… third-party payment processing fees charged by various distribution channels, and also includes hosting fees. What makes up the CoR (cost of revenues) ? While the company’s gross margin is safely above 70%, it’s adjusted EBITDA margin was -1% for 2021. It’s clear that the company has a lot of fixed costs - but how will its bottom line behave as revenues ramp? A good way to gauge that is the variable contribution margin. 💥 Variable Contribution Margin & Operating Leverage Let’s call it a “business economics is not accounting” imbalance (BENA imbalance). Which means the company incurs a cost today, but makes a return for years to come. 💥 But because R&D is an operating expense (and not a capital expense), it flows through the income statement, affecting the bottom line. We expect to continue to spend a significant portion of our revenues on R&D in the future.” “As a result, the benefits of our R&D investments may be difficult to forecast.

Such expenses include compensation of engineers, designers, product managers….” Expenses are made up of costs incurred for the development of new and improved products and features in our applications. This, in turn, drives additional growth in, and better lifetime value of our paid subs, as well as increased advertising revenue from impressions from our free users. “We invest heavily in R&D in order to drive user engagement and customer satisfaction, which we believe helps to drive organic growth of new users. It’s not only investing in its existing portfolio of products (making them better, increasing monetisation etc.) but also has more products planned in the future. Duolingo is early in its life cycle, it’s full-on investment mode.

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