FILE PHOTO: Woman with her smartphone poses in front of displayed Duolingo logo in this illustration taken, June 29, 2021. REUTERS/Dado Ruvic/Illustration/File photo
(Reuters) -Language learning app Duolingo forecast annual revenue above Wall Street expectations on Thursday, anticipating a stronger adoption of its subscription tier featuring artificial intelligence capabilities.
The Pittsburgh, Pennsylvania-based company's shares were up about 4% in extended trading.
The company operates a "freemium" model, providing a basic set of features for all users at no cost with additional capabilities available through monthly or annual paid subscriptions.
Duolingo runs two subscription tiers — Super for avid users, and Max, which includes a generative AI-driven feature that simulates natural conversations through video calls.
Over the past few months, Duolingo has expanded the feature to a slew of languages to rake in more subscribers and grow revenue, but the video call feature on its Max subscription added to costs.
It expects revenue for 2025 to be in the range of $962.5 million to $978.5 million, compared to analysts' estimate of $965.9 million, according to data compiled by LSEG.
Duolingo forecast revenue for the first quarter ranging from $220.5 million to $223.5 million. Analysts, on average, were expecting $221.1 million.
"There's a marginal cost to Max, and that marginal cost is we call generative AI models to power what is the most important part of Max, which is the video call, and that did have about a 100-basis-point impact to gross margin," Chief Financial Officer Matt Skaruppa told Reuters.
"The first priority is innovating as quickly as possible, experimenting as quickly as possible to drive more engagement, and then the costs will come down over time."
The firm also forecast adjusted core profit between $259.9 million and $274 million this year, below estimates of $272.1 million, largely due to costs related to its AI video call features.
The company said chatter around the TikTok ban in January and a marketing campaign in which the app's mascot, Duo, faked his death and returned led to a jump in users in February.
(Reporting by Akash Sriram in Bengaluru; Editing by Alan Barona)
