10q10k10q10k.net

What changed in Duolingo, Inc.'s 10-K — 2023 vs 2024

vs

Paragraph-level year-over-year comparison of Duolingo, Inc.'s 2023 and 2024 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 2024 report.

+404 added−458 removedSource: 10-K (2025-02-28) vs 10-K (2024-02-29)

Top changes in Duolingo, Inc.'s 2024 10-K

404 paragraphs added · 458 removed · 332 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

45 edited+7 added−16 removed60 unchanged
Biggest changeLearning 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.
Biggest changeDriving much of the demand for language learning is the reality that English can unlock tremendous economic opportunity. And the power of language learning is not limited to economic advancement. 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.
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.
To provide perspective on our reach, in the United States (“U.S”), the number of people learning a language using Duolingo is greater than the number of K-12 students taking a foreign language 6 Table of Contents 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.
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.
These include 24 of 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.
It is our policy to not make employment (including hiring, promotion, or compensation) decisions on the basis of any legally protected characteristic, and to consider DEIB efforts through a legal compliance lens. Sales & Marketing For almost a decade, Duolingo’s learner community has grown organically through word-of-mouth virality.
It is our policy to not make employment (including hiring, promotion, or compensation) decisions on the basis of any legally protected characteristic, and to consider our efforts through a legal compliance lens. Sales & Marketing For almost a decade, Duolingo’s learner community has grown organically through word-of-mouth virality.
In recent years, we have made investments in marketing to supplement our organic model and amplify the voices of our existing users. Key elements of our sales and marketing strategy include: • Brand campaigns . Our brand marketing increases awareness of Duolingo through online and offline campaigns that drive press, social sharing, and more word-of-mouth virality.
In recent years, we have made investments in marketing to supplement our organic model and amplify the voices of our existing users. Key elements of our sales and marketing strategy include: • Brand building . Our brand marketing increases awareness of Duolingo through online and offline campaigns that drive press, social sharing, and more word-of-mouth virality.
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.
For many, Duolingo has become synonymous with language learning: for example, on Google, people search for the term “Duolingo” approximately nineteen 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.
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.
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 fine can be up to ¥50 million or 5 percent of an organization’s annual revenue for the prior financial year. A broad range of other countries continue to explore either new privacy and data security laws or changes to existing laws. 15 Table of Contents Available Information Our website address is www.duolingo.com.
The fine can be up to ¥50 million or 5 percent of an organization’s annual revenue for the prior financial year. A broad range of other countries continue to explore either new privacy and data security laws or changes to existing laws. 14 Table of Contents Available Information Our website address is www.duolingo.com.
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.
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.
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.
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. 13 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.
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.
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. 9 Table of Contents • Advanced data analytics and machine learning capabilities.
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.
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; • Our ability to obtain, protect and maintain our intellectual property rights and proprietary technology; • 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. 12 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 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.
Our learning, product, and design teams have developed this approach by combining research on 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.
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.
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 localized social media and influencer-led campaigns, app store optimization, and paid advertising to generate interest in our products and drive new learner growth.
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.
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, 2024, consisted of approximately 830 passionate employees, including more than 380 engineers, aims to build the most sophisticated education platform in the world.
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.
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 Video Call.
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.
As of December 31, 2024, there were about 32 million daily active users with a 7-day streak, or longer, and about 10 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.
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.
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.
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 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.
We complement and accelerate our organic user growth with strategic and targeted paid user acquisition. Our performance marketing strategy is focused on targeting high quality user segments around the world that are more likely to retain well as users and/or subscribe. • Geographic expansion .
Our performance marketing strategy is focused on targeting high quality user segments around the world that are more likely to retain well as users and/or subscribe. • Geographic expansion .
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.
Products across our platform, like our flagship Duolingo App (including our Math and Music courses), 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 .
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.
In 2022 we launched a math course that motivates both children and adults to sharpen their mental math skills in our standards-aligned curriculum. In 2023, we also launched a new music course that's designed to teach music literacy, including how to read music notes and play songs. The Math and Music courses have both been integrated into the Duolingo App.
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.
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 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.
Our official social media accounts have generated more than ten billion impressions to date and have been highlighted by numerous press outlets. All of this has allowed us to grow our business organically, primarily relying on word-of-mouth and brand buzz rather than paid user acquisition.
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.
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 intentionally do not put our learning content behind a paywall.
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.
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. Math and Music courses are also integrated into the Duolingo App.
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.
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 8 Table of Contents minds operate.
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 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. Our employees have a very strong sense of social responsibility and are interested in solving hard problems for the benefit of humanity.
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.
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 in January 2024, consumer spend on both online and offline language learning is expected to reach about $123 billion by 2027.
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.
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.
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.
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. In a world where people are increasingly engaged in immersive, bite-sized, mobile-first experiences, we provide an experience that also results in learning valuable skills.
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.
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 have a strong future roadmap of feature improvements and optimizations, and believe our subscriber base has strong growth ahead.
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.
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. Other Initiatives Duolingo also offers Duolingo for Schools and Duolingo ABC.
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.
According to an internal study, learners who completed five sections of Duolingo achieved proficiency comparable to five university semesters of language education. Independent studies corroborate this finding: Duolingo learners’ speaking skills were found to match those of university students, and users learning English on Duolingo outperformed students in traditional classroom settings on standardized language proficiency tests.
We believe that this trend will continue to accelerate, and that it will offer an almost unimaginable set of opportunities for companies at the nexus of technology and education to teach at scale. • Adoption of subscription models is growing globally. Rising adoption of subscription models across the globe is further enabling the shift towards mobile experiences.
We believe that this trend will continue to accelerate, and that it will offer an almost unimaginable set of opportunities for companies at the nexus of technology and education to teach at scale. • Online learners seek engaging, mobile-first experiences. Consumers are increasingly accustomed to the highly engaging design of social media apps and mobile games.
As of December 2023, it generally costs $59 per test. 10 Table of Contents 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.
Duolingo for Schools is a web-based tool that aims to make it easier for teachers to use the Duolingo platform in a structured learning environment, like a classroom. Duolingo ABC is an app that teaches young children early literacy skills. 10 Table of Contents People and Culture Attracting and retaining amazing talent is key to our success.
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.
We bring a sense of humor, joy, and imagination to everything we do. 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.
Our owned media marketing engages our learner community, creating millions of brand advocates who drive word-of-mouth virality by sharing their love of Duolingo within their networks. We send our learners personalized emails and push notifications that provide progress reports, lesson reminders, and sometimes a simple message of positivity to encourage them to remain engaged. • Paid acquisition .
Our owned media marketing engages our learner community, creating millions of brand advocates who drive word-of-mouth virality by sharing their love of Duolingo within their networks.
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 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. Accessible for free, as of December 31, 2024 it offers courses in over 40 languages to more than 100 million monthly active users.
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.
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. • Adoption of subscription models is growing globally. Rising adoption of subscription models across the globe is further enabling the shift towards mobile experiences.
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.
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. Anyone with a computer, webcam, and reliable internet connection can take the test from anywhere, at any time.
In 2021, we launched a family plan, which includes up to six subscribers under one annual plan. Duolingo Max Duolingo Max is a premium subscription tier launched in 2023 and offered to a portion of our user base and priced higher than Super Duolingo.
Duolingo Max Duolingo Max is a premium subscription tier launched in 2023 and offered to a portion of our user base and priced higher than Super Duolingo. It gives learners access to the existing features of Super Duolingo in addition to incremental features and exercises powered by generative AI technology.
Today, our engineering organization is more than 30% women-identifying. We believe that DEIB efforts are important to our long-term performance and value. We also recognize the importance of pursuing such efforts in a legally sound manner.
We are proud to say that Duolingo was founded by two immigrants and that our employees come from over 40 countries. We believe an environment of inclusion and belonging, where individuals can excel regardless of their background, is important to our long-term performance and value. We also recognize the importance of pursuing such efforts in a legally sound manner.
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.
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. In 2021, we launched a family plan, which includes up to six subscribers under one annual plan.
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.
Over time, we have developed a set of principles that define what we value as a company and guide how we make our decisions and spend our time. Our Principles • Take the long view. If it helps in the short-term but hurts Duolingo in the long-term, it’s not right. • Raise the bar.
Removed
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.
Added
As of December 31, 2024, Duolingo offers courses in over 40 languages to more than 100 million monthly active users.
Removed
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.
Added
Learners who use Duolingo for free see an ad at the end of each lesson, whereas learners who purchase one of our paid subscriptions enjoy an ad-free experience and access to additional features. As of December 31, 2024, approximately 9% of our monthly active users were paid subscribers.
Removed
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.
Added
As of December 31, 2024, over 5,600 education programs around the world accept the Duolingo English Test results as proof of English proficiency for international student admissions, with over 4,700 of those being higher education programs.
Removed
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. 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.
Added
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.
Removed
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.
Added
To change how the world learns, we must do world-class work. • Ship it. For a good idea to become reality, we need to move with a sense of urgency. So Go, Go, Go! • Show Don’t Tell. We use clear, concise communication that is grounded in data and real impact. • Make It Fun.
Removed
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.
Added
We send our learners personalized emails and push notifications that provide progress reports, lesson reminders, and sometimes a simple message of positivity to encourage them to remain engaged. 11 Table of Contents • Paid acquisition . We complement and accelerate our organic user growth with strategic and targeted paid user acquisition.
Removed
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.
Added
Industry Trends We believe the following market trends will contribute to the continued success of our platform : • AI will increasingly shape online learning. Rapid advances in generative AI, particularly large language models (LLMs), will change how people use technology to learn.
Removed
We prioritize the few ideas with the greatest impact so we can put our best efforts behind them. • 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. How we get things done • Test it first.
Removed
We measure and test assumptions so we can make informed decisions. • Reduce complexity. Complexity holds us back. We simplify for greatest impact. • Ship it. For a good idea to become reality, it needs a plan and a sense of urgency. So go go go! • Strive for excellence.
Removed
To change how the world learns, we must do world-class work. How we work together • Be candid and kind. We invite and give feedback compassionately but with excellence in mind. Transparency and care are hallmarks of our collaboration. • Explain why.
Removed
We create alignment by providing clarity and context, connecting plans and decisions back to our company strategy. 11 Table of Contents • Embrace challenges. When times get tough, we keep perspective and help others to do the same. We’re resilient in the face of changes and failures, taking responsibility while focusing on opportunities for growth. • Never settle on talent.
Removed
We hold a high standard for the people we hire, then provide training, coaching, and a trusting, inclusive environment so our employees, called Duos, can keep developing here. • All for one, and one for all.
Removed
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.
Removed
Industry Trends We believe the following market trends will contribute to the continued success of our platform : • Mobile-first behaviors are reshaping industries. In categories ranging from retail to music to dating, consumers are increasingly gravitating to mobile, app-based experiences.
Removed
We believe that consumer behavior will continue to be shaped by a preference for the convenient, on-demand nature of mobile experiences. • The shift towards online learning is accelerating. Historically, education has lagged behind other industries in the shift from offline to online.
Removed
However, the COVID-19 pandemic accelerated the already growing shift towards online learning, and we believe its effects are likely to be enduring. • Online learners seek engaging, mobile-first experiences. Consumers are increasingly accustomed to the highly engaging design of social media apps and mobile games.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

176 edited+46 added−64 removed328 unchanged
Biggest changeSee “—Our success depends, in part, on our ability to access, protect, collect, and use personal data, and our failure to comply with the varying and rapidly-evolving regulatory framework on privacy and data protection across jurisdictions could result in claims, changes to our business practices, monetary penalties or other forms of liability, increased cost of operations, brand damage reputational harm, or declines in user growth or engagement, or otherwise harm have a material adverse effect on our business.” We are subject to a number of risks related to payment cards, including data security breaches and fraud that we or third parties experience or additional regulation, any of which could materially adversely affect our business, financial condition and results of operations.
Biggest changeWe are subject to a number of risks related to payment cards, including data security breaches and fraud that we or third parties experience or additional regulation, any of which could materially adversely affect our business, financial condition and results of operations.
Any 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.
Any 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; 15 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.
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.
Our financial 19 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.
In particular, if these AI or machine learning models are (i) incorrectly designed or implemented; (ii) trained on incomplete, inadequate, inaccurate, biased or otherwise poor quality data or on data to which we do not have sufficient rights; and/or (iii) are adversely impacted by unforeseen defects, technical challenges, cyber security threats or material performance issues, the performance of our products, services, and business, as well as our reputation could suffer or we could incur liability through the violation of laws or contracts to which we are a party or civil claims.
In particular, if these AI or machine learning models are (i) incorrectly designed or implemented; (ii) trained or reliant on incomplete, inadequate, inaccurate, biased or otherwise poor quality data or on data to which we do not have sufficient rights; and/or (iii) are adversely impacted by unforeseen defects, technical challenges, cyber security threats or material performance issues, the performance of our products, services, and business, as well as our reputation could suffer or we could incur liability through the violation of laws or contracts to which we are a party or civil claims.
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.
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; 51 Table of Contents • 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.
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 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 Data, 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.
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.
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.
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.
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 34 Table of Contents Furthermore, we may not be successful in addressing other challenges encountered in connection with our acquisitions.
We are a US-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. Significant judgment is required in determining our global provision for income taxes, deferred tax assets or liabilities and in evaluating our tax positions on a worldwide basis.
We are a U.S.-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. Significant judgment is required in determining our global provision for income taxes, deferred tax assets or liabilities and in evaluating our tax positions on a worldwide basis.
While we have engaged, and expect to continue to engage in, certain voluntary initiatives (such as voluntary disclosures, certifications, or goals) to improve the ESG profile of our company and/or products or respond to stakeholder concerns, such initiatives may be costly and may not have the desired effect.
While we have engaged, and expect to continue to engage in, certain initiatives (such as disclosures, certifications, or goals) to improve the ESG profile of our company and/or products or respond to stakeholder concerns, such initiatives may be costly and may not have the desired effect.
Risks Related to Our Business and Industry If we fail to keep existing users or add new users, or if our users decrease their level of engagement with our products or do not convert to paying users, our revenue, financial results and business may be significantly harmed.
Risks Related to Our Business and Industry If we fail to keep existing users or add new users, or if our users decrease their level of engagement with our products or do not convert to or remain paying users, our revenue, financial results and business may be significantly harmed.
If these efforts are not successful, our ability to grow revenue will be harmed, which could materially adversely affect our business and financial performance. Our quarterly operating results and other operating metrics may fluctuate from quarter to quarter, which makes these metrics difficult to predict.
If these efforts are not successful, our ability to grow revenue will be harmed, which could materially adversely affect our business and financial performance. Our operating results and other operating metrics may fluctuate from quarter to quarter, which makes these metrics difficult to predict.
Finally, the passage or adoption of any legislation or regulation affecting the ability of service providers to periodically charge consumers for, among other things, recurring subscription payments may materially adversely affect our business, financial condition and results of operations.
The passage or adoption of any legislation or regulation affecting the ability of service providers to periodically charge consumers for, among other things, recurring subscription payments may materially adversely affect our business, financial condition and results of operations.
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.
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 52 Table of Contents 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.
Our success depends, in part, on our ability to access, protect, collect, and use personal data, and our failure to comply with the varying and rapidly-evolving regulatory framework on privacy and data protection across jurisdictions could result in claims or other forms of liability, increased cost of operations, reputational harm, or declines in user growth or engagement, or otherwise have a material adverse effect on our business.
Our success depends, in part, on our ability to access, protect, collect, use, and otherwise process Personal Data, and our failure or perceived failure to comply with the varying and rapidly-evolving regulatory framework on privacy and data protection across jurisdictions could result in claims or other forms of liability, increased cost of operations, reputational harm, or declines in user growth or engagement, or otherwise have a material adverse effect on our business.
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.
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 21 Table of Contents 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.
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.
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.
For example, a country’s political decision to cap or reduce immigration, particularly international student immigration, could reduce the number of Duolingo English Tests that are taken for the purpose of immigration to that country.
For example, a country’s decision to cap or reduce immigration, particularly international student immigration, could reduce the number of Duolingo English Tests that are taken for the purpose of immigration to that country.
Any one of the factors above or the cumulative effect of some of the factors above may result in significant fluctuations in our results of operations. 21 Table of Contents The variability and unpredictability of our quarterly operating results or other operating metrics could result in our failure to meet our expectations or those of analysts that cover us or investors with respect to revenue or other operating results for a particular period.
Any one of the factors above or the cumulative effect of some of the factors above may result in significant fluctuations in our results of operations. 20 Table of Contents The variability and unpredictability of our quarterly operating results or other operating metrics could result in our failure to meet our expectations or those of analysts that cover us or investors with respect to revenue or other operating results for a particular period.
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.
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 37 Table of Contents 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.
The ability to access such payment-related information on a real-time basis without having to proactively reach out to the consumer each time we process an auto-renewal payment or a payment for the purchase of a premium feature on any of our products is critical to our success and a seamless experience for our users.
Finally, the ability to access payment-related information on a real-time basis without having to proactively reach out to the consumer each time we process an auto-renewal payment or a payment for the purchase of a premium feature on any of our products is critical to our success and a seamless experience for our users.
We depend on a number of third parties in relation to the operation of our business, a number of which process personal data on our behalf.
We also depend on a number of third parties in relation to the operation of our business, a number of which process Personal Data on our behalf.
We face an ever-increasing number of threats to our information systems from a broad range of threat actors, including foreign governments, criminals, competitors, computer hackers, cyber terrorists and politically motivated groups or individuals, and we have previously experienced various attempts to access our information systems.
We face an ever-increasing number of threats to our IT Systems and Confidential Information from a broad range of threat actors, including foreign governments, criminals, competitors, computer hackers, cyber terrorists and politically motivated groups or individuals, and we have previously experienced various attempts to access our IT Systems and Confidential Information.
These laws and regulations, as well as any associated inquiries or investigations or any other government actions, may be costly to comply with and may delay or impede the development of new products, require that we change or cease certain business practices, result in negative publicity, increase our operating costs, require significant management time and attention, and subject us to remedies that may harm our business, including fines, demands or orders that require us to modify or cease existing business practices.
These laws and regulations, including executive branch actions, such as executive orders, as well as any associated inquiries or investigations or any other government actions, may be costly to comply with and may delay or impede the development of new products, require that we change or cease certain business practices, result in negative publicity, increase our operating costs, require significant management time and attention, and subject us to remedies that may harm our business, including fines, demands or orders that require us to modify or cease existing business practices.
If our assumptions change or if actual circumstances differ from our assumptions, our operating results may be adversely 58 Table of Contents affected and could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.
If our assumptions change or if actual circumstances differ from our assumptions, our operating results may be adversely 54 Table of Contents affected and could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.
If we are unable to maintain profitability in the future, it could materially adversely affect our business, financial condition and results of operations. 19 Table of Contents We have grown rapidly in recent years and have limited operating experience at our current scale of operations.
If we are unable to maintain profitability in the future, it could materially adversely affect our business, financial condition and results of operations. 18 Table of Contents We have grown rapidly in recent years and have limited operating experience at our current scale of operations.
Additionally, if we fail to adequately prevent fraudulent payment card transactions, we may face litigation, fines, governmental enforcement action, civil liability, diminished public perception of our security 34 Table of Contents measures, significantly higher payment card-related costs and substantial remediation costs, or refusal by payment card processors to continue to process payments on our behalf, any of which could materially adversely affect our business, financial condition and results of operations.
Additionally, if we fail to adequately prevent fraudulent payment card transactions, we may face litigation, fines, governmental enforcement action, civil liability, diminished public perception of our security measures, significantly higher payment card-related costs and substantial remediation costs, or refusal by payment card processors to continue to process payments on our behalf, any of which could materially adversely affect our business, financial condition and results of operations.
Historically, our costs have increased each year since 2011 and we anticipate that our expenses will continue to increase in the future as we broaden our user base, develop and implement new products, market new and existing products and promote our brands, continue to expand our technical infrastructure, and continue to hire additional employees and contractors to support our expanding operations, including our efforts to focus on privacy, safety, and security.
Historically, our costs have increased each year since 2011 and we anticipate that our expenses will continue to increase in the future as we broaden our user base, develop and implement new products, market new and existing products and promote our brands, continue to expand our technical infrastructure and physical office presence, and continue to hire additional employees and contractors to support our expanding operations, including our efforts to focus on privacy, safety, and security.
Furthermore, our disaster recovery systems and those of third-parties with which we do business may not function as intended or may fail to adequately protect our critical business information in the event of a significant business interruption, which may cause interruption in service of our products, security breaches or the loss of data or functionality, leading to a negative effect on our business, financial condition or results of operations.
Furthermore, our disaster recovery systems and those of third-parties with which we do business may not function as intended or may fail to adequately protect our critical business information in the event of a significant business interruption, which may cause interruption in service of 23 Table of Contents our products, security breaches or the loss of data or functionality, leading to a negative effect on our business, financial condition or results of operations.
If a court were to find the choice of forum provision that will be contained in our amended and restated certificate of incorporation or amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely affect our business, financial condition, and results of operations.
If a court were to find the choice of forum provision that will be contained in our amended and restated certificate of incorporation or amended and restated 53 Table of Contents bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely affect our business, financial condition, and results of operations.
The EU AI Act also includes specific requirements for general purpose AI and foundational models, such as transparency, training data obligations, and labeling for generative AI systems. Fines for breach extend up to 7% of worldwide annual turnover.
The EU AI Act also includes specific requirements for general purpose AI and foundational models, such as transparency, training data obligations, and labeling for generative AI systems. Fines for breaches of the EU AI Act extend up to 7% of worldwide annual turnover.
Our efforts to comply with these rules and regulations may not be successful, and a determination that we have failed to comply, whether knowingly or inadvertently, may result in substantial penalties, including 38 Table of Contents fines, enforcement actions, civil and/or criminal sanctions, the disgorgement of profits, and may materially adversely affect our business, financial condition and results of operations.
Our efforts to comply with these rules and regulations may not be successful, and a determination that we have failed to comply, whether knowingly or inadvertently, may result in substantial penalties, including fines, enforcement actions, civil and/or criminal sanctions, the disgorgement of profits, and may materially adversely affect our business, financial condition and results of operations.
Unfavorable publicity or media reports regarding us, our privacy practices, our social media activities, data security compromises or breaches, product changes, product or service quality or features, litigation or regulatory activity or regarding the actions of our partners, our users, our employees or other companies in our industry, could materially adversely affect our brand image or reputation, regardless of the veracity of such publicity or media reports.
Unfavorable publicity or media reports regarding us, our privacy practices, our social media activities, data security compromises or breaches, product changes, product or service quality or features, litigation 26 Table of Contents or regulatory activity or regarding the actions of our partners, our users, our employees or other companies in our industry, could materially adversely affect our brand image or reputation, regardless of the veracity of such publicity or media reports.
We have in the past experienced, and we may from time to time in the future experience, system interruptions that make some or all of our systems or data temporarily unavailable and prevent our products from functioning properly for our users; any such interruption could arise for any number of reasons, including software bugs and human errors.
We have in the past experienced, and we may from time to time in the future experience, system interruptions that make some or all of our IT Systems or data (including Confidential Information) temporarily unavailable and prevent our products from functioning properly for our users; any such interruption could arise for any number of reasons, including software bugs and human errors.
The EU AI Act, once fully enacted, and the regulatory framework in China are expected to have a material impact on the way AI is regulated in the EU and in China, and together with developing guidance and/or decisions in this area, may affect our use of AI and our ability to provide and to improve our services, require additional compliance measures and changes to our operations and processes, result in increased compliance costs and potential increases in civil claims against us, and could adversely affect our business, financial condition and operations.
The EU AI Act and the regulatory framework in China are expected to have a material impact on the way AI is regulated in the EU and in China, and together with developing guidance and/or decisions in this area, may affect our use of AI and our ability to provide and to improve our services, require additional compliance measures and changes to our operations and processes, result in increased compliance costs and potential increases in civil claims or fines against us, and could adversely affect our business, financial condition and operations.
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.
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.
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, 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.
Any decrease in user stickiness, growth or 17 Table of Contents engagement is likely to have a material and adverse impact on our revenue, business, financial condition and results of operations.
Any decrease in user stickiness, growth or 16 Table of Contents engagement is likely to have a material and adverse impact on our revenue, business, financial condition and results of operations.
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.
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.
There can be no assurance that our cybersecurity risk management program and processes, including our policies, controls or procedures, will be fully implemented, complied with or effective in protecting our systems and information.
There can be no assurance that our cybersecurity risk management program and processes, including our policies, controls or procedures, will be fully implemented, complied with or effective in protecting our IT Systems and Confidential Information.
Because of the 20-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively could continue to control a significant percentage of the combined voting power of our common stock and therefore be able to control all matters submitted to our stockholders for approval until all outstanding shares of Class A and Class B common stock have converted automatically into shares of a single class of common stock.
Because of the 20-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively could continue to control a significant percentage of the combined voting power of our common stock and therefore be able to control all matters submitted to our stockholders for approval until all outstanding shares of Class A and Class B 49 Table of Contents common stock have converted automatically into shares of a single class of common stock.
If U.S. or 57 Table of Contents international tax laws change in a manner that increases our tax obligation, it could result in a material adverse impact on our results of operations and our financial position. The Tax Cuts and Jobs Act of 2017 changed the law with respect to the treatment of research and development expenditures.
If U.S. or international tax laws change in a manner that increases our tax obligation, it could result in a material adverse impact on our results of operations and our financial position. The Tax Cuts and Jobs Act of 2017 changed the law with respect to the treatment of research and development expenditures.
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.
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.
If we cannot develop or license alternative technology for any allegedly infringing aspect of our business, we would be forced to limit our products and services and may be unable to compete effectively.
If we cannot develop or license alternative technology for any allegedly infringing aspect of our business, we may be forced to limit our products, services or practices and may be unable to compete effectively.
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.
It is likely that we would not be able to reach all affected users, and even if we 32 Table of Contents 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.
Further, our systems and infrastructures are vulnerable to damage from fire, power loss, hardware and operating software errors, cyber-attacks, technical limitations, telecommunications failures, acts of God and similar events. Not all of our systems and infrastructures, including the backup systems we have for certain aspects of our operations, are fully redundant.
Further, our IT Systems and infrastructure are vulnerable to damage from fire, power loss, hardware and operating software errors, cyber-attacks, technical limitations, telecommunications failures, acts of God and similar events. Not all of our IT Systems and infrastructure, including the backup systems we have for certain aspects of our operations, are fully redundant.
The introduction of new products, expansion of our activities in certain jurisdictions, or other actions that we may take may subject us to additional laws, regulations or other government scrutiny. In 37 Table of Contents addition, foreign laws and regulations can impose different obligations or be more restrictive than those in the U.S.
The introduction of new products, expansion of our activities in certain jurisdictions, or other actions that we may take may subject us to additional laws, regulations or other government scrutiny. In addition, foreign laws and regulations can impose different obligations or be more restrictive than those in the U.S.
Our exposure to these risks may be increased as a result of evolving our core source code base, introducing new content and offerings, integrating acquired-company technologies, or making other business changes, including in areas where we do not currently compete.
Our exposure to these risks may be increased as a result of evolving our core source code base, introducing new content and offerings, integrating acquired-company technologies, or making other 48 Table of Contents business changes, including in areas where we do not currently compete.
While the text of the ePrivacy Regulation is still under development, European court decisions and regulators’ guidance are driving increased 40 Table of Contents attention to cookies and tracking technologies.
While the text of the ePrivacy Regulation is 38 Table of Contents still under development, European court decisions and regulators’ guidance are driving increased attention to cookies and tracking technologies.
Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), requires us to evaluate the effectiveness of our internal controls over financial reporting as of the end of each fiscal year, including a management report assessing the effectiveness of our internal controls over financial reporting, and a report issued by our independent registered public accounting firm on that assessment.
Section 404 of the Sarbanes-Oxley Act, requires us to evaluate the effectiveness of our internal controls over financial reporting as of the end of each fiscal year, including a management report assessing the effectiveness of our internal controls over financial reporting, and a report issued by our independent registered public accounting firm on that assessment.
AI applications in the “high” risk category are expected to become subject to new ex ante conformity assessments and a range of new requirements, particularly on risk management, testing, technical robustness, data training and data governance, transparency, human oversight, and cybersecurity, while AI applications in the “limited” risk category are expected to become subject to new transparency obligations.
AI applications in the “high” risk category are subject to new ex ante conformity assessments and a range of new requirements, particularly on risk management, testing, technical documentation and robustness, data training and data governance and log recording, transparency, human oversight, and cybersecurity, while AI applications in the “limited” risk category are expected to become subject to new transparency obligations.
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.
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.
Climate change may increase the frequency and/or intensity of such events or contribute to various chronic changes in the physical environment, such as sea-level rise or changes in ambient temperature or precipitation patterns, any of which may also adversely impact our or our third-parties’ operations.
Climate change may increase the frequency and/or intensity of such events or contribute to various 35 Table of Contents chronic changes in the physical environment, such as sea-level rise or changes in ambient temperature or precipitation patterns, any of which may also adversely impact our or our third-parties’ operations.
As a result of our prominence, the size of our user base, the volume of personal data on our systems, the reach and popularity of our social media accounts, and the evolving nature of our products and services (including our efforts involving new and emerging technologies), we may be a particularly attractive target for such attacks, including from highly sophisticated, state-sponsored, or otherwise well-funded criminal actors.
As a result of our prominence, the size of our user base, the volume of Confidential Information on our systems, the reach and popularity of our social media accounts, and the evolving nature of our products and services (including our efforts involving new and emerging technologies), we may be a particularly attractive target for such attacks, including from highly sophisticated, state-sponsored, or otherwise well-funded criminal actors.
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.
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.
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.
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 Confidential Information (including our users’ data) may be improperly accessed, used, or disclosed, which could subject us to legal liability.
The defense of these actions could be time consuming and expensive and could distract our personnel from their normal responsibilities. We evaluate these litigation claims and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses.
The defense of these actions could be time consuming and expensive and could distract our personnel from their normal responsibilities. We evaluate these litigation 43 Table of Contents claims and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses.
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.
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.
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.
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.
Any interruptions or outages, regardless of the cause, could negatively impact our users’ experiences with our products, tarnish our brands’ reputations and decrease demand for our products, any or all of which could materially adversely affect our business, financial condition and results of operations.
Any interruptions or outages, regardless of the cause, could negatively impact our users’ experiences with our products, tarnish our brands’ reputations and decrease demand for our products, 33 Table of Contents any or all of which could materially adversely affect our business, financial condition and results of operations.
If we violate, or a platform provider believes we have violated, its terms of service (or if there is any change or deterioration in our relationship with these platform providers), that platform provider could limit or discontinue our access to the platform.
If we violate, or a platform provider believes we have violated, its terms of service (or if there is any change or deterioration in our relationship with these platform providers), that platform provider could limit 22 Table of Contents or discontinue our access to the platform.
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.
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; • foreign currency fluctuations, and in particular, decreases in the value of foreign currencies relative to the U.S. dollar; • imposition of tariffs on our products or other regulatory demands or retaliatory actions in regions where we sell our products • 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. 29 Table of Contents Moreover, geopolitical tensions or regulatory uncertainty in countries in which we operate, such as China, may prevent us from operating in certain countries or increase our costs of operating in those countries.
Our amended and restated certificate of incorporation and amended and restated bylaws contain and Delaware law contains provisions which could have the effect of rendering more difficult, delaying or 53 Table of Contents preventing an acquisition deemed undesirable by our board of directors.
Our amended and restated certificate of incorporation and amended and restated bylaws contain and Delaware law contains provisions which could have the effect of rendering more difficult, delaying or preventing an acquisition deemed undesirable by our board of directors.
Finally, effective succession planning is also important to our future success.
Effective succession planning is also important to our future success.
Purchases of these subscriptions and features via our mobile applications are mainly processed through the in-app payment systems provided by Apple and Google. As of December 31, 2023 we paid Apple and Google, as applicable, a meaningful share (generally 15-30%) of the payments we receive from transactions processed through in-app payment systems.
Purchases of these subscriptions and features via our mobile applications are mainly processed through the in-app payment systems provided by Apple and Google. As of December 31, 2024 we paid Apple and Google, as applicable, a meaningful share (generally 15-30%) of the payments we receive from transactions processed through in-app payment systems during the year.
To continue to reach potential users and grow our businesses, we must identify and devote our overall marketing activities and expenditures to newer advertising channels, such as mobile and online video platforms as well as targeted campaigns in which we communicate directly with potential, former and current users via new virtual means.
To continue to reach potential users and grow our businesses, we must identify and devote our overall marketing activities and expenditures new and evolving advertising channels, such as mobile and online video and social media platforms as well as targeted campaigns in which we communicate directly with potential, former and current users via new virtual means.
Further, from time to time we may introduce new products, product features and services, including in areas where we currently do not have an offering, which could increase our exposure to patent and other intellectual property claims from competitors, non-practicing 46 Table of Contents entities, and other rights holders.
Further, from time to time we may introduce new products, product features and services, including in areas where we currently do not have an offering, which could increase our exposure to patent and other intellectual property claims from competitors, non-practicing entities, and other rights holders.
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.
These proposals 55 Table of Contents 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.
Such third-party partners may also discontinue their relationships with us as a result of injunctions or otherwise, which could result in loss of revenue and adversely impact our business operations.
Such third- 44 Table of Contents party partners may also discontinue their relationships with us as a result of injunctions or otherwise, which could result in loss of revenue and adversely impact our business operations.
Likewise, if trends in international education shift away from English-speaking destination countries where the Duolingo English Test is accepted, we may see a reduction in the number of Duolingo English Tests taken. See “—We operate in various international markets, including certain markets in which we have limited experience.
Likewise, if trends in international education shift away from English-speaking destination countries, such as the U.S., where the Duolingo English Test is accepted, we may see a reduction in the number of Duolingo English Tests taken. See “—We operate in various international markets, including certain markets in which we have limited experience.
We believe that Duolingo users value our commitment to our mission. However, because we hold ourselves to such high standards, and because we believe our users have come to have high expectations of us, we may be more severely affected by negative reports or publicity if we fail, or are perceived to have failed, to live up to Duolingo’s mission.
However, because we hold ourselves to such high standards, and because we believe our users have come to have high expectations of us, we may be more severely affected by negative reports or publicity if we fail, or are perceived to have failed, to live up to Duolingo’s mission.
While we take steps intended to mitigate the associated risks of using third parties, there is no assurance that these measures and our own privacy and security-related safeguards will protect us from the risks associated with the third-party processing, storage and transmission of such information.
While we take steps intended to mitigate the associated risks of using third parties, there is no assurance that these measures and our own privacy and security-related safeguards will protect us from the risks associated with the third-party processing, storage and transmission of Personal Data.
On December 12, 2022, the European Union member states agreed to implement the OECD’s Pillar 2 global corporate minimum tax rate of 15% on companies with revenues of at least EUR 750,000, which would go into effect in 2024. While we not currently have revenues above that threshold, with continued growth it may reach that level in future years.
On December 12, 2022, the European Union member states agreed to implement the OECD’s Pillar 2 global corporate minimum tax rate of 15% on companies with revenues of at least EUR 750 million, which went into effect in 2024. While we do not currently have revenues above that threshold, with continued growth it may reach that level in future years.
Our success depends, in part, on the integrity of our information technology systems and infrastructures and on our ability to enhance, expand and adapt these systems and infrastructures in a timely and cost-effective manner. In order for us to succeed, our information technology systems and infrastructures must perform well on a consistent basis.
Our success depends, in part, on the integrity of our IT Systems and infrastructures and on our ability to enhance, expand and adapt these systems and infrastructures in a timely and cost-effective manner. In order for us to succeed, our IT Systems and infrastructure must perform well on a consistent basis.
Both advocates and opponents to certain ESG matters are increasingly resorting to a range of activism forms, including media campaigns and litigation, to advance their perspectives. To the extent we are subject to such activism, it may require us to incur costs or otherwise adversely impact our business.
Both advocates and opponents to certain ESG matters are increasingly resorting to a range of activism forms, including media campaigns and litigation, to advance their perspectives. To the extent we are subject to such activism, or we are unsuccessful in navigating competing stakeholder perspectives, it may require us to incur costs or otherwise adversely impact our business.
As we have grown, we have increased our employee headcount and we expect headcount growth to continue for the foreseeable future. From December 31, 2018 to December 31, 2023, our headcount grew from approximately 140 employees to approximately 720 employees. Further, as we grow, our business becomes increasingly complex.
As we have grown, we have increased our employee headcount and we expect headcount growth to continue for the foreseeable future. From December 31, 2018 to December 31, 2024, our headcount grew from approximately 140 employees to approximately 830 employees. Further, as we grow, our business becomes increasingly complex.
In particular, a significant portion, if not almost all, of our product traffic, data storage, data processing and other computing services and systems is hosted by AWS and Google Cloud. AWS and Google Cloud provide us with computing and storage capacity pursuant to an agreement that continues until terminated by either party.
In particular, a significant portion, if not almost all, of our product traffic, data storage, data processing and other computing services and systems is hosted by AWS and Google Cloud. AWS and Google Cloud provide us with computing and storage capacity pursuant to agreements that continue until terminated by either party.
There is a risk that generative AI technologies could produce inaccurate or misleading content or other discriminatory or unexpected results or behaviors, such as hallucinatory behavior that can generate irrelevant, nonsensical, or factually incorrect results, all of which could harm our reputation, business, or customer relationships.
There is a risk that generative AI technologies could produce inaccurate or misleading content or other discriminatory or unexpected results or behaviors, such as hallucinatory behavior that can generate irrelevant, nonsensical, or factually incorrect results but in a manner that appears accurate, all of which could harm our reputation, business, or customer relationships.
In addition, other parties may independently develop technologies that are substantially similar or superior to ours and we may not be able to stop such parties from using such independently developed technologies to compete effectively with us.
In addition, other parties may independently develop technologies that are 46 Table of Contents substantially similar or superior to ours and we may not be able to stop such parties from using such independently developed technologies to compete effectively with us.
Further, we may experience media, legislative, or regulatory scrutiny of our actions or decisions regarding user privacy, encryption, content, contributors, advertising and other issues, which may materially adversely affect our reputation and brand.
Further, we have and may in the future experience media, legislative, or regulatory scrutiny of our actions or decisions regarding user privacy, encryption, content, contributors, advertising and other issues, which may materially adversely affect our reputation and brand.

… 206 more changes not shown on this page.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

7 edited+0 added−3 removed4 unchanged
Biggest changeCybersecurity Governance Our Board considers cybersecurity risk as part of its risk oversight function and has delegated to the Audit Committee (the “Committee”) oversight of cybersecurity and other information technology risks. The Committee oversees management’s implementation of our cybersecurity risk management program. The Committee receives quarterly reports from management on our cybersecurity risks.
Biggest changeCybersecurity Governance Our Board has ultimate oversight of cybersecurity risk and is assisted by its Audit Committee (the "Committee"), which regularly reviews our cybersecurity program with management and reports to the Board. Cybersecurity reviews by the Committee generally occur quarterly or more frequently as determined to be necessary or advisable.
Our management team oversees our cybersecurity risk management through our Information Security Management System Governance Council, which is chaired by the Information Security Management Leader and includes our Chief Technology Officer, Chief Engineering Officer, and General Counsel, along with employee subject matter experts in law, privacy, engineering, and cybersecurity.
Our management team oversees our cybersecurity risk management through our Information Security Management System Governance Council, which is chaired by our Information Security Management Leader and includes our Chief Technology Officer, Chief Engineering Officer, and General Counsel, along with employee subject matter experts in law, privacy, engineering, and cybersecurity.
Item 1C. Cybersecurity Cybersecurity Risk Management, Strategy and Governance Disclosures Cybersecurity Risk Management and Strategy We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality, integrity, and availability of our critical systems and information.
Item 1C. Cybersecurity Cybersecurity Risk Management, Strategy and Governance Disclosures Cybersecurity Risk Management and Strategy We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality, integrity, and availability of our critical systems and information. Our cybersecurity risk management program includes a cybersecurity incident response plan.
This does not imply that we meet any particular technical standards, specifications, or requirements, only that we use the ISO 27001 requirements as a guide to help us identify, assess, and manage cybersecurity risks relevant to our business.
We design and assess our program based on the International Organization for Standardization (“ISO”) 27001 requirements. This does not imply that we meet any particular technical standards, specifications, or requirements, only that we use the ISO 27001 requirements as a guide to help us identify, assess, and manage cybersecurity risks relevant to our business.
Committee members receive presentations on cybersecurity topics and trends from our Information Security Management Leader, internal cybersecurity staff or external experts as part of the 60 Table of Contents Committee’s continuing education on topics that impact public companies. The full Board also receives briefings from the Committee and from management on our cyber risk management program.
Committee members also receive presentations on cybersecurity topics and trends from our Information Security Management Leader, internal cybersecurity staff or external experts as part of the Committee's continuing education on topics that impact public companies.
Our cybersecurity risk management program includes: • risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products, services, and our broader enterprise IT environment; • a dedicated information security team principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security controls, and (3) our response to cybersecurity incidents; • the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security controls; • cybersecurity awareness training of our employees, incident response personnel, and senior management; • a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents; and • a third-party risk management process for service providers, suppliers, and vendors.
Our cybersecurity risk management program includes: • risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products, services, and our broader enterprise IT environment; • a dedicated information security team principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security controls, and (3) our response to cybersecurity incidents; • the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security controls; • cybersecurity awareness training of our employees, incident response personnel, and senior management; • a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents; and • a third-party risk management process for service providers, suppliers, and vendors. 57 Table of Contents We have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected us, including our operations, business strategy, financial condition, or results of operations.
“Risk Factors—Risks Relating to Our Business and Industry – 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”.
“Risk Factors—Risks Relating to Our Business and Industry – Security breaches of our IT Systems, improper or unauthorized access to or disclosure of our Confidential Information, other hacking and social engineering or phishing attacks on our IT Systems or service, or other cyber incidents could disrupt our services or compromise Confidential Information related to our business and expose us to liability, which could harm our reputation and materially adversely affect our business.”.
Removed
Our cybersecurity risk management program includes a cybersecurity incident response plan. 59 Table of Contents We design and assess our program based on the International Organization for Standardization (“ISO”) 27001 requirements.
Removed
We have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected us, including our operations, business strategy, financial condition, or results of operations.
Removed
In addition, management updates the Committee, as necessary, regarding any material cybersecurity incidents, as well as any incidents with lesser impact potential. The Committee reports to the full Board regarding its activities, including those related to cybersecurity risk management.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−1 removed0 unchanged
Biggest changeItem 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.
Biggest changeItem 2. Properties We lease approximately 83,586 square feet in multiple facilities in Pittsburgh, Pennsylvania where we operate our headquarters, and lease approximately 85,666 square feet of office space in New York City. We also lease other office space around the world as needed for our employees, including in Beijing, Berlin, Detroit, Tokyo, and Seattle.
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.
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.
Removed
In 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.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−1 removed0 unchanged
Biggest changeItem 3. Legal Proceedings From time to time we may be involved in claims and proceedings arising in the course of our business. The outcome of any such claims or proceedings, regardless of the merits, is inherently uncertain. We are not currently party to any material legal proceedings. Item 4.
Biggest changeItem 3. Legal Proceedings From time to time we may be involved in claims and proceedings arising in the course of our business. The outcome of any such claims or proceedings, regardless of the merits, is inherently uncertain. We are not currently party to any material legal proceedings.
Removed
Mine 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

3 edited+0 added−0 removed6 unchanged
Biggest changeHolders 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.
Biggest changeHolders of our Common Stock As of February 26, 2025, there were 9 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.
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]
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. 60 Table of Contents Item 6. [Reserved]
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.
As of February 26, 2025, there were 3 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.

Item 7. Management's Discussion & Analysis

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

94 edited+18 added−40 removed49 unchanged
Biggest changeYear 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.
Biggest changeYear Ended December 31, ( In thousands) 2024 2023 Net income $ 88,574 $ 16,067 Add (deduct): Interest income (42,697) (31,091) Provision for income taxes 13,732 1,710 Depreciation and amortization 10,854 7,095 Stock-based compensation expenses related to equity awards (1) 120,267 99,226 Acquisition transaction costs (2) 774 — Acquisition earn-out costs (3) 200 338 Gain on sale of capitalized software (4) — (100) Loss on disposal of leasehold improvements (5) — 433 Impairment of capitalized software (6) 238 — Adjusted EBITDA $ 191,942 $ 93,678 ________________ (1) In addition to stock-based compensation expense of $110.5 million and $95.2 million for the years ended December 31, 2024 and 2023, respectively, this includes costs incurred related to taxes paid on equity transactions as follows: Year Ended December 31, (In thousands) 2024 2023 Research and development $ 2,318 $ 1,693 Sales and marketing 130 93 General and administrative 7,342 2,219 Total $ 9,790 $ 4,005 (2) Represents costs incurred related to acquisitions, including integration costs, which are included in General and administration expense within our Consolidated Statements of Operations and Comprehensive Income (Loss).
We invest heavily in research and development to create new products and product features that help us grow our base, engage our users, monetize our users, and teach our users. This, in turn, drives additional growth in, and better lifetime value of, our paid subscribers, as well as increased advertising revenue from impressions from our free users.
We invest heavily in research and development to create new products and product features that help us grow our user base, engage our users, monetize our users, and teach our users. This, in turn, drives additional growth in, and better lifetime value of, our paid subscribers, as well as increased advertising revenue from impressions from our free users.
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.
We grew DAUs through many of the same marketing and 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.
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.
Interest Income Interest income consists of income earned on our money market funds included in cash and cash equivalents and income earned and net accretion on our marketable securities. Other (expense) income, net Other (expense) income, net consists primarily of foreign currency exchange gains and losses.
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 following table sets forth the components of our Consolidated Statements of Operations and Comprehensive Income for each of the periods presented as a percentage of revenue.
For more information, refer to Note 7, Leases, in the notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. (3) Other business purchase commitments consist of hosting costs and web services.
For more information, refer to Note 7, Leases, in the notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. (3) Other business purchase commitments consist of hosting costs, web services and generative AI costs.
Non-GAAP Financial Measures We use certain non-GAAP financial measures to supplement our Consolidated Financial Statements, which are presented in accordance with GAAP. These non-GAAP financial measures include Adjusted EBITDA and free cash flow. We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons.
Non-GAAP Financial Measures We use certain non-GAAP financial measures to supplement our Consolidated Financial Statements, which are presented in accordance with GAAP. These non-GAAP financial measures include Adjusted EBITDA, free cash flow and constant currency. We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons.
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 MAUs is the three months ended December 31, 2024 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, 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.
The measurement period for DAUs is the three months ended December 31, 2024 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.
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.
Provision for income taxes 69 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.
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.
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 advertising impressions. We generally enter into arrangements with the major programmatic advertising networks to monetize our advertising inventory.
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.
As of December 31, 2024, subscribers made up 8.8% of our average MAUs over the last twelve months as compared to 8.3% of our average MAUs during the year ended December 31, 2023. Subscription Our subscription offerings as of the date of this filing are called Super Duolingo and Duolingo Max.
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.
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.
Components of Our Results of Operations Revenue We generate revenues primarily from the sale of subscriptions. The term-length of our subscription agreements are primarily monthly or annual, with the family plan offered as an annual subscription. We also generate revenue from advertising, the in-app sale of virtual goods, and the Duolingo English Test.
Components of Our Results of Operations Revenue We generate revenues primarily from the sale of subscriptions. The term-length of our subscription agreements are primarily monthly or annual, with the family plan offered as an annual subscription. We also generate revenue from advertising, the in-app sale of virtual goods, and the Duolingo English Test, as well as from Duo’s Taquería.
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.
Increased engagement and efficacy, we believe, help drive organic growth in MAUs and DAUs, growth in, and better retention of, paid subscribers, as well as increased advertising opportunities with free users. Sales and Marketing.
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.
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 100 million monthly active users for the three months ended December 31, 2024.
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 following 65 Table of Contents table presents a reconciliation of our net income, the most directly comparable financial measure presented in accordance with GAAP, to Adjusted EBITDA.
General and administrative expenses also include certain professional services fees, general corporate and director and officer insurance, our facilities costs, public company costs to comply with the rules and regulations of the SEC and the Listing Rules of the Nasdaq Global Select Market, and other general overhead costs that support our operations.
General and administrative expenses also include certain professional services fees, general corporate and director and officer insurance, our facilities costs, public company costs to comply with the rules and regulations of the Securities and Exchange Commission (“SEC”) and the Listing Rules of the Nasdaq Global Select Market, and other general overhead costs that support our operations.
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).
For a discussion of changes from the year ended December 31, 2023 to the year ended December 31, 2022, 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, 2023 (filed with the SEC on February 29, 2024).
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.
We also offer in-app purchases, which 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. University program acceptance is a driver of Duolingo English Test revenue.
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.
As of December 31, 2024, we had deferred revenues of $372.9 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.
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.
Recent Accounting Pronouncements 77 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.
(4) Represents costs incurred related to the earn-out payment on an acquisition, which is included within General and administrative within our Consolidated Statements of Operations and Comprehensive Income (Loss). (5) Represents proceeds from a sale of capitalized software, which is included within Other (expense) income, net within our Consolidated Statements of Operations and Comprehensive Income (Loss).
(3) Represents costs incurred related to the earn-out payments on acquisitions, which is included within General and administrative expense within our Consolidated Statements of Operations and Comprehensive Income (Loss). (4) Represents proceeds from a sale of capitalized software, which is included within Other (expense) income, net within our Consolidated Statements of Operations and Comprehensive Income (Loss).
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.
As of December 31, 2024, we maintained a valuation allowance of approximately $256,728 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.
(2) Consists of future non-cancelable minimum rental payments under an operating lease obligation, committed to in December 2023, and commencing in January 2024. These payments are not reflected on our balance sheet as of December 31, 2023.
(2) Consists of future non-cancelable minimum rental payments under an operating lease obligation, committed to in March 2024, and commencing in the first half of 2025. These payments are not reflected on our balance sheet as of December 31, 2024.
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.
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.
We measure the fair value of our options on the date of grant using the Black-Scholes pricing model which requires the use of several estimates, including the volatility of our share price, the expected life of the option, risk free interest rates and expected dividend yield.
We generally grant our option awards in a combination of service-based and performance-based. We measure the fair value of our options on the date of grant using the Black-Scholes pricing model which requires the use of several estimates, including the volatility of our share price, the expected life of the option, risk free interest rates and expected dividend yield.
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.
We had approximately 116.7 million and 88.4 million MAUs for the three months ended December 31, 2024 and 2023, respectively, representing an increase of 32% from the prior year period.
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.
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.
This has allowed us to scale to more than 85 million MAUs for the three months ended December 31, 2023.
This has allowed us to scale to more than 100 million MAUs for the three months ended December 31, 2024.
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.
Provision for income taxes Provision for income taxes increased by $12.0 million to $13.7 million during the year ended December 31, 2024, from $1.7 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 Section 174.
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.
We had approximately 40.5 million and 26.9 million DAUs for the three months ended December 31, 2024 and 2023, respectively, representing an increase of 51% from the prior year period. The DAU / MAU ratio, which we believe is an indicator of user engagement, increased to 34.7% from 30.4% a year ago.
Adjusted EBITDA is defined as net income (loss) excluding interest income, income taxes, depreciation and amortization, stock-based compensation expenses related to equity awards, IPO 67 Table of Contents and public company costs, transaction costs related to an acquisition, acquisition earn-out costs, gain on sale of capitalized software and loss on disposal of leasehold improvements.
Adjusted EBITDA is defined as net income excluding interest income, income taxes, depreciation and amortization, stock-based compensation expenses related to equity awards, transaction costs related to acquisitions, acquisition earn-out costs, gain on sale of capitalized software, loss on disposal of leasehold improvements and impairment of capitalized software.
We use non-GAAP constant currency revenues and non- 69 Table of Contents GAAP percentage change in constant currency revenues for financial and operational decision-making and as a means to evaluate period-to-period comparisons.
We use non-GAAP constant currency measures and non-GAAP percentage change in constant currency measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons.
Our future capital requirements will depend on many factors, including our subscription growth rate and renewal activity, the timing of cash received from our payment processing platforms, the expansion of our sales and marketing activities, the introduction of new products and the enhancements to existing products, and the current uncertainty in the global markets.
Our future capital requirements will depend on many factors, including our subscription growth rate and renewal activity, the timing of cash received from our payment processing platforms, the expansion and efficacy of our sales and marketing activities, the introduction of new products and the enhancements to existing products, and the current uncertainty in the global markets impacting, for example, consumer spending, inflation and foreign currency exchange rates.
This increase was mainly due to: • Increased direct marketing and other expenses of $5.8 million, and • Increased personnel costs of $3.0 million driven primarily by the growth in headcount, including increased stock-based compensation expense of $1.4 million.
This increase was mainly due to: • Increased direct marketing and other expenses of $11.2 million; and • Increased personnel costs of $3.5 million driven primarily by the growth in headcount, including increased stock-based compensation expense of $1.0 million. 72 Table of Contents General and Administrative.
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.
If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in 73 Table of Contents continued innovation, we may not be able to compete successfully, which would harm our business and financial condition and results of operations.
Super Duolingo offers learners additional features to enhance their learning experience. Duolingo Max, which is available to a portion of our user base, gives learners access to the existing features of Super Duolingo in addition to incremental features and exercises powered by generative AI technology.
Super Duolingo offers learners additional features to enhance their learning experience. Duolingo Max gives learners access to the existing features of Super Duolingo in addition to incremental features and exercises powered by generative AI technology.
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.
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.
The measures set forth below should be considered in addition to, not as a substitute for or in isolation from, our financial results prepared in accordance with GAAP.
The measures set forth below should be considered in addition to, not as a substitute for or in isolation from, our financial results prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”).
Total revenues were $531.1 million for the year ended December 31, 2023, which represents an increase of 44% (on both a reported and constant currency basis) over the year ended December 31, 2022.
Total revenues were $748.0 million for the year ended December 31, 2024, which represents an increase of 41%, on both a reported and constant currency basis, over the year ended December 31, 2023.
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.
Subscription bookings totaled $730.7 million for the year ended December 31, 2024, which represents an increase of 47% on a reported basis and 49% on a constant currency basis, over the year ended December 31, 2023. Seasonality We experience some seasonality in both user growth and monetization on our platform.
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.
Free Cash Flow . Free cash flow is defined as 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, transaction costs related to acquisitions and acquisition earn-out payments as we believe such items are not indicative of future liquidity.
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.
The following table summarizes our cash flows for the periods presented: Year Ended December 31, (In thousands) 2024 2023 Net cash provided by operating activities $ 285,513 $ 153,614 Net cash used for investing activities (217,330) (13,584) Net cash (used for) provided by financing activities (30,002) 2,135 Net increase in cash, cash equivalents and restricted cash $ 38,181 $ 142,165 Operating Activities Cash flows from operating activities can fluctuate significantly from period to period due to timing of payments and cash collections.
Research and development continues to be our largest operating expense as we invest in it to create new products and product features and improve existing ones to drive engagement and efficacy of our products.
Research and development continues to be our largest operating expense as we test and experiment with new products and product features and improve existing ones to drive engagement and efficacy.
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.
Year Ended December 31, 2024 2023 Revenues 100 % 100 % Cost of revenues 27 27 Gross profit 73 73 Operating expenses: Research and development 31 37 Sales and marketing 12 14 General and administrative 21 25 Total operating expenses 64 76 Income (loss) from operations 8 (2) Other (expense) income, net — — Income (loss) before interest income and income taxes 8 (3) Interest income 6 6 Income before income taxes 14 3 Provision for income taxes 2 — Net income and comprehensive income 12 % 3 % Revenues Revenues increased by $216.9 million, or 41%, to $748.0 million during the year ended December 31, 2024, from revenues of $531.1 million during the year ended December 31, 2023.
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 provides the change in cost of revenues, along with related gross margins: Year Ended December 31, 2024 2023 Change (In thousands, except gross margin) Costs Gross Margin Costs Gross Margin Costs Gross Margin Total cost of revenues $ 203,645 72.8 % $ 142,105 73.2 % $ 61,540 (0.4)% Operating Expenses Research and Development.
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.
The effect of currency exchange rates on our business is an important factor in understanding period to period comparisons. We use non-GAAP percentage change in constant currency revenues and bookings, 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.
Our generation of net income as compared to a net loss in the comparative period was due to a combination of our growth in revenue, a reduction in operating expenses as a percentage of revenue as compared to the prior year period, and an increase in interest income of $23.9 million during the year ended December 31, 2023.
The increase in net income as compared to the comparative period was due to a combination of our growth in revenue and interest income in addition to a reduction in operating expenses as a percentage of revenue as compared to the prior year period.
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, 2024 and 2023, we generated Adjusted EBITDA of $191.9 million and $93.7 million, respectively, representing an increase of $98.3 million. Adjusted EBITDA increased due to a 66 Table of Contents combination of our growth in revenue and a reduction in operating expenses as a percentage of revenue as compared to the prior year periods.
Sales and marketing expense increased by $8.8 million, or 13%, to $75.8 million during the year ended December 31, 2023 from $67.0 million during the year ended December 31, 2022.
Sales and marketing expense increased by $14.7 million, or 19%, to $90.5 million during the year ended December 31, 2024 from $75.8 million during the year ended December 31, 2023.
Sales and marketing expenses are expensed as incurred and consists primarily of brand advertising, marketing, digital and social media spend, field marketing, travel, trade show sponsorships and events, conferences, and employee-related compensation, including stock-based compensation for personnel engaged in sales and marketing functions, and amortization of non-revenue generating capitalized software used to promote Duolingo.
Sales and marketing expenses are expensed as incurred and consists primarily of new user acquisition, brand marketing, digital and social media content, and employee-related compensation, including stock-based compensation, for personnel engaged in sales and marketing functions, amortization of non-revenue generating capitalized software used to promote Duolingo and depreciation of certain property and equipment. General and Administrative.
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).
Three Months Ended December 31, (In millions) 2024 2023 Operating Metrics Monthly active users (MAUs) 116.7 88.4 Daily active users (DAUs) 40.5 26.9 Paid subscribers (at period end) 9.5 6.6 Year Ended December 31, (In thousands) 2024 2023 Operating Metrics Subscription bookings $ 730,737 $ 495,497 Total bookings $ 870,601 $ 622,181 Non-GAAP Financial Measures Net income (GAAP) $ 88,574 $ 16,067 Adjusted EBITDA $ 191,942 $ 93,678 Net cash provided by operating activities (GAAP) $ 285,513 $ 153,614 Free cash flow $ 274,937 $ 144,273 63 Table of Contents Operating Metrics Monthly active users (MAUs).
If the stock-price hurdles are met sooner than the requisite service period, the stock-based compensation expense will be adjusted to prospectively recognize the remaining expense over the remaining derived service period. Provided that the founders continue to provide services to us, stock-based compensation expense is recognized over the derived service period, regardless of whether the stock-price hurdles are achieved.
If the stock-price hurdles are met sooner than the requisite service period, the stock-based compensation expense will be adjusted to prospectively recognize the remaining expense over the remaining derived service period.
Research and development expense increased by $43.9 million, or 29%, to $194.4 million during the year ended December 31, 2023 from $150.4 million during the year ended December 31, 2022. The increase was mainly due to: • Increased net personnel costs of $40.0 million.
Research and development expense increased by $40.9 million, or 21%, to $235.3 million during the year ended December 31, 2024 from $194.4 million during the year ended December 31, 2023. The increase was mainly due to: • Increased net personnel costs of $39.5 million, driven primarily by the growth in headcount.
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.
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. We calculate constant currency bookings by using current period foreign currency bookings and translating them to constant currency using prior year comparable period exchange rates.
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.
Our short-term investments consist mainly of corporate debt securities, U.S. Treasury securities, certificates of deposit, and commercial paper. We believe that our existing cash and cash equivalents, short-term investments and cash flow from operations will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months.
By excluding certain items that may not be indicative of our recurring core operating results, we believe that Adjusted EBITDA and free cash flow provide meaningful supplemental information regarding our performance.
By excluding certain items that may not be indicative of our recurring core operating results, we believe that Adjusted EBITDA, free cash flow and constant currency provide meaningful supplemental information regarding our performance. The effect of currency exchange rates on our business is an important factor in understanding period to period comparisons.
Stock-based Compensation ASC 718 requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. We generally grant our option awards in a combination of service-based and performance-based.
Equity Based Compensation We follow ASC 718, Compensation-Stock Compensation , to account for our equity based compensation. 75 Table of Contents Stock-based Compensation ASC 718 requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values.
We typically capitalize a small portion of research and development costs, mostly consisting of wages, each year into capitalized software when the work is specific to launching a new product, or making major upgrades to our existing products or platforms. We expect engineers, designers, and product managers to represent a significant portion of our employees for the foreseeable future.
We typically capitalize a small portion of research and development costs once the product has reached application development phase, mostly consisting of wages, each period into capitalized software when the work is specific to launching a new product, or making major upgrades to our existing products or platforms. We regularly test product improvements with our users.
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.
General and administrative expense increased by $23.9 million, or 18%, to $156.0 million during the year ended December 31, 2024 from $132.1 million during the year ended December 31, 2023.
Cash provided by operating activities increased by $100.0 million, or 186%, to $153.6 million for the year ended December 31, 2023 from $53.7 million for the year ended December 31, 2022.
Cash provided by operating activities increased by $131.9 million, or 86%, to $285.5 million for the year ended December 31, 2024 from $153.6 million for the year ended December 31, 2023.
We expect our sales and marketing expenses will decline as a percentage of revenues over the long-term. General and Administrative. General and administrative expenses primarily consist of employee-related compensation, including stock-based compensation, for management and administrative functions, including our finance and accounting, legal, and people teams.
General and administrative expenses primarily consist of employee-related compensation, including stock-based compensation, for management and administrative functions, including our finance and accounting, legal, and people teams.
See Note 9, “Stock Based Compensation,” to our Consolidated Financial Statements appearing elsewhere in Annual Report on Form 10-K, for further information on equity based compensation. Restricted Stock Units (RSUs) We began to grant RSUs in November 2020. The fair value of RSUs is estimated based on the fair value of our common stock on the date of grant.
See Note 10, “Stock-Based Compensation,” to our Consolidated Financial Statements 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 equity based compensation. Restricted Stock Units (RSUs) We began to grant RSUs in November 2020.
The main drivers of this increase were due to the following: • Increased personnel costs of $3.9 million, including increased stock-based compensation expense of $2.2 million; • Increased web services and technology costs of $2.7 million; • Increased travel and meals expenses of $2.3 million; • Increased professional fees of $2.7 million; and • Net increases in other costs of $3.5 million were due to increases in facility-related costs, sales and VAT taxes and charitable contributions.
This increase was mainly due to: • Increased net personnel costs of $11.6 million, including an increase of $4.4 million in stock-based compensation related expense; • Increased travel and meals expenses of $3.2 million; • Increased facility-related costs of $2.8 million; • Increased web services and technology costs of $2.8 million; • Increased professional fees of $1.9 million; and • Increased other expenses of $2.4 million.
Results 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.
Results of Operations Comparison of the years ended December 31, 2024 and 2023 The following table sets forth our Consolidated Statements of Operations and Comprehensive Income data, including year-over-year change, for the periods indicated: Year Ended December 31, (In thousands) 2024 2023 % Change Revenues $ 748,024 $ 531,109 41 Cost of revenues (1) (2) 203,645 142,105 43 Gross profit 544,379 389,004 40 Operating expenses: Research and development (1) (2) 235,298 194,352 21 Sales and marketing (1) (2) 90,494 75,788 19 General and administrative (1) (2) 155,992 132,123 18 Total operating expenses 481,784 402,263 20 Income (loss) from operations 62,595 (13,259) nm Other (expense) income, net (2,986) (55) >100 Income (loss) before interest income and income taxes 59,609 (13,314) nm Interest income 42,697 31,091 37 Income before income taxes 102,306 17,777 >100 Provision for income taxes 13,732 1,710 >100 Net income and comprehensive income $ 88,574 $ 16,067 >100 ________________ (1) Includes stock-based compensation expenses as follows: Year Ended December 31, (In thousands) 2024 2023 Cost of revenues $ 68 $ 55 Research and development 60,076 45,119 Sales and marketing 4,912 3,908 General and administrative 45,421 46,139 Total $ 110,477 $ 95,221 70 Table of Contents (2) Includes amortization of capitalized software and depreciation of property and equipment as follows: Year Ended December 31, (In thousands) 2024 2023 Cost of revenues (a) $ 5,310 $ 2,020 Research and development 2,358 1,650 Sales and marketing (a) 860 1,165 General and administrative 2,326 2,260 Total $ 10,854 $ 7,095 ________________ (a) Amortization of capitalized software is recorded to Cost of revenue and Sales and marketing for revenue and non-revenue generating capitalized software, respectively.
Total gross personnel costs, including capitalized wages and $19.7 million of increased stock-based compensation expense, increased by $46.7 million, which was partially offset by a $6.7 million increase in wages capitalized into capitalized software compared to the prior year; • Increased web services and technology costs of $4.7 million; and • Increased travel and meal costs of $1.5 million; The above increases were partially offset by a decrease in contractor costs of $2.0 million and other costs of $0.3 million.
Additionally, there was an increase of $1.6 million due to a reduction in wages recorded as capitalized software as compared to the prior year; • Increased web services and technology costs of $3.3 million; and • Increased travel and other costs of $2.0 million. The above increases were partially offset by a decrease in net contractor costs of $3.9 million.
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.
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. 68 Table of Contents Operating Expenses Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses.
We believe bookings provide an indication of trends in our operating results, including cash flows, that are not necessarily reflected in our revenues because we recognize subscription revenues ratably over the lifetime of a subscription, which is generally from one to twelve months.
We believe bookings provide an indication of trends in our operating results, including cash flows, that are not necessarily reflected in our revenues because we recognize subscription revenues ratably over the lifetime of a subscription, which is generally from one to twelve months. 64 Table of Contents For the years ended December 31, 2024 and 2023, we generated $730.7 million and $495.5 million of subscription bookings, respectively, representing an increase of $235.2 million, or 47% from the prior year period.
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.
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. Adjusted EBITDA.
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.
The main drivers of the increase were: • Subscription revenue increased by $202.8 million, or 50%, to $607.5 million during the year ended December 31, 2024, primarily due to an increase in the average number of paid subscribers during the period; • Other revenue increased by $14.1 million, or 11%, to $140.5 million during the year ended December 31, 2024, driven by increased advertising revenue of $5.0 million and In-App Purchases of $4.0 million, both of which were primarily driven by the increase in DAUs.
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.
We grew subscription bookings by selling more first-time and renewal subscriptions. For the years ended December 31, 2024 and 2023, we generated $870.6 million and $622.2 million total bookings, respectively, representing an increase of $248.4 million, or 40% from the prior year period. We grew total bookings primarily through growth in subscription bookings as noted above.
Expenses are primarily made up of costs incurred for the development of new and improved products and features in our applications. Such expenses include employee-related compensation, including stock-based compensation, of engineers, designers, and product managers, in addition to materials, travel and direct costs associated with the design and required testing of our platform.
Such expenses include employee-related compensation, including stock-based compensation, of engineers, designers, and product managers, in addition to materials, travel and direct costs associated with the design, required testing of our platform and depreciation of certain property and equipment. We expect engineers, designers, and product managers to represent a significant portion of our employees for the foreseeable future.
The above increases were partially offset by decreases in insurance costs of $0.9 million. Interest Income Interest income increased by $23.9 million during the year ended December 31, 2023, due to an increase in interest rates earned on our money market funds and higher average balances.
The above increases were partially offset by decreases in insurance and other costs of $0.8 million. Interest Income Interest income increased by $11.6 million, or 37%, to $42.7 million during the year ended December 31, 2024, from $31.1 million during the year ended December 31, 2023. The increase was due to higher average interest-bearing balances and higher average yields.
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.
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) 2024 2023 Net cash provided by operating activities $ 285,513 $ 153,614 Less: Capitalized software development costs and purchases of intangible assets (9,024) (10,493) Less: Purchases of property and equipment (12,116) (3,191) Plus: Taxes paid related to stock-based compensation equity awards 9,790 4,005 Plus: Acquisition transaction costs (1) 774 — Plus: Acquisition earn-out payment (2) — 338 Free cash flow $ 274,937 $ 144,273 ________________ (1) Represents costs incurred related to acquisitions, including integration costs.
As a result, the benefits of our research and development investments may be difficult to forecast. We expect research and development to continue to be our largest operating expense, but expect that it will decline as a percentage of revenues over the long-term. Sales and Marketing.
As a result, the benefits of our research and development investments may be difficult to forecast. Sales and Marketing.
The increase in net cash provided by operating activities was mainly due to our generation of positive net income as discussed under the heading Adjusted EBITDA above. For the years ended December 31, 2023 and 2022, we generated $144.3 million and $46.2 million of free cash flow, respectively.
For the years ended December 31, 2024 and 2023, we generated $274.9 million and $144.3 million of free cash flow, respectively, representing an increase of $130.7 million. The increase in free cash flow was mainly attributable to the increase in net cash provided by operating activities. Constant Currency.
We believe that we have become the preeminent online destination for language learning due to our beautifully designed products, exceptional user engagement, and demonstrated learning efficacy.
We believe that we have become the preeminent online destination for language learning due to our beautifully designed products, exceptional user engagement, and demonstrated learning efficacy. Our Business Model 61 Table of Contents How We Generate Revenue We use a freemium business model that relies on a premium subscription offering, advertising, and in-app-purchases (IAPs) to produce revenue.
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.
Provided that the founders continue to provide services to us, stock-based compensation expense is recognized over the derived service period, regardless of whether the stock-price hurdles are achieved. 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.
The decrease was due to a decrease in proceeds from exercises of stock options of $1.2 million, and taxes paid on the net-share settlements of share-based compensation awards of $11.5 million that did not occur in the prior period.
Cash provided by financing activities was $2.1 million for the year ended December 31, 2023 due to proceeds from exercises of stock options of $13.6 million, partially offset by taxes paid on the net-share settlements of share-based compensation awards of $11.5 million.

… 72 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+1 added−1 removed4 unchanged
Biggest changeItem 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.
Biggest changeOur 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. 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.
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
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
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.
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. Our 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, 2023, a hypothetical 10% relative change in interest rates would not have a material impact on our Consolidated Financial Statements.
As of December 31, 2024, a hypothetical 10% relative change in interest rates would not have a material impact on our Consolidated Financial Statements. Foreign Currency Exchange Risk Our reporting currency and the functional currency of our wholly owned foreign subsidiaries is the U.S. dollar.
Removed
Our 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.
Added
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk As of December 31, 2024, we had $712.4 million of cash equivalents invested in money market funds and $190.1 million of investments mainly in corporate debt securities, U.S. Treasury securities, certificates of deposit, and commercial paper.

Other DUOL 10-K year-over-year comparisons