given data security breach, they may lose confidence in the ability of service providers to protect their personal information generally, which could cause them to stop using their credit cards online and choose alternative payment methods that are not as convenient for us or restrict our ability to process payments without significant cost or user effort.
Even if our users are not directly impacted by a given data security breach, they may lose confidence in the ability of service providers to protect their personal information generally, which could cause them to stop using their payment cards online and choose alternative payment methods that are not as convenient for us or restrict our ability to process payments without significant cost or user effort.
Although we expect that our commitment to Duolingo’s mission will, accordingly, improve our financial performance over the long term, these decisions may not be consistent with the expectations of investors and any longer-term benefits may not materialize within the time frame we expect or at all, which could harm our business, revenue and financial results.
Although we expect that our commitment to Duolingo’s mission will, accordingly, improve our financial performance and value over the long term, these decisions may not be consistent with the expectations of investors and any longer-term benefits may not materialize within the time frame we expect or at all, which could harm our business, revenue and financial results.
In the event that any court of law orders the suspension of personal data transfers to or from a particular jurisdiction this could give rise to operational interruption in the performance of services for customers, greater costs to implement alternative data transfer mechanisms that are still permitted, regulatory liabilities or reputational harm.
In the event that any regulator or court of law orders the suspension of personal data transfers to or from a particular jurisdiction this could give rise to operational interruption in the performance of services for customers, greater costs to implement alternative data transfer mechanisms that are still permitted, regulatory liabilities or reputational harm.
See “—Security breaches of our networks, systems or applications, improper unauthorized access to or disclosure of our proprietary data or user-related data, including personal data, other hacking and phishing attacks on our systems or service, or other cyber incidents could disrupt our services or compromise sensitive information related to our business and/or personal data processed by us or on our behalf and expose us to liability, which could harm our reputation and materially adversely affect our business.” We also continually work to expand and enhance the efficiency and scalability of our technology and network systems to improve the experience of our users, accommodate substantial increases in the volume of traffic to our various products, ensure acceptable load times for our products and keep up with changes in technology and user preferences.
See “—Security breaches of our networks, systems or applications, improper unauthorized access to or disclosure of our proprietary data or user-related data, including personal data, other hacking and social engineering or phishing attacks on our systems or service, or other cyber incidents could disrupt our services or compromise sensitive information related to our business and/or personal data processed by us or on our behalf and expose us to liability, which could harm our reputation and materially adversely affect our business.” We also continually work to expand and enhance the efficiency and scalability of our technology and network systems to improve the experience of our users, accommodate substantial increases in the volume of traffic to our various products, ensure acceptable load times for our products and keep up with changes in technology and user preferences.
We may experience operational and financial risks in connection with historical and future acquisitions if we are unable to: • properly value prospective acquisitions, especially those with limited operating histories; • accurately review acquisition candidates’ business practices against applicable laws and regulations and, where applicable, implement proper remediation controls, procedures, and policies; 34 Table of Contents • successfully integrate the operations, as well as the accounting, financial controls, management information, technology, human resources and other administrative systems, of acquired businesses with our existing operations and systems; • overcome cultural challenges associated with integrating employees from the acquired company into our organization; • successfully identify and realize potential synergies among acquired and existing businesses; • fully identify potential risks and liabilities associated with acquired businesses, including intellectual property infringement claims, violations of laws, commercial disputes, tax liabilities, litigation or other claims in connection with the acquired company, including claims from terminated employees, former stockholders or other third parties, and other known and unknown liabilities; • retain or hire senior management and other key personnel at acquired businesses; and • successfully manage acquisition-related strain on our management, operations and financial resources and those of the various brands in our portfolio Furthermore, we may not be successful in addressing other challenges encountered in connection with our acquisitions.
We may experience operational and financial risks in connection with historical and future acquisitions if we are unable to: • properly value prospective acquisitions, especially those with limited operating histories; • accurately review acquisition candidates’ business practices against applicable laws and regulations and, where applicable, implement proper remediation controls, procedures, and policies; • successfully integrate the operations, as well as the accounting, financial controls, management information, technology, human resources and other administrative systems, of acquired businesses with our existing operations and systems; • overcome cultural challenges associated with integrating employees from the acquired company into our organization; • successfully identify and realize potential synergies among acquired and existing businesses; • fully identify potential risks and liabilities associated with acquired businesses, including intellectual property infringement claims, violations of laws, commercial disputes, tax liabilities, litigation or other claims in connection with the acquired company, including claims from terminated employees, former stockholders or other third parties, and other known and unknown liabilities; • retain or hire senior management and other key personnel at acquired businesses; and • successfully manage acquisition-related strain on our management, operations and financial resources and those of the various brands in our portfolio Furthermore, we may not be successful in addressing other challenges encountered in connection with our acquisitions.
If people do not perceive our products to be useful, effective, reliable, and/or trustworthy, we may not be able to attract or keep users or otherwise maintain or increase the frequency and duration of their engagement or the percentage of users that are converted into paying subscribers.
If people do not perceive our products to be useful, effective, reliable, and/or trustworthy, we may not be able to attract or keep users or otherwise maintain or increase the frequency and duration of their engagement or the percentage of users that are converted into or remain paying subscribers.
Our growth and profitability rely, in part, on our ability to attract and keep users through cost-effective marketing efforts, including through our social media presence and use of social media influencers. Any failure in these efforts could materially adversely affect our business, financial condition and results of operations.
Our growth and profitability rely, in part, on our ability to attract and keep users through cost-effective marketing efforts, including through our social media presence, use of social media influencers and performance marketing. Any failure in these efforts could materially adversely affect our business, financial condition and results of operations.
Our third party payment service providers utilize tokenization tools to replace sensitive cardholder information with a stand-in token to help secure individual cardholder bank account details in credit card transactions and to reduce the number of systems that have access to our customers’ credit card information.
Our third party payment service providers utilize tokenization tools to replace sensitive cardholder information with a stand-in token to help secure individual cardholder bank account details in payment card transactions and to reduce the number of systems that have access to our customers’ payment card information.
Our financial condition and operating results in any given quarter can be influenced by numerous factors, many of which we are unable to predict or are outside of our control, including, for example: • the timing, size and effectiveness of our marketing efforts; • the timing and success of new product, service and feature introductions by us or our competitors or any other change in the competitive landscape of our market; • fluctuations in the rate at which we attract new users, the level of engagement of such users and the propensity of such users to subscribe to our brands or to purchase à la carte features; • successful expansion into international markets; • errors in our forecasting of the demand for our products and services, which could lead to lower revenue or increased costs, or both; • increases in sales and marketing, product development or other operating expenses that we may incur to grow and expand our operations and to remain competitive; • the diversification and growth of our revenue sources; • our ability to maintain gross margins and operating margins; • fluctuations in currency exchange rates and changes in the proportion of our expenses denominated in foreign currencies; • changes in our effective tax rate; • changes in accounting standards, policies, guidance, interpretations, or principles; • our development and improvement of the quality of the Duolingo language app and Duolingo English Test, other Duolingo experiences, including, enhancing existing and creating new products, services, technology and features; • the continued development and upgrading of our technology platform; • system failures or breaches of security or privacy; 20 Table of Contents • our ability to obtain, maintain, protect and enforce intellectual property rights and successfully defend against claims of infringement, misappropriation or other violations of third-party intellectual property; • adverse litigation judgments, settlements, or other litigation-related costs; • changes in the legislative or regulatory environment, including with respect to privacy, intellectual property, consumer product safety, and advertising, or enforcement by government regulators, including fines, orders, or consent decrees; and • changes in business or macroeconomic conditions, including the impact of the COVID-19 pandemic, lower consumer confidence in our business or in the online learning industry generally, recessionary conditions, increased inflation, increased unemployment rates, stagnant or declining wages, political unrest, armed conflicts, or natural disasters.
Our financial 20 Table of Contents condition and operating results in any given quarter can be influenced by numerous factors, many of which we are unable to predict or are outside of our control, including, for example: • the timing, size and effectiveness of our research and development efforts; • the timing, size and effectiveness of our marketing efforts; • the timing and success of new product, service and feature introductions by us or our competitors or any other change in the competitive landscape of our market; • fluctuations in the rate at which we attract new users, the level of engagement of such users and the propensity of such users to subscribe to our brands or to purchase à la carte features; • successful expansion into international markets; • errors in our forecasting of the demand for our products and services, which could lead to lower revenue or increased costs, or both; • increases in sales and marketing, product development or other operating expenses that we may incur to grow and expand our operations and to remain competitive; • the diversification and growth of our revenue sources; • our ability to maintain gross margins and operating margins; • fluctuations in currency exchange rates and changes in the proportion of our expenses denominated in foreign currencies; • changes in our effective tax rate; • changes in accounting standards, policies, guidance, interpretations, or principles; • our development and improvement of the quality of the Duolingo language app and Duolingo English Test, other Duolingo experiences, including, enhancing existing and creating new products, services, technology and features; • the continued development and upgrading of our technology platform; • system failures or breaches of security or privacy; • our ability to obtain, maintain, protect and enforce intellectual property rights and successfully defend against claims of infringement, misappropriation or other violations of third-party intellectual property; • adverse litigation judgments, settlements, or other litigation-related costs; • changes in the legislative or regulatory environment, including with respect to privacy, intellectual property, consumer product safety, and advertising, or enforcement by government regulators, including fines, orders, or consent decrees; and • changes in business or macroeconomic conditions, lower consumer confidence in our business or in the online learning industry generally, recessionary conditions, increased inflation, increased interest rates, increased unemployment rates, stagnant or declining wages, political unrest, armed conflicts, or natural disasters.
If our new or enhanced brands, products or product extensions fail to engage users, we may fail to attract or keep users or to generate sufficient revenue, operating margin, or other value to justify our investments, and our business may be materially adversely affected.
If our new or enhanced brands, products, features or product extensions fail to engage users, we may fail to attract or keep users or to generate sufficient revenue, operating margin, or other value to justify our investments, and our business may be materially adversely affected.
If these assumptions turn out to be unfounded, our stock-based compensation expense could be materially higher than expected for current and future periods, which could have a material adverse effect on our net loss.
If these assumptions turn out to be unfounded, our stock-based compensation expense could be materially higher than expected for current and future periods, which could have a material adverse effect on our net income (loss).
Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful; • we may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law; 53 Table of Contents • we are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification; • the rights conferred in our amended and restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons; and • we may not retroactively amend our amended and restated bylaw provisions to reduce our indemnification obligations to directors, officers, employees, and agents.
Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful; • we may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law; • we are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification; • the rights conferred in our amended and restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons; and • we may not retroactively amend our amended and restated bylaw provisions to reduce our indemnification obligations to directors, officers, employees, and agents.
In addition, third parties may attempt to fraudulently induce employees or users to disclose information in order to gain access to our data or our users’ data. Cyber-attacks, including account take over, have increased.
Third parties may attempt to fraudulently induce employees or users to disclose information in order to gain access to our data or our users’ data. Cyber-attacks, including account take over, have increased.
In addition to purchases through the Apple App Store and the Google Play Store, we accept payment from our users through credit card transactions, certain online payment service providers, and mobile payment platforms.
In addition to purchases through the Apple App Store and the Google Play Store, we accept payment from our users through payment card transactions, certain online payment service providers, and mobile payment platforms.
We cannot assure you that the measures we have taken to date, and actions we may take in the future, will be sufficient to prevent or avoid potential future material weaknesses.
Further, we cannot assure you that the measures we have taken to date, and actions we may take in the future, will be sufficient to prevent or avoid potential future material weaknesses.
Our amended and restated certificate of incorporation and amended and restated bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine; provided that, the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction; and provided further that, if and only if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, such action may be brought in another state or federal court sitting in the State of Delaware.
Our amended and restated certificate of incorporation and amended and restated bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws, or any action asserting a claim against us that is 55 Table of Contents governed by the internal affairs doctrine; provided that, the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction; and provided further that, if and only if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, such action may be brought in another state or federal court sitting in the State of Delaware.
See “—Unfavorable media coverage could materially adversely affect our business, brand image or reputation.”. We operate in various international markets, including certain markets in which we have limited experience. As a result, we face additional risks in connection with certain of our international operations. Both our language learning application and the Duolingo English Test are available all over the world.
See “—Unfavorable media coverage could materially adversely affect our business, brand image or reputation.”. We operate in various international markets, including certain markets in which we have limited experience. As a result, we face additional risks in connection with certain of our international operations. Both our mobile learning application and the Duolingo English Test are available all over the world.
Security breaches of our networks, systems or applications, improper unauthorized access to or disclosure of our proprietary data or user-related data, including personal data, other hacking and phishing attacks on our systems or service, or other cyber incidents could disrupt our services or compromise sensitive information related to our business and/or personal data processed by us or on our behalf and expose us to liability, which could harm our reputation and materially adversely affect our business.
Security breaches of our networks, systems or applications, improper unauthorized access to or disclosure of our proprietary data or user-related data, including personal data, other hacking and social engineering or phishing attacks on our systems or service, or other cyber incidents could disrupt our services or compromise sensitive information related to our business and/or personal data processed by us or on our behalf and expose us to liability, which could harm our reputation and materially adversely affect our business.
Our quarterly operating results and other operating metrics have fluctuated in the past and may continue to fluctuate from quarter to quarter, which makes them difficult to predict.
Our quarterly operating results and other operating metrics have fluctuated in the past and may continue to fluctuate seasonally, and from quarter to quarter, which makes them difficult to predict.
This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources. If securities or industry analysts do not publish research or reports about our business, or if they downgrade their recommendations regarding our Class A common stock, our stock price and trading volume could decline.
This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources. If securities or industry analysts do not continue to publish research or reports about our business, or if they downgrade their recommendations regarding our Class A common stock, our stock price and trading volume could decline.
Any limit or discontinuation of our access to any platform could significantly reduce our ability to distribute our products to users, decrease the size of the user base we could convert into paying users, or decrease the revenues we derive from paying users or advertisers, each of which would materially and adversely affect our business, financial condition and results of operations.
Any limit or discontinuation of our access to any platform could significantly reduce our ability to distribute our products to users, decrease the size of the user base we could convert into paying users, or decrease the payments we derive from paying users or advertisers, each of which would materially and adversely affect our business, financial condition and results of operations.
It is likely that we would not be able to reach all affected users, and even if we could, some users’ new credit card information may not be obtained and some pending transactions may not be processed, which could materially adversely affect our business, financial condition and results of operations.
It is likely that we would not be able to reach all affected users, and even if we could, some users’ new payment card information may not be obtained and some pending transactions may not be processed, which could materially adversely affect our business, financial condition and results of operations.
If regulators continue to enforce the strict approach in recent guidance, this could lead to substantial costs, require significant systems changes, limit the effectiveness of our marketing activities, divert the attention of our technology personnel, adversely affect our margins, increase costs and subject us to additional liabilities.
If regulators continue to enforce the strict approach seen in recent guidance and decisions, this could lead to substantial costs, require significant systems changes, limit the effectiveness of our marketing activities, divert the attention of our technology personnel, adversely affect our margins, increase costs and subject us to additional liabilities.
There is no guarantee that investing in new lines of business, new products, new product extensions and other initiatives will succeed.
There is no guarantee that investing in new lines of business, new products, new product features, new product extensions and other initiatives will succeed.
Operating internationally, particularly in countries in which we have limited experience, exposes us to a number of additional risks, including: • operational and compliance challenges caused by distance, language and cultural differences; • the cost and resources required to localize our platform and services, which often requires the translation of our platform into foreign languages and adaptation for local practices and regulatory requirements; • difficulties in staffing and managing international operations; • differing levels of social and technological acceptance of our products or lack of acceptance of them generally; 28 Table of Contents • foreign currency fluctuations, and in particular, decreases in the value of foreign currencies relative to the US dollar; • restrictions on the transfer of funds among countries and back to the United States, as well as costs associated with repatriating funds to the United States; • differing and potentially adverse tax laws, including resulting from the complexities of foreign corporate income tax systems, value added tax (“VAT”) regimes, tax withholding rules, and other indirect taxes, tax collection or remittance obligations, and restrictions on the repatriation of earnings; • multiple, conflicting and changing laws, rules and regulations, and difficulties understanding and ensuring compliance with those laws, rules and regulations by both our employees and our users, over whom we exert no control; • compliance challenges due to different laws and regulatory environments, particularly in the case of privacy, data security, and content, which are complex, sometimes inconsistent, and subject to unexpected changes; • competitive environments that favor local businesses; • reduced or varied protection for our intellectual property rights in some countries; • low usage and/or penetration of internet-connected consumer electronic devices; • political tension or social unrest and economic instability, particularly in countries in which we operate; • trade sanctions, political unrest, terrorism, war, health and safety epidemics (such as the COVID-19 pandemic) or the threat of any of these events; and • breaches or violation of any anti-corruption laws, rules or regulations applicable to our business, including but not limited to the Foreign Corrupt Practices Act of 1977, as amended.
Operating internationally, particularly in countries in which we have limited experience, exposes us to a number of additional risks, including: • operational and compliance challenges caused by distance, language and cultural differences; • the cost and resources required to localize our platform and services, which often requires the translation of our platform into foreign languages and adaptation for local practices and regulatory requirements; • difficulties in staffing and managing international operations; 29 Table of Contents • differing levels of social and technological acceptance of our products or lack of acceptance of them generally; • foreign currency fluctuations, and in particular, decreases in the value of foreign currencies relative to the U.S. dollar; • restrictions on the transfer of funds among countries and back to the U.S., as well as costs associated with repatriating funds to the U.S.; • differing and potentially adverse tax laws, including resulting from the complexities of foreign corporate income tax systems, value added tax (“VAT”) regimes, tax withholding rules, and other indirect taxes, tax collection or remittance obligations, and restrictions on the repatriation of earnings; • multiple, conflicting and changing laws, rules and regulations, and difficulties understanding and ensuring compliance with those laws, rules and regulations by both our employees and our users, over whom we exert no control; • compliance challenges due to different laws and regulatory environments, particularly in the case of privacy, data security, and content, which are complex, sometimes inconsistent, and subject to unexpected changes; • competitive environments that favor local businesses; • reduced or varied protection for our intellectual property rights in some countries; • low usage and/or penetration of internet-connected consumer electronic devices; • political tension or social unrest and economic instability, particularly in countries in which we operate; • trade sanctions, political unrest, terrorism, war, health and safety epidemics or the threat of any of these events; and • breaches or violation of any anti-corruption laws, rules or regulations applicable to our business, including but not limited to the Foreign Corrupt Practices Act of 1977, as amended.
If our relationship with any advertising partners terminates for any reason, or if the commercial terms of our relationships are changed or do not continue to be renewed on favorable terms, or if we cannot source high-quality ads consistent with our brand or product experience, 24 Table of Contents we would need to qualify new advertising partners, which could negatively impact our revenues, at least in the short term.
If our relationship with any advertising partners terminates for any reason, or if the commercial terms of our relationships are changed or do not continue to be renewed on favorable terms, or if we cannot source high-quality ads consistent with our brand or product experience, we would need to qualify new advertising partners, which could negatively impact our revenues, at least in the short term.
The GDPR and the UK GDPR also impose conditions on obtaining valid consent, such as a prohibition on pre-checked consents and a requirement to ensure separate consents are sought for each type of non-strictly necessary cookie or similar technology.
GDPR also impose conditions on obtaining valid consent, such as a prohibition on pre-checked consents and a requirement to ensure separate consents are sought for each type of non-strictly necessary cookie or similar technology.
If we are unable to maintain a good relationship with such platform providers, if their terms and conditions or pricing changes to our detriment, if we violate, or if a platform provider believes that we have violated, the terms and conditions of its platform, or if any of these platforms loses market share or falls out of favor or is unavailable for a prolonged period of time, our business will suffer.
If we are unable to maintain a good relationship with such platform providers, if their terms and conditions or pricing changes to our detriment, if 22 Table of Contents we violate, or if a platform provider believes that we have violated, the terms and conditions of its platform, or if any of these platforms loses market share or falls out of favor or is unavailable for a prolonged period of time, our business will suffer.
State laws are changing rapidly and there is discussion in Congress of a new federal data protection and privacy law to which we would become subject if it is enacted. Additionally, governmental agencies like the Consumer Financial Protection Bureau and the Federal Trade Commission have adopted, or are considering adopting, laws and regulations concerning personal information and data security.
State laws are changing rapidly and there is discussion in Congress of a new federal data protection and privacy law to which we would become subject if it is enacted. 41 Table of Contents Additionally, governmental agencies like the Consumer Financial Protection Bureau and the Federal Trade Commission have adopted, or are considering adopting, laws and regulations concerning personal information and data security.
For example, the Federal Trade Commission has increased its focus on privacy and data security practices at digital companies, as evidenced by obtaining increasing fines against companies found to be in violation of the Children’s Online Privacy Protection Act (“COPPA”), and obtaining twenty-year consent decrees mandating enhanced and specific requirements for information security management programs.
For example, the Federal Trade Commission has increased its focus on privacy and data security practices at digital companies, as evidenced by obtaining increasing fines and prohibiting future data practices against companies found to be in violation of the Children’s Online Privacy Protection Act (“COPPA”), and obtaining twenty-year consent decrees mandating enhanced and specific requirements for information security or privacy management programs.
It is difficult to predict the impact of future changes to accounting principles and accounting policies over financial reporting, any of which could adversely affect our results of operations and financial condition and could require significant investment in systems and personnel.
It is difficult to predict the impact of future changes to accounting principles and accounting policies over financial reporting, any of which could adversely affect our financial condition and results of operations and could require significant investment in systems and personnel. Changes to tax laws could impact our financial results and operations.
For example, in 2020, Apple released “Translate," an iOS translation app developed by Apple for iOS devices, to translate text sentences or speech between several languages. Potential competitors also include established social media companies that may develop products, features, or services that may compete with ours or operators of mobile operating systems and app stores.
For example, in 2020, Apple released “Translate," an iOS translation app developed by Apple for iOS devices, to translate 18 Table of Contents text sentences or speech between several languages. Potential competitors also include established social media companies that may develop products, features, or services that may compete with ours or operators of mobile operating systems and app stores.
Our products and services and the operation of our business involve the collection, storage, processing, and transmission of data, including personal data. The information systems that store and process such data are susceptible to increasing threats of continually evolving cybersecurity risks.
Our products and services and the operation of our business involve the collection, storage, processing, and transmission of data, including personal data. The information systems that store and process such data, including information systems of third parties, are susceptible to increasing threats of continually evolving cybersecurity risks.
As another example, in April 2021 Apple released an update of iOS that requires its users, on an app-by-app basis, to explicitly opt-in to the use of identifier-for-advertising, a device identifier assigned by Apple to each of its devices and used by advertisers to attribute app installs to advertising campaigns, target users through user acquisition, and deliver targeted ads.
As another example, in April 2021 Apple released an update of iOS that requires its users, on an app-by-app basis, to explicitly opt-in to the use of identifier-for-advertising, a device identifier assigned by Apple to each of its devices and used by advertisers to attribute app installs to advertising campaigns, target users through 23 Table of Contents user acquisition, and deliver targeted ads.
These laws and regulations limit our ability to market, sell, distribute or otherwise transfer our products, software, or technology to, or otherwise transact or deal with, certain countries, territories, governments, and persons, absent US government permissions or exemptions. Further, we have historically provided services to users in countries that are the target of US sanctions, such as Syria.
These laws and regulations limit our ability to market, sell, distribute or otherwise transfer our products, software, or technology to, or otherwise transact or deal with, certain countries, territories, governments, and persons, absent U.S. government permissions or exemptions. Further, we have historically provided services to users in countries that are the target of U.S. sanctions, such as Syria.
If their interpretation of the requirements under these laws is inconsistent with our business practices, this may require us to make changes to our business practices, which could be time-consuming and expensive, and could generate additional risks and liabilities. Multiple legislative proposals concerning privacy and the protection of user information are being considered by the US Congress.
If their interpretation of the requirements under these laws is inconsistent with our business practices, this may require us to make changes to our business practices, which could be time-consuming and expensive, and could generate additional risks and liabilities. In the U.S., multiple legislative proposals concerning privacy and the protection of user information are being considered by the U.S. Congress.
While these numbers are based on what we believe to be reasonable estimates of our metrics for the applicable period of 21 Table of Contents measurement, there are inherent challenges in measuring how our products are used across large populations globally. Errors or inaccuracies in our metrics or data could also result in incorrect business decisions and inefficiencies.
While these numbers are based on what we believe to be reasonable estimates of our metrics for the applicable period of measurement, there are inherent challenges in measuring how our products are used across large populations globally. Errors or inaccuracies in our metrics or data could also result in incorrect business decisions and inefficiencies.
To the extent our users are ever affected by such a breach experienced by us or a third party, affected users would need to be contacted to obtain new credit card information and process any pending transactions.
To the extent our users are ever affected by such a breach experienced by us or a third party, affected users would need to be contacted to obtain new payment card information and process any pending transactions.
We receive, process, store, and transmit personal user and other confidential or sensitive information, including credit card information and personal information of our employees and users. In some cases, we engage third-party service providers to process or store this information.
We receive, process, store, and transmit personal user and other confidential or sensitive information, including payment card information and personal information of our employees and users. In some cases, we engage third-party service providers to process or store this information.
Whether or not we are successful in defending against such actions or investigations, if any of our employees, consultants or third party providers were to engage in or be accused of misconduct, we could be exposed to legal liability, incur substantial costs, our business and reputation could be materially adversely affected, and we could fail to retain key employees.
Whether or not we are successful in defending against such actions or investigations, if any of our employees, consultants or third party providers were to engage in or be accused of misconduct, we could be exposed to legal liability, incur substantial costs, our business and reputation could be materially adversely affected, and 28 Table of Contents we could fail to retain key employees.
These laws impose restrictions on our ability to gather personal data, provide individuals with the ability to opt out of personal data collection and control how their personal data is processed, impose obligations on our ability to share personal data with others, limit the geographic locations in which we can store personal data, and potentially subject us to fines, lawsuits, and regulatory scrutiny.
These laws impose restrictions on our ability to gather personal data, provide individuals with the ability to opt out of personal data collection and control how their personal data is processed, impose 39 Table of Contents obligations on our ability to share personal data with others, limit the geographic locations in which we can store personal data, and potentially subject us to fines, lawsuits, and regulatory scrutiny.
In addition, we may have to seek a license to continue practices found to be in violation of a third-party’s rights. If we are required, or choose to enter into royalty or licensing arrangements, such arrangements may not be available on reasonable terms, or at all, and may significantly increase our operating costs and expenses.
In addition, we may have to seek a license to continue practices found to be in violation of a third-party’s rights. If we are required, or choose to enter into royalty or licensing arrangements, such arrangements 47 Table of Contents may not be available on reasonable terms, or at all, and may significantly increase our operating costs and expenses.
In addition, our operating results could be below the expectations of public market analysts and investors due to a number of potential factors, including variations in our quarterly operating results or dividends, if any, to stockholders, additions or departures of key management personnel, failure to meet analysts’ earnings estimates, publication of research reports about our industry, litigation and government investigations, changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business, adverse market reaction to any indebtedness we may incur or securities we may issue in the future, changes in market valuations of similar companies or speculation in the press or investment community, announcements by our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments, adverse publicity about the 49 Table of Contents industries we participate in or individual scandals, and in response the market price of shares of our Class A common stock could decrease significantly.
In addition, our operating results could be below the expectations of public market analysts and investors due to a number of potential factors, including variations in our quarterly operating results or dividends, if any, to stockholders, additions or departures of key management personnel, failure to meet analysts’ earnings estimates, publication of research reports about our industry, the timing and amount of any share repurchases, litigation and government investigations, changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business, adverse market reaction to any indebtedness we may incur or securities we may issue in the future, changes in market valuations of similar companies or speculation in the press or investment community, announcements by our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments, adverse publicity about the industries we participate in or individual scandals, and in response the market price of shares of our Class A common stock could decrease significantly.
We estimate that there are thousands of free mobile applications for language learning; free products are provided in at least 50 languages by private companies, universities and government agencies. Low barriers to entry allow start- 17 Table of Contents up companies with lower costs and less pressure for profitability to compete with us.
We estimate that there are thousands of free mobile applications for language learning; free products are provided in at least 50 languages by private companies, universities and government agencies. Low barriers to entry allow start-up companies with lower costs and less pressure for profitability to compete with us.
For instance, in the fall of 2021 our language learning application became unavailable for download on most app stores in China. While this was temporary and we were reinstated in May 2022, it serves as an example of how the Chinese regulatory regime could adversely impact our efforts in China.
For instance, in the fall of 2021 our language learning application became unavailable for download on most app stores in China. While this was temporary and we were reinstated in May 2022, it serves as an example of how the Chinese regulatory regime could adversely 30 Table of Contents impact our efforts in China.
Our office of over 30 employees in Beijing makes it easier for the Chinese authorities to bring enforcement actions against us. 29 Table of Contents The occurrence or impact of any or all of the events described above could materially adversely affect our international operations, which could in turn materially adversely affect our business, financial condition and results of operations.
Our office of over 30 employees in Beijing makes it easier for the Chinese authorities to bring enforcement actions against us. The occurrence or impact of any or all of the events described above could materially adversely affect our international operations, which could in turn materially adversely affect our business, financial condition and results of operations.
Our amended and restated certificate of incorporation and amended and restated bylaws provide for an exclusive forum in the Court of Chancery of the State of Delaware for certain disputes between us and our stockholders, and that the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action under the Securities Act, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Our amended and restated certificate of incorporation and amended and restated bylaws provide for an exclusive forum in the Court of Chancery of the State of Delaware for certain disputes between us and our stockholders, and that the federal district courts of the U.S. of America will be the exclusive forum for the resolution of any complaint asserting a cause of action under the Securities Act, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
We also expect further jurisdictions to adopt these types of laws and regulations, which would further increase these risks, and may require us to spend additional resources in order to comply. 42 Table of Contents Additionally, new regulations are being considered in various jurisdictions to require the monitoring of user content or the verification of users’ identities and age.
We also expect further jurisdictions to adopt these types of laws and regulations, which would further increase these risks, and may require us to spend additional resources in order to comply. Additionally, new regulations are being considered in various jurisdictions to require the monitoring of user content or the verification of users’ identities and age.
The legal systems of certain countries, particularly certain developing 47 Table of Contents countries, may not favor the enforcement of trademarks, copyrights, trade secrets and other intellectual property protection, which could make it difficult for us to stop the infringement, misappropriation or other violation of our intellectual property or the marketing of competing products in violation of our intellectual property rights generally.
The legal systems of certain countries, particularly certain developing countries, may not favor the enforcement of trademarks, copyrights, trade secrets and other intellectual property protection, which could make it difficult for us to stop the infringement, misappropriation or other violation of our intellectual property or the marketing of competing products in violation of our intellectual property rights generally.
In addition, if the license terms for the open source code change, we may be forced to re-engineer our software, revise our content or otherwise incur additional costs. Additionally, the terms of many open source licenses to which we are subject have not been interpreted by US or foreign courts.
In addition, if the license terms for the open source code change, we may be forced to re-engineer our software, revise our content or otherwise incur additional costs. Additionally, the terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts.
As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the General Corporation Law of the State of Delaware (the Delaware General Corporation Law), which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of our outstanding common stock.
As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the General Corporation Law of the State of Delaware (the Delaware General Corporation Law), which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in 54 Table of Contents certain business combinations without approval of the holders of substantially all of our outstanding common stock.
These proposals include changes to the existing framework to calculate income tax, as well as proposals to change or impose new types of non-income taxes, including taxes based on a percentage of revenue.
These proposals and new laws include changes to the existing framework to calculate income tax, as well as proposals to change or impose new types of non-income taxes, including taxes based on a percentage of revenue.
The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in 35 Table of Contents foreign exchange rates and may introduce additional risks if we are unable to structure effective hedges with such instruments.
The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates and may introduce additional risks if we are unable to structure effective hedges with such instruments.
To the extent that our platform depends upon the successful operation of the open source software we use, any undetected errors or defects in this open source software could prevent the deployment or impair the functionality of our platform, delay the introduction of new solutions, result in a failure of our platform, and injure our reputation.
To the extent that our platform depends upon the successful operation of the open source software we use, any undetected errors or defects in this open source software could prevent the deployment or impair the functionality of our platform, delay the introduction of new solutions, result in a failure of our platform, and injure our 50 Table of Contents reputation.
The size of our user base and our users’ level of engagement and paid conversion are critical to our success. Our financial performance has been and will continue to be significantly determined by our success in adding, keeping and engaging users of our products and converting them into paying subscribers.
The size of our user base and our users’ level of engagement and paid conversion are critical to our success. Our financial performance has been and will continue to be significantly determined by our success in adding, keeping and engaging users of our products and converting them into paying subscribers who remain continuing paying subscribers.
Failure to manage our future growth effectively could have a material adverse effect on our business, financial condition, and operating results. 19 Table of Contents Our costs are continuing to grow, and some of our investments have the effect of reducing our operating margin and profitability. If our investments are not successful, our business and financial performance could be harmed.
Failure to manage our future growth effectively could have a material adverse effect on our business, financial condition, and operating results. Our costs are continuing to grow, and some of our investments have the effect of reducing our operating margin and profitability. If our investments are not successful, our business and financial performance could be harmed.
The myriad international and US privacy and data breach laws are not consistent, and compliance in the event of a widespread data breach is difficult and may be costly. In addition to government regulation, privacy advocates and industry groups have and may in the future propose self-regulatory standards from time to time.
The myriad international and U.S. privacy and data breach laws are not consistent, and compliance in the event of a widespread data breach is difficult and may be costly. In addition to government regulation, privacy advocates and industry groups have and may in the future propose self-regulatory standards from time to time.
These shares can be freely sold in the public market upon issuance, subject to applicable vesting 51 Table of Contents requirements, compliance by affiliates with Rule 144, and other restrictions provided under the terms of the applicable plan and/or the award agreements entered into with participants.
These shares can be freely sold in the public market upon issuance, subject to applicable vesting requirements, compliance by affiliates with Rule 144, and other restrictions provided under the terms of the applicable plan and/or the award agreements entered into with participants.
If any of the following risks actually occur, it could harm our business, prospects, operating results, and financial condition and future prospects. In such event, the market price of our Class A common stock could decline and you could lose all or part of your investment.
If any of the following risks actually occur, it could harm our business, prospects, financial condition, and results of operations and future prospects. In such an event, the market price of our Class A common stock could decline and you could lose all or part of your investment.
As a result, our brand and reputation may be negatively affected by actions we take that are viewed as contrary to that mission, such as features that are only available to Super Duolingo subscribers or changes to the free offering that are viewed as undermining how fun or effective the free offering is.
As a result, our brand and reputation may be negatively affected by actions we take that are viewed as contrary to that mission, such as features that are only available to paid subscribers or changes to the free offering that are viewed as undermining how fun or effective the free offering is.
In addition, if securities analysts or investors perceive any media coverage of 26 Table of Contents us to be negative, the price of our Class A common stock may be materially adversely affected. Any of the foregoing could materially adversely affect our business, financial condition and results of operations.
In addition, if securities analysts or investors perceive any media coverage of us to be negative, the price of our Class A common stock may be materially adversely affected. Any of the foregoing could materially adversely affect our business, financial condition and results of operations.
We are subject to a variety of laws and regulations in the United States and abroad that involve matters that are important to or may otherwise impact our business, including, among others, broadband internet access, online commerce, advertising, user privacy, data protection, intermediary liability, protection of minors, consumer protection, accessibility, immigration and university admissions, taxation and securities law compliance.
We are subject to a variety of laws and regulations in the U.S. and abroad that involve matters that are important to or may otherwise impact our business, including, among others, broadband internet access, online commerce, advertising, user privacy, data protection, intermediary liability, protection of minors, consumer protection, accessibility, immigration and university admissions, taxation and securities law compliance.
In addition, while we do not expect to issue any additional shares of Class B common stock, any future issuances of Class B common stock would be dilutive to holders of Class A common stock. 50 Table of Contents We cannot predict the impact our dual class structure may have on the market price of our Class A common stock.
In addition, while we do not expect to issue any additional shares of Class B common stock, any future issuances of Class B common stock would be dilutive to holders of Class A common stock. We cannot predict the impact our dual class structure may have on the market price of our Class A common stock.
To the extent we do not effectively respond to any such interruptions, upgrade our systems as needed and continually develop our technology and network architecture to accommodate traffic, our business, financial condition or results of operations could be adversely affected.
To the extent we do not effectively respond to any such interruptions, upgrade our systems as needed and continually develop our technology and network 24 Table of Contents architecture to accommodate traffic, our business, financial condition or results of operations could be adversely affected.
If these third parties fail to adopt or adhere to adequate data security practices, or in the event of a breach 31 Table of Contents of their networks, our data or our users’ data may be improperly accessed, used, or disclosed, which could subject us to legal liability.
If these third parties fail to adopt or adhere to adequate data security practices, or in the event of a breach of their networks, our data or our users’ data may be improperly accessed, used, or disclosed, which could subject us to legal liability.
This ownership will limit or preclude your ability to influence corporate matters, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval.
This ownership will limit or preclude your ability to 51 Table of Contents influence corporate matters, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval.
It is not always possible to identify and deter misconduct by these parties, and any other precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses, or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these 27 Table of Contents laws or regulations.
It is not always possible to identify and deter misconduct by these parties, and any other precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses, or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations.
If users do not elect to participate in functionality that supports the delivery of targeted advertising on their devices, our ability to deliver effective advertising campaigns could suffer, which could cause our business, financial condition, or results of operations to suffer.
If users do not elect to participate in functionality that supports the delivery of targeted advertising on their devices, our ability to deliver effective advertising campaigns could suffer, which could cause our business, financial condition, or 25 Table of Contents results of operations to suffer.
We may make decisions regarding our business and products in accordance with Duolingo’s mission and values that may reduce our short- or medium-term operating results if we believe those decisions are consistent with the mission and will improve the aggregate user experience.
We have made and in the future may make decisions regarding our business and products in accordance with Duolingo’s mission and values that may reduce our short- or medium-term operating results if we believe those decisions are consistent with the mission and will improve the aggregate user experience.
The loss of key personnel, including members of management as well as key engineering, product development, design and marketing personnel, could disrupt our operations and have a material adverse effect on our business. The success of our brand also depends on the commitment of our key personnel to our mission.
The loss 27 Table of Contents of key personnel, including members of management as well as key engineering, product development, design and marketing personnel, could disrupt our operations and have a material adverse effect on our business. The success of our brand also depends on the commitment of our key personnel to our mission.
A material weakness 55 Table of Contents in our internal control over financial reporting could result in an increased probability of fraud, the potential loss of customers, litigation from our stockholders, reduction in our ability to obtain financing, and require additional expenditures to remediate.
A material weakness in our internal control over financial reporting could result in an increased probability of fraud, the potential loss of customers, litigation from our stockholders, reduction in our ability to obtain financing, and require additional expenditures to remediate.
Our operating expenses may continue to increase in the future as we increase our sales and marketing efforts and continue to invest in the development of products and services. These efforts may be costlier than we expect and we cannot guarantee that we will be able to increase our revenue to offset our operating expenses.
Our costs of revenues or operating expenses may continue to increase in the future as we increase our sales and marketing efforts and continue to invest in the development of products and services. These efforts may be costlier than we expect and we cannot guarantee that we will be able to increase our revenue to offset our operating expenses.
Our user metrics and other estimates are subject to inherent challenges in measurement, and real or perceived inaccuracies in those metrics may negatively affect our reputation and our business.
Our user metrics and other operating metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in those metrics may negatively affect our reputation and our business.
We may also incur significant legal and financial exposure, including legal claims, higher transaction fees and regulatory fines and penalties as a result of any compromise or breach of our systems or data security, or the systems and data security of our third party providers.
We may also 32 Table of Contents incur significant legal and financial exposure, including legal claims, higher transaction fees and regulatory fines and penalties as a result of any compromise or breach of our systems or data security, or the systems and data security of our third party providers.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOutside of Pittsburgh, we and our subsidiaries in China and Germany use co-working space as needed for the business. As of December 31, 2022, we have membership agreements with WeWork for offices in or near New York, Seattle, Beijing, Tokyo, and Berlin. Additionally, as a result of the Gunner Made LLC acquisition, we now lease office space in Detroit.
Biggest changeIn December of 2023, we entered into a lease agreement for approximately 85,666 square feet of office space in New York City. Outside of Pittsburgh, Detroit, and New York, we and our subsidiaries in China and Germany use co-working space as needed for the business.
We believe that our existing facilities are sufficient for our current needs. We believe that suitable additional or substitute space will be available as needed to accommodate changes in our operations.
As of December 31, 2023, we have membership agreements with WeWork for offices in or near New York, Seattle, Beijing, Tokyo, and Berlin. We believe that our existing facilities are sufficient for our current needs. We believe that suitable additional or substitute space will be available as needed to accommodate changes in our operations.
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Item 2. Properties We lease approximately 84,000 square feet in multiple facilities in Pittsburgh, Pennsylvania where we operate our headquarters. Our headquarters currently accommodates our principal executive, 56 Table of Contents development, engineering, product, marketing, business development, human resources, finance, legal, information technology and administrative activities.
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Item 2. Properties We lease approximately 83,586 square feet in multiple facilities in Pittsburgh, Pennsylvania where we operate our headquarters. As a result of the Gunner Made LLC acquisition, we lease approximately 10,000 square feet of office space in Detroit, which consists mainly of designers.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeMine Safety Disclosures Not applicable. 57 Table of Contents Part II Financial Information
Biggest changeMine Safety Disclosures Not applicable. 61 Table of Contents Part II Financial Information

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeData for the Nasdaq Composite Index, S&P 500 Index, and S&P 500 Information Technology Index assume reinvestment of dividends. The graph uses the closing market price on July 28, 2021 of $134.26 per share as the initial value of our Class A common stock.
Biggest changeThe graph assumes $100 was invested at the market close on July 28, 2021, which was the first day our Class A common stock began trading. Data for the S&P 500 Index and S&P 500 Information Technology Index assume reinvestment of dividends.
Any future determination related to dividend policy will be made at the discretion of our board of directors, subject to applicable laws and the restrictions set forth in any of our contractual agreements, and will depend upon, among other factors, our results of operations, financial condition, contractual restrictions and capital requirements.
Any future determination related to dividend policy will be made at the discretion of our board of directors, subject to applicable laws and the restrictions set forth in any of our contractual agreements, and will depend upon, among other factors, financial condition, results of operations, contractual restrictions and capital requirements.
Our future ability to pay cash dividends on our common stock may also be limited by the terms of any future debt or preferred securities we may issue or any future credit facilities we may enter into.
Our future ability to pay cash dividends on our common stock may also be limited by the terms of any future debt or preferred securities we may issue or any future credit facilities we may enter into. Unregistered Sales of Equity Securities None. Issuer Purchases of Equity Securities None.
Holders of our Common Stock As of February 27, 2023, there were 32,201,681 stockholders of record of our Class A common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
Holders of our Common Stock As of February 27, 2024, there were 36,680,751 stockholders of record of our Class A common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
As of February 27, 2023, there were 8,434,238 stockholders of record of our Class B common stock. Dividend Policy We have never declared or paid any cash dividends on our common stock, and we do not currently intend to pay any cash dividends on our common stock in the foreseeable future.
As of February 27, 2024, there were 6,195,077 stockholders of record of our Class B common stock. Dividend Policy We have never declared or paid any cash dividends on our common stock, and we do not currently intend to pay any cash dividends on our common stock in the foreseeable future.
Unregistered Sales of Equity Securities None Issuer Purchases of Equity Securities None Performance Graph The graph below compares the cumulative total stockholder return on our Class A common stock with the cumulative total return on the S&P 500 Index (“S&P 500”) and the S&P Software and Services Index.
Performance Graph The graph below compares the cumulative total stockholder return on our Class A common stock with the cumulative total return on the S&P 500 Index (“S&P 500”) and the S&P Software and Services Index.
The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our Class A common stock. 58 Table of Contents Item 6. [Reserved]
The graph uses the closing market price on July 28, 2021 of $134.26 per share as the initial value of our Class A common stock. The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our Class A common stock. 62 Table of Contents Item 6. [Reserved]
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We have chosen to update the comparison included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 to include the S&P Software and Services Index to be more industry specific.
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We will remove the Nasdaq Composite Index (“NASDAQ”) in future reports, however since the NASDAQ was presented in the prior year, we are presenting it one more year for comparative purposes. The graph assumes $100 was invested at the market close on July 28, 2021, which was the first day our Class A common stock began trading.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table sets forth our Consolidated Statements of Operations and Comprehensive Loss data, including year-over-year change, for the periods indicated: Year Ended December 31, (in thousands) 2022 2021 % Change Revenues $ 369,495 $ 250,772 47 % Cost of revenues (1) (2) 99,431 69,186 44 Gross profit 270,064 181,586 49 Operating expenses: Research and development (1) (2) 150,444 103,833 45 Sales and marketing (1) (2) 66,967 59,170 13 General and administrative (1) (2) 117,848 78,590 50 Total operating expenses 335,259 241,593 39 Loss from operations (65,195) (60,007) 9 Other (expense) income, net (676) 30 (2353) Loss before interest income and provision for income taxes (65,871) (59,977) 10 Interest income 7,235 19 37979 Loss before provision for income taxes (58,636) (59,958) (2) Provision for income taxes 938 177 430 Net loss and comprehensive loss $ (59,574) $ (60,135) (1) % ________________ (1) Includes stock-based compensation expenses as follows: Year Ended December 31, (In thousands) 2022 2021 Cost of revenues $ 38 $ 8 Research and development 26,373 9,298 Sales and marketing 2,540 881 General and administrative 44,869 30,617 Total $ 73,820 $ 40,804 68 Table of Contents (2) Includes amortization of capitalized software and depreciation of property and equipment as follows: Year Ended December 31, (In thousands) 2022 2021 Cost of revenues (a) $ 870 $ — Research and development 1,500 260 Sales and marketing (a) 1,072 725 General and administrative 1,428 1,741 Total $ 4,870 $ 2,726 ________________ (a) Amortization of capitalized software is recorded to Cost of revenue and Sales and marketing for revenue and non-revenue generating capitalized software, respectively.
Biggest changeResults of Operations Comparison of the years ended December 31, 2023 and 2022 The following table sets forth our Consolidated Statements of Operations and Comprehensive Income (Loss) data, including year-over-year change, for the periods indicated: Year Ended December 31, (In thousands) 2023 2022 % Change Revenues $ 531,109 $ 369,495 44% Cost of revenues (1) (2) 142,105 99,431 43 Gross profit 389,004 270,064 44 Operating expenses: Research and development (1) (2) 194,352 150,444 29 Sales and marketing (1) (2) 75,788 66,967 13 General and administrative (1) (2) 132,123 117,848 12 Total operating expenses 402,263 335,259 20 Loss from operations (13,259) (65,195) (80) Other (expense) income, net (55) (676) (92) Loss before interest income and income taxes (13,314) (65,871) (80) Interest income 31,091 7,235 >100 Income (loss) before income taxes 17,777 (58,636) nm Provision for income taxes 1,710 938 nm Net income (loss) and comprehensive income (loss) $ 16,067 $ (59,574) nm ________________ (1) Includes stock-based compensation expenses as follows: Year Ended December 31, (In thousands) 2023 2022 Cost of revenues $ 55 $ 38 Research and development 45,119 26,373 Sales and marketing 3,908 2,540 General and administrative 46,139 44,869 Total $ 95,221 $ 73,820 72 Table of Contents (2) Includes amortization of capitalized software and depreciation of property and equipment as follows: Year Ended December 31, (In thousands) 2023 2022 Cost of revenues (a) $ 2,020 $ 870 Research and development 1,650 1,500 Sales and marketing (a) 1,165 1,072 General and administrative 2,260 1,428 Total $ 7,095 $ 4,870 ________________ (a) Amortization of capitalized software is recorded to Cost of revenue and Sales and marketing for revenue and non-revenue generating capitalized software, respectively.
However, there are a number of limitations related to the use of non-GAAP financial measures, and these non-GAAP measures should be considered in addition to, not as a substitute for or in isolation from, our financial results prepared in accordance with GAAP.
However, there are a number of limitations related to the use of non-GAAP financial measures, and these non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, our financial results prepared in accordance with GAAP.
Our predominant sources of revenue are time-based subscriptions, in-app advertising placement by third parties and the Duolingo English Test. Revenue is recognized upon transfer of control of promised goods or services to customers in an amount that reflects the consideration expected to be received in exchange for those goods or services.
Our predominant sources of revenue are time-based subscriptions, in-app advertising placement by third parties, the Duolingo English Test, and In-App purchases. Revenue is recognized upon transfer of control of promised goods or services to customers in an amount that reflects the consideration expected to be received in exchange for those goods or services.
Critical Accounting Policies and Estimates The preparation of our Consolidated Financial Statements in accordance with GAAP requires management to make estimates and assumptions about future events that affect amounts reported in our Consolidated Financial Statements and related notes, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements.
Critical Accounting Estimates The preparation of our Consolidated Financial Statements in accordance with GAAP requires management to make estimates and assumptions about future events that affect amounts reported in our Consolidated Financial Statements and related notes, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements.
The Founder Awards vest upon the satisfaction of both a service-based condition and a performance-based condition and generally are settled one year after vesting. The service-based condition is satisfied as to 25% of the Founder Awards on each anniversary of the completion of the IPO, subject to the continuous service of the founders through the applicable date.
The Founder Awards vest upon the satisfaction of both a service-based condition and a performance-based condition and generally are settled one year after vesting. The service-based condition is satisfied as to 25% of the Founder Awards on each anniversary of the IPO, subject to the continuous service of the founders through the applicable date.
Management evaluated the development and selection of its critical accounting policies and estimates and believes that the following involve a higher degree of judgment, complexity or uncertainty and are most significant to reporting our results of operations and financial position, and are therefore discussed as critical.
Management evaluated the development and selection of its critical accounting estimates and believes that the following involve a higher degree of judgment, complexity or uncertainty and are most significant to reporting our results of operations and financial position, and are therefore discussed as critical.
Initial Public Offering 59 Table of Contents On July 30, 2021, Duolingo completed its Initial Public Offering (“IPO”) of 5.9 million shares of its Class A common stock at a price to the public of $102.00 per share, 4.5 million of which were sold by the Company and 1.4 million of which were sold by certain selling stockholders, which includes the exercise in full by the underwriters of their option to purchase from the Company an additional 0.8 million shares of the Company’s Class A common stock.
Initial Public Offering 63 Table of Contents On July 30, 2021, Duolingo completed its Initial Public Offering (“IPO”) of 5.9 million shares of its Class A common stock at a price to the public of $102.00 per share, 4.5 million of which were sold by the Company and 1.4 million of which were sold by certain selling stockholders, which includes the exercise in full by the underwriters of their option to purchase from the Company an additional 0.8 million shares of the Company’s Class A common stock.
The following table presents a reconciliation of our net loss, the most directly comparable financial measure presented in accordance with GAAP, to Adjusted EBITDA.
The following table presents a reconciliation of our net income (loss), the most directly comparable financial measure presented in accordance with GAAP, to Adjusted EBITDA.
The Company also recognizes revenue from Dos Lenguas LLC, “Duo’s Taquería,” a restaurant that opened during 2022, in the space adjacent to our headquarters in Pittsburgh. Basis of Presentation Items within Management's Discussion and Analysis of Financial Condition and Results of Operations include a discussion of changes between the years ended December 31, 2022 and 2021.
The Company also recognizes revenue from Dos Lenguas LLC, “Duo’s Taquería,” a restaurant that opened during 2022, in the space adjacent to our headquarters in Pittsburgh. Basis of Presentation Items within Management's Discussion and Analysis of Financial Condition and Results of Operations include a discussion of changes between the years ended December 31, 2023 and 2022.
We use this data and the insights that come from it to continually improve both engagement and efficacy. • Paid Subscriber Conversion : As learners tend to use our product for months or even years before they decide to subscribe, we enjoy economic benefits from attracting new users well into their tenure on the platform.
We use this data and the insights that come from it to continually improve both engagement and efficacy. • Paid Subscriber Conversion : As learners tend to use our product for months or even years before they decide to subscribe, we enjoy economic benefits from users well into their tenure on the platform.
Other Revenue For users who are unable or unwilling to pay a subscription fee, we provide free access to our product and generate advertising revenue from the sale of display and video advertising delivered through 60 Table of Contents advertising impressions. We generally enter into arrangements with the major programmatic advertising networks to monetize our advertising inventory.
Other Revenue For users who are unable or unwilling to pay a subscription fee, we provide free access to our product and generate advertising revenue from the sale of display and video advertising delivered through 64 Table of Contents advertising impressions. We generally enter into arrangements with the major programmatic advertising networks to monetize our advertising inventory.
The following table sets forth the components of our Consolidated Statements of Operations and Comprehensive Loss for each of the periods presented as a percentage of revenue.
The following table sets forth the components of our Consolidated Statements of Operations and Comprehensive Income (Loss) for each of the periods presented as a percentage of revenue.
The measurement period for MAUs is the three months ended December 31, 2022 and the same period in the prior year where applicable, and the analysis of results is based on those periods. MAUs are a measure of the size of our global active user community on Duolingo.
The measurement period for MAUs is the three months ended December 31, 2023 and the same period in the prior year where applicable, and the analysis of results is based on those periods. MAUs are a measure of the size of our global active user community on Duolingo.
The measurement period for DAUs is the three months ended December 31, 2022 and the same period in the prior year where applicable, and the analysis of results is based on those periods. DAUs are a measure of the consistent engagement of our global user community on Duolingo.
The measurement period for DAUs is the three months ended December 31, 2023 and the same period in the prior year where applicable, and the analysis of results is based on those periods. DAUs are a measure of the consistent engagement of our global user community on Duolingo.
Principal Agent Considerations —We make our application available to be downloaded through third-party digital distribution service providers. Users who purchase subscriptions also pay through the respective app stores. We evaluate the purchases via third-party payment processors to determine whether its revenues should be reported gross or net of fees retained by the payment processor.
Principal Agent Considerations — We make our application available to be downloaded through third-party digital distribution service providers. Users who purchase subscriptions also pay through the respective app stores. We evaluate the purchases via third-party payment processors to determine 78 Table of Contents whether its revenues should be reported gross or net of fees retained by the payment processor.
The increase in free cash flow in both periods was mainly attributable to the increase in net cash provided by operating activities. Constant Currency: The effect of currency exchange rates on our business is an important factor in understanding period to period comparisons.
The increase in free cash flow was mainly attributable to the increase in net cash provided by operating activities. Constant Currency. The effect of currency exchange rates on our business is an important factor in understanding period to period comparisons.
These millions of learners provide two benefits to our business model: ◦ They become advocates for Duolingo and provide word-of-mouth publicity for our product, which enables our growth and has allowed us to make very selective and efficient marketing investments. ◦ Our users complete over 900 million exercises every day, generating large amounts of data that powers our high-volume A/B testing and novel AI techniques.
These millions of learners provide two benefits to our business model: ◦ They become advocates for Duolingo and provide word-of-mouth publicity for our product, which enables our growth and has allowed us to make very selective and efficient marketing investments. ◦ Our users complete over one billion exercises every day, generating large amounts of data that powers our high-volume A/B testing and novel AI techniques.
We grew MAUs through product initiatives designed to make the app more social and engaging, through marketing and through improving our courses, all of which we believe helped us attract new users, retain existing users, and reengage the millions of former users who return to our language learning app. Daily active users (DAUs).
We grew MAUs through product initiatives designed to make the app more social and engaging, through marketing, and through improving our courses, all of which we believe helped us attract new users, retain existing users, and reengage the millions of former users who return to our Duolingo App. Daily active users (DAUs).
The following critical accounting policies reflect the significant estimates and judgments used in the preparation of our Consolidated Financial Statements. 73 Table of Contents Revenue Recognition Nature of Revenue We account for revenue contracts with customers by applying the five step model in Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers .
The following critical accounting policies reflect the significant estimates and judgments used in the preparation of our Consolidated Financial Statements. Revenue Recognition Nature of Revenue We account for revenue contracts with customers by applying the five step model in Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers .
As there is a significant level of integration and interdependency with the online functionality, which is not the 74 Table of Contents case with the offline functionality, we believe we have a single performance obligation for the online functionality and offline content. Equity Based Compensation We follow ASC 718, Compensation-Stock Compensation , to account for our equity based compensation.
As there is a significant level of integration and interdependency with the online functionality, which is not the case with the offline functionality, we believe we have a single performance obligation for the online functionality and offline content. Equity Based Compensation We follow ASC 718, Compensation-Stock Compensation , to account for our equity based compensation.
Free Cash Flow: Free cash flow represents net cash provided by operating activities, reduced by capitalized software development costs and purchases of property and equipment, and increased by IPO and public company costs, transaction costs related to an acquisition, taxes paid related to stock-based compensation equity awards and other costs, as we believe they are not indicative of future liquidity.
Free cash flow represents net cash provided by operating activities, reduced by capitalized software development costs and purchases of property and equipment and increased by taxes paid related to stock-based compensation equity awards, IPO and public company costs, transaction costs related to an acquisition and an acquisition earn-out payment as we believe they are not indicative of future liquidity.
In-app purchases consist of learners purchasing one-time benefits within the app, such as “Streak Freezes” and “Timer Boosts.” In addition to monetizing the Duolingo language learning app, we generate revenue from the Duolingo English Test by charging test takers a one-time fee that generally costs $49. University program acceptance is a driver of Duolingo English Test revenue.
In-app purchases consist of learners purchasing one-time benefits within the app, such as “Streak Freezes” and “Timer Boosts.” In addition to monetizing the Duolingo App, we generate revenue from the Duolingo English Test by charging test takers a one-time fee that generally costs $59. University program acceptance is a driver of Duolingo English Test revenue.
Management evaluates its accounting policies, estimates and judgments on an ongoing basis. Management bases its estimates and judgments on historical experience, current trends and various other factors that are believed to be relevant at the time the Consolidated Financial Statements are prepared. Actual results may differ from these estimates under different assumptions and conditions.
Management evaluates its accounting 77 Table of Contents policies, estimates and judgments on an ongoing basis. Management bases its estimates and judgments on historical experience, current trends and various other factors that are believed to be relevant at the time the Consolidated Financial Statements are prepared. Actual results may differ from these estimates under different assumptions and conditions.
The performance-based 75 Table of Contents condition will be satisfied with respect to each of ten equal tranches only upon the achievement of the specified stock-price hurdles for each such tranche over a period of ten years from the date of grant.
The performance-based condition will be satisfied with respect to each of ten equal tranches only upon the achievement of the specified stock-price hurdles for each such tranche over a period of ten years from the date of grant.
Monthly active users (MAUs) and daily active users (DAUs), along with paid subscribers, are operating metrics that help inform management about the underlying growth in users of our platform, and are a measure of our monetization efforts.
Monthly active users (MAUs) and daily active users (DAUs), along with paid subscribers, subscription bookings and total bookings, are operating metrics that help inform management about the underlying growth in users of our platform, and are a measure of our monetization efforts.
For a discussion of changes from the year ended December 31, 2021 to the year ended December 31, 2020, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operation in Part II, Item 7. of our Annual report on Form 10-K for the year ended December 31, 2021 (filed with the SEC on March 3, 2022).
For a discussion of changes from the year ended December 31, 2022 to the year ended December 31, 2021, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operation in Part II, Item 7. of our Annual report on Form 10-K for the year ended December 31, 2022 (filed with the SEC on March 1, 2023).
Overview Our flagship app has organically become the world’s most popular way to learn languages and the top-grossing Education app in the App Stores, offering courses in over 40 languages to over 60 million monthly active users for the three months ended December 31, 2022.
Overview Our flagship app has organically become the world’s most popular way to learn languages and the top-grossing Education app in the App Stores, offering courses in over 40 languages to over 85 million monthly active users for the three months ended December 31, 2023.
The impact of changes in foreign currency may vary significantly from period to period, and such changes generally are outside of the control of our management. We calculate constant currency revenues by using current period foreign currency revenues and translating them to constant currency using prior year comparable period exchange rates.
The impact of changes in foreign currency may vary significantly from period to period, and such changes generally are outside of the control of our management. We calculate constant currency revenues by using current period foreign currency revenues and translating them to constant currency using prior year comparable period exchange rates for the entire period of related bookings.
Interest Income 67 Table of Contents Interest income consists of income earned on our money market funds included in cash and cash equivalents and on our marketable securities. Other (Expense) Income, Net Other (expense) income, net consists primarily of foreign currency exchange losses and gains losses.
Interest Income Interest income consists of income earned on our money market funds included in cash and cash equivalents and on our marketable securities. Other (expense) income, net Other (expense) income, net consists primarily of foreign currency exchange gains and losses.
Historically, the number of users on our platform and the number of subscribers we have increase in January and then moderate throughout the first quarter and second quarter back to our secular growth trend.
Historically, the number of users on our platform and the number of subscribers we have increase in the beginning of the year and then moderate throughout the first quarter and second quarter back to our secular growth trend.
In the third quarter, historically, we’ve seen the number of users on our platform increase as our product is used by students that return to school in certain geographies.
In the third quarter, historically, we’ve seen the number of users on our platform increase in part because our product is used by students that return to school in certain geographies.
MAUs are defined as unique Duolingo users who engage with our mobile language learning application or the language learning section of our website each month. MAUs are reported for a measurement period by taking the average of the MAUs for each calendar month in that measurement period.
MAUs are defined as unique users who engage with our Duolingo App or the learning section of our website each month. MAUs are reported for a measurement period by taking the average of the MAUs for each calendar month in that measurement period.
DAUs are defined as unique Duolingo users who engage with our mobile language learning application or the language learning section of our website each calendar day. DAUs are reported for a measurement period by taking the average of the DAUs for each day in that measurement period.
DAUs are defined as unique users who engage with our Duolingo App or the learning section of our website each calendar day. DAUs are reported for a measurement period by taking the average of the DAUs for each day in that measurement period.
The user has the ability to download limited content offline. However, as there is a significant level of integration and interdependency with the online functionality, we consider the service to be a single performance obligation for the online and offline content. We enter into arrangements with advertising networks to monetize the in-app advertising inventory.
However, as there is a significant level of integration and interdependency with the online functionality, we consider the service to be a single performance obligation for the online and offline content. We enter into arrangements with advertising networks to monetize the in-app advertising inventory.
The liquidity-based vesting condition was satisfied upon the occurrence of the IPO on July 30, 2021, and $2,035 of stock-based compensation expense was recognized related to those awards. For awards granted subsequent to the IPO, each RSU vests based upon the satisfaction of length of service.
The liquidity-based vesting condition was 79 Table of Contents satisfied upon the completion of the IPO on July 30, 2021, and $2,035 of stock-based compensation expense was recognized related to those awards. For awards granted subsequent to the IPO, each RSU vests based upon the satisfaction of length of service.
Constant currency revenue percentage change is calculated by determining the change in current period revenues over prior year comparable period revenues where current period foreign currency revenues are translated using prior year comparable period exchange rates. 63 Table of Contents Adjusted EBITDA.
Constant currency revenue percentage change is calculated by determining the change in current period revenues over prior year comparable period revenues where current period foreign currency revenues are translated using prior year comparable period exchange rates. Adjusted EBITDA.
Direct marketing spend and other expenses as a percentage of revenue decreased for both periods presented as a result of applying learnings from past years, which enabled us to spend marketing expenses more efficiently. General and Administrative.
Direct marketing spend and other marketing expenses as a percentage of revenue decreased as a result of applying learnings from past years, which enabled us to spend marketing expenses more efficiently. General and Administrative.
For the years ended December 31, 2022 and 2021, we generated $428.6 million and $294.2 million of total bookings, respectively, representing an increase of 46% from the prior year period. We grew total bookings through the growth in subscription bookings noted above, in addition to growth in advertising, the Duolingo English Test, and other bookings, primarily related to in-app purchases.
For the years ended December 31, 2023 and 2022, we generated $622.2 million and $428.6 million total bookings, respectively, representing an increase of 45% from the prior year period. We grew total bookings through growth in subscription bookings noted above, in addition to growth in the Duolingo English Test and other bookings, primarily related to in-app purchases.
We may be required to seek additional equity. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, operations and financial condition.
If we cannot meet our future capital requirements, we may be required to seek additional equity. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business and financial condition and results of operations.
Recent Accounting Pronouncements See Note 2, Basis of Presentation and Summary of Significant Accounting Policies in the notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for a discussion of Recent Accounting Pronouncements.
Recent Accounting Pronouncements 81 Table of Contents See Note 1. Description of the Business and Basis of Presentation and Note 2. Summary of Significant Accounting Policies in the notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for a discussion of Recent Accounting Pronouncements.
As of December 31, 2022, we had deferred revenues of $157.6 million, which is recorded as a current liability and expected to be recognized as revenue in the next 12 months, provided all other revenue recognition criteria have been met.
As of December 31, 2023, we had deferred revenues of $249.2 million, which is recorded as a current liability and expected to be recognized as revenue in the next 12 months, provided all other revenue recognition criteria have been met.
We grew DAUs through many of the same product initiatives as we grew MAUs, such as making the product more fun and engaging. Paid Subscribers. Paid subscribers are defined as users who pay for access to Super Duolingo, including subscribers who pay for a family plan, and had an active subscription as of the end of the measurement period.
We grew DAUs through many of the same product initiatives as we grew MAUs, such as making the product more fun and engaging. Paid Subscribers. Paid subscribers are defined as users who pay for access to any Duolingo subscription offering and had an active subscription as of the end of the measurement period.
The following table presents a reconciliation of net cash provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP, to free cash flow: Year Ended December 31, ( In thousands) 2022 2021 Net cash provided by operating activities $ 53,656 $ 9,170 Less: Capitalized software development costs and purchases of intangible assets (4,562) (2,620) Less: Purchases of property and equipment (5,562) (3,586) Plus: IPO and public company costs (1) 338 3,909 Plus: Acquisition transaction costs (2) 185 — Plus: Acquisition earn-out costs (3) 113 — Plus: Taxes paid related to stock-based compensation equity awards (4) 2,002 1,653 Plus: Other (5) — 4,220 Free cash flow $ 46,170 $ 12,746 ________________ (1) IPO and public company costs include costs associated with IPO readiness incurred in 2021 and costs associated with the establishment of our public company structure and processes, including consultant costs, a one-time fee associated with the set-up of our initial proxy statement, and fees paid to consultants and Deloitte for work in connection with remediation of the material weakness disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
The following table presents a reconciliation of net cash provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP, to free cash flow: Year Ended December 31, ( In thousands) 2023 2022 Net cash provided by operating activities $ 153,614 $ 53,656 Less: Capitalized software development costs and purchases of intangible assets (10,493) (4,562) Less: Purchases of property and equipment (3,191) (5,562) Plus: Taxes paid related to stock-based compensation equity awards 4,005 2,002 Plus: Public company costs (1) — 338 Plus: Acquisition transaction costs (2) — 185 Plus: Acquisition earn-out payment (3) 338 113 Free cash flow $ 144,273 $ 46,170 ________________ (1) Public company costs include costs associated with the establishment of our public company structure and processes, including consultant costs, a one-time fee associated with the set-up of our initial proxy statement, and fees paid to consultants and Deloitte for work in connection with remediation of the material weakness disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Our advertising revenue is primarily a function of the number of our free users, hours of engagement of our free users, and our ability to provide innovative advertising placements that are relevant to our users and enhance returns for our advertising partners.
Our advertising revenue is primarily a function of the number of our free users, lessons completed by our free users, and our ability to provide innovative advertising placements that are relevant to our users and enhance returns for our advertising partners.
As of December 31, 2022, we maintained a valuation allowance of approximately $108,504 against our domestic net deferred tax assets primarily related to net operating loss carryforwards, research and development credit carryforwards and research and development expense capitalization.
As of December 31, 2023, we maintained a valuation allowance of approximately $156,870 against our domestic net deferred tax assets primarily related to net operating loss carryforwards, research and development credit carryforwards and research and development expense capitalization.
We performed its analysis in accordance with applicable elements of the practice aid issued by the American Institute of Certified Public Accountants’ (“AICPA”) Practice Guide, Valuation of Privately Held Company Equity Securities Issued as Compensation; with this guidance, our board of directors exercised reasonable judgment and considered numerous and subjective factors to determine the best estimate of fair value of our common stock, including the following: Company Specific Factors • Actual and forecasted operating and financial performance based on management’s estimate; • The development and maintenance of client relationships; • Client and industry recognition; • The hiring and retention of key personnel; • The historical lack of a public market for our common stock; General Economic Factors • Industry trends and competitive environment; • Trends in client and the at-large public spending, including client and public confidence; • Overall economic indicators; • The general economic outlook; and • The common stock valuations have historically leveraged the historical appraisals we have received to value our common stock, utilizing an income approach. 76 Table of Contents Income Taxes Deferred tax assets and liabilities are recognized principally for the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts, using currently enacted tax rates.
We performed its analysis in accordance with applicable elements of the practice aid issued by the American Institute of Certified Public Accountants’ (“AICPA”) Practice Guide, Valuation of Privately Held Company Equity Securities Issued as Compensation; with this guidance, our board of directors exercised reasonable judgment and considered numerous and subjective factors to determine the best estimate of fair value of our common stock, including the following: Company Specific Factors • Actual and forecasted operating and financial performance based on management’s estimate; • The development and maintenance of client relationships; • Client and industry recognition; • The hiring and retention of key personnel; • The historical lack of a public market for our common stock; General Economic Factors 80 Table of Contents • Industry trends and competitive environment; • Trends in client and the at-large public spending, including client and public confidence; • Overall economic indicators; • The general economic outlook; and • The common stock valuations have historically leveraged the historical appraisals we have received to value our common stock, utilizing an income approach.
We had approximately 60.7 million and 42.4 million MAUs for the three months ended December 31, 2022 and 2021, respectively, representing an increase of 43% from the prior year period.
We had approximately 88.4 million and 60.7 million MAUs for the three months ended December 31, 2023 and 2022, respectively, representing an increase of 46% from the prior year period.
This has allowed us to scale to more than 60 million MAUs for the three months ended December 31, 2022.
This has allowed us to scale to more than 85 million MAUs for the three months ended December 31, 2023.
As of December 31, 2022, over 3,800 higher education programs around the world accept the Duolingo English Test results as proof of English proficiency for international student admissions, including the top 25 undergraduate programs ranked by international enrollment, as well as top schools such as Yale, Stanford, MIT, Duke and Columbia.
As of December 31, 2023, over 4,000 higher education programs around the world accept the Duolingo English Test results as proof of English proficiency for international student admissions, including the top 25 undergraduate programs in the U.S. ranked by international enrollment, as well as top schools such as Yale, Stanford, MIT, Duke and Columbia.
We had approximately 16.3 million and 10.1 million DAUs for the three months ended December 31, 2022 and 2021, respectively, representing an increase of 62% from the prior year period. The DAU / MAU ratio, which we believe is an indicator of user engagement, increased to 26.9% from 23.8% a year ago.
We had approximately 26.9 million and 16.3 million DAUs for the three months ended December 31, 2023 and 2022, respectively, representing an increase of 65% from the prior year period. The DAU / MAU ratio, which we believe is an indicator of user engagement, increased to 30.4% from 26.9% a year ago.
Our marketable securities consist of US government treasury and agency securities. We believe that our existing cash and cash equivalents, and cash flow from operations will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months.
Our cash and cash equivalents primarily consist of bank deposits and money market funds. Our marketable securities consist of U.S. government treasury and agency securities. We believe that our existing cash and cash equivalents, and cash flow from operations will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months.
Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, and stock-based compensation expense. Operating expenses also include overhead costs for facilities, including depreciation expense. Research and Development.
Operating Expenses Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel costs are the most significant component of operating expenses and 70 Table of Contents consist of salaries, benefits, and stock-based compensation expense. Operating expenses also include overhead costs for facilities, including depreciation expense. Research and Development.
This engagement and satisfaction, we believe, helps to drive organic growth in MAUs and DAUs, growth in, and better retention of, paid subscribers, as well as increased advertising opportunities with free users. 70 Table of Contents Sales and Marketing.
Increased engagement and efficacy, we believe, help drive organic growth in MAUs and DAUs, 74 Table of Contents growth in, and better retention of, paid subscribers, as well as increased advertising opportunities with free users. Sales and Marketing.
Provision for Income Taxes Provision for income taxes increased $0.8 million, during the year ended December 31, 2022, primarily attributable to estimated foreign tax expense as well as the impact, for US federal income tax purposes, of the capitalization of research and development expenses in accordance with Internal Revenue Code ("IRC") Section 174.
Provision for income taxes Provision for income taxes increased $0.8 million, during the year ended December 31, 2023, primarily attributable to the impact, for U,S, federal and state income tax purposes, of the capitalization of research and development expenses in accordance with Internal Revenue Code ("IRC") Section 174.
Total bookings represent the amounts we receive from a purchase of a subscription to Super Duolingo, a purchase of a Duolingo English Test, an in-app purchase for a virtual good, and from advertising networks for advertisements served to our users.
Subscription bookings represent the amounts we receive from a purchase of any Duolingo subscription offering. Total bookings include subscription bookings, income from advertising networks for advertisements served to our users, purchases of the Duolingo English Test, and in-app purchases of virtual goods.
Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. Revenue from time-based subscriptions includes a stand-ready obligation to provide hosting services that are consumed by the customer over the subscription period.
Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. Revenue from time-based subscriptions includes a stand-ready obligation to provide hosting services that are consumed by the customer over the subscription period. Users can purchase our premium subscriptions monthly or a year-long subscription and pay for the subscription at the time of purchase.
Subscription revenues totaled $273,507 for the year ended December 31, 2022, an increase of 51% over the year ended December 31, 2021 on a reported basis, and 55% on a constant currency basis. Seasonality We experience some seasonality in both user growth and monetization on our platform.
Subscription revenues totaled $404.7 million for the year ended December 31, 2023, which represented an increase of 48% (on both a reported and constant currency basis) over the year ended December 31, 2022. Seasonality We experience some seasonality in both user growth and monetization on our platform.
We intend to continue to invest additional resources in our infrastructure and our customer support and success organization to expand the capabilities of our platform and ensure that our users are realizing the full benefit of our products.
We intend to continue to invest additional resources in our infrastructure and our customer support and success organization to expand the capabilities of our platform and ensure that our users are realizing the full benefit of our products. The level, timing, and relative investment in these areas could affect our cost of revenues in the future.
The risk-free interest rate is based on the yield curve of a zero-coupon US Treasury bond on the date the option award was granted with a maturity equal to the expected term of the option award. We have not and do not expect to pay dividends on our common shares.
Treasury bond on the date the option award was granted with a maturity equal to the expected term of the option award. We have not and do not expect to pay dividends on our common shares.
Year Ended December 31, ( In thousands) 2022 2021 Net loss $ (59,574) $ (60,135) Interest income (7,235) (19) Provision for income taxes 938 177 Depreciation and amortization 4,870 2,726 Stock-based compensation expenses related to equity awards (1) 75,822 42,457 IPO and public company costs (2) 338 3,909 Acquisition transaction costs (3) 185 — Acquisition earn-out costs (4) 113 — Tender offer-related costs (5) — 5,599 Other expenses (6) — 4,220 Adjusted EBITDA $ 15,457 $ (1,066) ________________ (1) In addition to stock-based compensation expense of $73.8 million and $40.8 million for the years ended December 31, 2022 and 2021, respectively, this includes costs incurred related to taxes paid on equity transactions as follows: Year Ended December 31, (In thousands) 2022 2021 Research and development $ 701 $ 631 Sales and marketing 45 53 General and administrative 1,256 969 Total $ 2,002 $ 1,653 (2) IPO and public company costs include costs associated with IPO readiness incurred in 2021 and costs associated with the establishment of our public company structure and processes, including consultant costs, a one-time fee associated with the set-up of our initial proxy statement, and fees paid to consultants and Deloitte for work in connection with remediation of the material weakness disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Year Ended December 31, ( In thousands) 2023 2022 Net income (loss) $ 16,067 $ (59,574) Add (deduct): Interest income (31,091) (7,235) Provision for income taxes 1,710 938 Depreciation and amortization 7,095 4,870 Stock-based compensation expenses related to equity awards (1) 99,226 75,822 Public company costs (2) — 338 Acquisition transaction costs (3) — 185 Acquisition earn-out costs (4) 338 113 Gain on sale of capitalized software (5) (100) — Loss on disposal of leasehold improvements (6) 433 — Adjusted EBITDA $ 93,678 $ 15,457 ________________ (1) In addition to stock-based compensation expense of $95.2 million and $73.8 million for the years ended December 31, 2023 and 2022, this includes costs incurred related to taxes paid on equity transactions as follows: Year Ended December 31, (In thousands) 2023 2022 Research and development $ 1,693 $ 701 Sales and marketing 93 45 General and administrative 2,219 1,256 Total $ 4,005 $ 2,002 (2) Public company costs include costs associated with the establishment of our public company structure and processes, including consultant costs, a one-time fee associated with the set-up of our initial proxy statement, and fees paid to consultants and Deloitte for work in connection with remediation of the material weakness disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
We expect engineers, designers, and product managers to represent a significant portion of our employees for the foreseeable future. We regularly test product improvements with our users. Many of these tests start by making small changes in the product that affect small numbers of users. As the tests evolve, they can require increasing investment and can impact more users.
We regularly test product improvements with our users. Many of these tests start by making small changes in the product that affect small numbers of users. As the tests evolve, they can require increasing investment and can impact more users.
The following table provides the change in cost of revenues, along with related gross margins: Year Ended December 31, 2022 2021 (in thousands) Costs Gross Margin Costs Gross Margin Total cost of revenues $ 99,431 73.1 % $ 69,186 72.4 % Operating Expenses Research and Development.
The following table provides the change in cost of revenues, along with related gross margins: Year Ended December 31, 2023 2022 Change % Change (In thousands, except gross margin) Costs Gross Margin Costs Gross Margin Costs Gross Margin Total cost of revenues $ 142,105 73.2 % $ 99,431 73.1 % $ 42,674 0.1 % Operating Expenses Research and Development.
The following table summarizes our cash flows for the periods presented: Year Ended December 31, (in thousands) 2022 2021 Net cash provided by operating activities $ 53,656 $ 9,170 Net cash used for investing activities (14,174) (6,206) Net cash provided by financing activities 14,776 430,468 Net increase in cash and cash equivalents $ 54,258 $ 433,432 Operating Activities Cash flows from operating activities can fluctuate significantly from period to period due to timing of payments and cash collections.
The following table summarizes our cash flows for the periods presented: Year Ended December 31, (In thousands) 2023 2022 Net cash provided by operating activities $ 153,614 $ 53,656 Net cash used for investing activities (13,584) (14,174) Net cash provided by financing activities 2,135 14,776 Net increase in cash, cash equivalents and restricted cash $ 142,165 $ 54,258 Operating Activities Cash flows from operating activities can fluctuate significantly from period to period due to timing of payments and cash collections.
We determined the expected life of our options using the simplified method described in the SEC Staff Accounting Bulletin Topic 14, Share-Based Payment , which defines the expected life as the average of the contractual term and the vesting period.
We determined the expected life of our options using the simplified method described in the SEC Staff Accounting Bulletin Topic 14, Share-Based Payment , which defines the expected life as the average of the contractual term and the vesting period. The risk-free interest rate is based on the yield curve of a zero-coupon U.S.
Year Ended December 31, 2022 2021 Revenues 100 % 100 % Cost of revenues 27 28 Gross profit 73 72 Operating expenses: Research and development 41 41 Sales and marketing 18 24 General and administrative 32 31 Total operating expenses 91 96 Loss from operations (18) (24) Other (expense) income, net — — Loss before interest income and provision for income taxes (18) (24) Interest income 2 — Loss before provision for income taxes (16) (24) Provision for income taxes — — Net loss and comprehensive loss (16) % (24) % Revenues Revenues increased $118.7 million, or 47%, to $369.5 million during the year ended December 31, 2022, from revenues of $250.8 million during the year ended December 31, 2021.
Year Ended December 31, 2023 2022 Revenues 100 % 100 % Cost of revenues 27 27 Gross profit 73 73 Operating expenses: Research and development 37 41 Sales and marketing 14 18 General and administrative 25 32 Total operating expenses 76 91 Loss from operations (2) (18) Other (expense) income, net — — Loss before interest income and income taxes (3) (18) Interest income 6 2 Income (loss) before income taxes 3 (16) Provision for income taxes — — Net income (loss) and comprehensive income (loss) 3 % (16) % Revenues Revenues increased $161.6 million, or 44%, to $531.1 million during the year ended December 31, 2023, from revenues of $369.5 million during the year ended December 31, 2022.
Offsetting this increase was a decline in Advertising margins, which was primarily due to decreases in average advertising revenue per DAU.
This increase in gross margin was partially offset by a decline in Advertising margins, which was due to decreases in average revenue per DAU.
For the year ended December 31, 2022 and 2021, we generated Adjusted EBITDA of $15.5 million and an Adjusted EBITDA loss of $1.1 million, respectively. Adjusted EBITDA increased in both periods due to a combination of our growth in revenue, improved gross margin, and reduction in operating expenses as a percentage of revenue as compared to the prior year periods.
For the years ended December 31, 2023 and 2022, we generated Adjusted EBITDA of $93.7 million and $15.5 million, respectively. Adjusted EBITDA increased due to a combination of our growth in revenue and a reduction in operating expenses as a percentage of revenue as compared to the prior year periods. Free Cash Flow.
For the years ended December 31, 2022 and 2021, we generated $331.8 million and $224.5 million of subscription bookings, respectively, representing an increase of 48% from the prior year period. We grew subscription bookings by selling more first-time and renewal subscriptions. Subscription bookings grow when we convert a greater proportion of users to first-time subscribers, and increase renewal rates.
For the years ended December 31, 2023 and 2022, we generated $495.5 million and $331.8 million of subscription bookings, respectively, representing an increase of 49% from the prior year period. We grew subscription bookings by selling more first-time and renewal subscriptions.
Three Months Ended December 31, (Operating metrics are in millions) 2022 2021 Operating Metrics Monthly active users (MAUs) 60.7 42.4 Daily active users (DAUs) 16.3 10.1 Paid subscribers (at period end) 4.2 2.5 61 Table of Contents Year Ended December 31, 2022 2021 Operating Metrics Subscription bookings $ 331,803 $ 224,520 Total bookings $ 428,647 $ 294,247 Non-GAAP Financial Measures Net loss (GAAP) $ (59,574) $ (60,135) Adjusted EBITDA $ 15,457 $ (1,066) Net cash provided by operating activities (GAAP) $ 53,656 $ 9,170 Free cash flow $ 46,170 $ 12,746 Operating Metrics Monthly active users (MAUs).
Three Months Ended December 31, (Operating metrics are in millions) 2023 2022 Operating Metrics Monthly active users (MAUs) 88.4 60.7 Daily active users (DAUs) 26.9 16.3 Paid subscribers (at period end) 6.6 4.2 65 Table of Contents Year Ended December 31, (In thousands) 2023 2022 Operating Metrics Subscription bookings $ 495,497 $ 331,803 Total bookings $ 622,181 $ 428,647 Non-GAAP Financial Measures Net income (loss) (GAAP) $ 16,067 $ (59,574) Adjusted EBITDA $ 93,678 $ 15,457 Net cash provided by operating activities (GAAP) $ 153,614 $ 53,656 Free cash flow $ 144,273 $ 46,170 Operating Metrics Monthly active users (MAUs).
As of December 31, 2022, subscribers made up 7.8% of our average MAUs over the last twelve months as compared to 6.2% of our average MAUs during the year ended December 31, 2021. Subscription Our subscription offering is called Super Duolingo.
As of December 31, 2023, subscribers made up 8.3% of our average MAUs over the last twelve months as compared to 7.8% of our average MAUs during the year ended December 31, 2022. Subscription Our subscription offerings as of the date of this filing are called Super Duolingo and Duolingo Max.
The main drivers of the increase for both periods were: • Subscription revenue increased $92.8 million during the year ended December 31, 2022, primarily due to an increase in the average number of paid subscribers during the periods presented; • Advertising revenue increased $6.2 million during the year ended December 31, 2022.
The main drivers of the increase were: • Subscription revenue increased by $131.2 million during the year ended December 31, 2023, primarily due to an increase in the average number of paid subscribers during the period; • Advertising revenue increased by $5.1 million during the year ended December 31, 2023.
Provision for Income Taxes The provision for income taxes represents the income tax expense associated with our operations based on the tax laws of the jurisdictions in which we operate. These foreign jurisdictions have different statutory tax rates than the United States.
Provision for income taxes 71 Table of Contents The provision for income taxes represents the income tax provision associated with our operations based on the tax laws of the jurisdictions in which we operate. In addition to the U.S., we also operate in foreign jurisdictions that have different statutory rates.
The Company also uses non-GAAP constant currency revenues and non-GAAP percentage change in constant currency revenues, which exclude the impact of fluctuations in foreign currency exchange rates, for financial and operational decision-making and as a means to evaluate period-to-period comparisons.
We use non-GAAP percentage change in constant currency revenues, which exclude the impact of fluctuations in foreign currency exchange rates, for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe this information is useful to investors to facilitate comparisons and better identify trends in our business.
General and administrative expense increased $39.3 million, or 50%, to $117.8 million during the year ended December 31, 2022 from $78.6 million during the year ended December 31, 2021.
General and administrative expense increased by $14.3 million, or 12%, to $132.1 million during the year ended December 31, 2023 from $117.8 million during the year ended December 31, 2022.
Our gross profit may fluctuate from period to period as our revenues fluctuate, and also as a result of the timing and amount of investments we make in items related to cost of revenues. Operating Expenses Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses.
Gross Profit and Gross Margin Gross profit represents revenues less cost of revenues. Gross margin is gross profit expressed as a percentage of revenues. Our gross profit may fluctuate from period to period as our revenues fluctuate, and also as a result of the timing and amount of investments we make in items related to cost of revenues.
Each unique user account is treated as a single paid subscriber regardless of whether such user purchases multiple subscriptions, and the count of paid subscribers does not include users who are currently on a free trial or who are non-paying members of a family plan. 62 Table of Contents As of December 31, 2022 and 2021, we had approximately 4.2 million and 2.5 million paid subscribers, respectively, representing an increase of 67% from the prior year period.
Each unique user account is treated as a single paid subscriber regardless of whether such user purchases multiple subscriptions, and the count of paid subscribers does not include users who are currently on a free trial or who are non-paying members of a family plan.
This increase was mainly due to the decrease of net loss adjusted by stock-based compensation expense, in addition to an increase in deferred revenue. Investing Activities Cash used in investing activities increased $8.0 million, or 128%, to $14.2 million for the year ended December 31, 2022, from $6.2 million for the year ended December 31, 2021.
This increase was mainly due to generation of net income during the current period in addition to an increase in non-cash stock-based compensation expense. 76 Table of Contents Investing Activities Cash used for investing activities decreased by $0.6 million, or 4%, to $13.6 million for the year ended December 31, 2023, from $14.2 million for the year ended December 31, 2022.
Other companies, including companies in our industry, may calculate these non-GAAP financial measures differently or not at all, which reduces their usefulness as comparative measures.
Other companies, including companies in our industry, may calculate these non-GAAP financial measures differently or not at all, which reduces their usefulness as comparative measures. The effect of currency exchange rates on our business is an important factor in understanding period to period comparisons.
Our largest source of operating cash is cash collection from sales of subscriptions to our users. Our primary uses of cash from operating activities are for personnel expenses, marketing expenses, hosting expenses, and overhead expenses. Cash provided by operating activities for the year ended December 31, 2022 increased $44.5 million, or 485%, to $53.7 million.
Our largest source of operating cash is cash collection from sales of subscriptions to our users. Our primary uses of cash from operating activities are for personnel expenses, marketing expenses, hosting expenses, and overhead expenses.
Users can purchase Super Duolingo monthly or they can purchase a six-month or year-long subscription and pay for the subscription at the time of purchase. Under the year-long subscription, users can purchase a single plan or a family plan. The family plan includes up to six users on one subscription. Such payments are initially recorded to deferred revenue.
Under the year-long subscription, users can purchase a single plan or a family plan. The family plan includes up to six users on one subscription. Such payments are initially recorded to deferred revenue. The user has the ability to download limited content offline.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeOur operating expenses are denominated in the currencies of the countries in which our operations are located, which are primarily in the United States and China.
Biggest changeOur operating expenses are denominated in the currencies of the countries in which our operations are located, which are primarily in the U.S., China and Germany.
Our investments are exposed to market risk due to a fluctuation in interest rates, which may affect our interest income and the fair market value of our investments. As of December 31, 2022, a hypothetical 10% relative change in interest rates would not have a material impact on our Consolidated Financial Statements.
Our investments are exposed to market risk due to a fluctuation in interest rates, which may affect our interest income and the fair market value of our investments. As of December 31, 2023, a hypothetical 10% relative change in interest rates would not have a material impact on our Consolidated Financial Statements.
If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition or results of operations. 78 Table of Contents
If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition or results of operations. 82 Table of Contents
To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative financial instruments, although we may choose to do so in the future. A hypothetical 10% increase or decrease in the relative value of the US dollar to other currencies would not have a material effect on our operating results.
To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative financial instruments, although we may choose to do so in the future. A hypothetical 10% increase or decrease in the relative value of the U.S. dollar to other currencies would not have a material effect on our operating results.
Foreign Currency Exchange Risk Our reporting currency and the functional currency of our wholly owned foreign subsidiaries is the US dollar. Certain of our payment providers translate our payments from local currency into USD at time of settlement, which means that during periods of a strengthening US dollar, our international receipts could be reduced.
Foreign Currency Exchange Risk Our reporting currency and the functional currency of our wholly owned foreign subsidiaries is the U.S. dollar. Certain of our payment providers translate our payments from local currency into USD at time of settlement, which means that during periods of a strengthening U.S. dollar, our international receipts could be reduced.
In addition, as foreign currency exchange rates fluctuate, the translation of our international receipts into US dollars affects the period-over-period comparability of our operating results and can result in foreign currency exchange gains and losses.
In addition, as foreign currency exchange rates fluctuate, the translation of our international receipts into U.S. dollars affects the period-over-period comparability of our operating results and can result in foreign currency exchange gains and losses.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk As of December 31, 2022, we had $517.0 million of cash equivalents invested in money market funds. Our cash and cash equivalents are held for working capital purposes in addition to future investments in our product. We do not enter into investments for trading or speculative purposes.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk As of December 31, 2023, we had $697.2 million of cash equivalents invested in money market funds. Our cash and cash equivalents are held for working capital purposes in addition to future investments in our product. We do not enter into investments for trading or speculative purposes.

Other DUOL 10-K year-over-year comparisons