Feb 27 (Reuters) - Language learning app Duolingo ( DUOL ) forecast annual revenue above

Wall Street expectations on Thursday, anticipating a stronger adoption of its subscription tier

featuring artificial intelligence capabilities.

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 ( DUOL ) 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 ( DUOL ) 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 ( DUOL ) 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.