Q2 2023 Duolingo Inc Earnings Call
Speaker 1: The playbook for growing subscribers has worked exceptionally well.
Speaker 1: Last quarter, the focus of our shareholder letter was on how AI has been part of our strategy for a long time. We have been using artificial intelligence for years to make our product more personalized and engaging. We're also embedding the recent advances in this type of technology throughout our products and the company. For example, we're using generative AI to speed up our script writing for Duolingo Stories and to more efficiently scale our course content. We're using generative AI to continue to innovate on Duolingo Max, which is a higher-tier offering. We will continue improving Max features and testing pricing and packaging before rolling it out more broadly, as we do with all our major changes. Using new technologies to make excellent products takes time to get right, but it's exciting to think about how the acceleration in AI can help us achieve our vision of teaching you as well as a human tutor. And with that, I'll turn it over to Matt. Thanks, Luis. In the second quarter, we outperformed our expectations for user growth, with DAU and MAU increasing 62% and 50% year-over-year, respectively. This took DAU to an all-time high of 21.4 million.
Speaker 2: and MAU to an all-time high of 74.1 million, respectively. On our total paid subscribers, we increased them by 59% to 5.2 million. Our strong user and subscriber growth fueled our top-line performance, with bookings and revenue increasing 41 and 44% year-over-year, respectively, for 42 and 46% on a constant currency basis.
Speaker 2: We continue to manage the business with cost discipline, and this quarter we delivered our highest quarterly profit. Our net income totaled $3.7 million compared to a net loss of $15 million in the year-ago quarter. Note that our net income benefited from a $1.3 million non-cash tax benefit.
Speaker 2: We also posted a record high adjusted EBITDA of 20.9 million, where a 16.5% adjusted EBITDA margin.
Speaker 2: Note that we moved some marketing spend from Q2 to the back half of the year, and that this increased our adjusted EBITDA this quarter by about half a point or a point and a half.
Speaker 2: Based on our strong results and trends, we are raising our four-year guidance and issuing the following for Q3 2023.
Speaker 2: $136.5 to $139.5 million in total bookings.
Speaker 2: $129.5 to $132.5 million in revenue, and an adjusted EBITDA margin of 13% to 14%.
Speaker 2: For the full year 2023, we are raising our guidance to $569 to $575 million dollars in total bookings.
Speaker 2: $510 to $516 million in revenue. And we are updating our adjusted EAP margin range to 14% to 15%.
Speaker 2: Our full year guidance calls for 33% year over year bookings growth and 39% year over year revenue growth at the midpoint.
Speaker 2: We feel confident raising our top line guidance because of our strong user growth and continued strong free-to-break conversion.
Speaker 2: And because we've achieved significant operating leverage year over year across the business, that gives us confidence to raise our full year adjusted EBITDA margin guidance by about 300 basis points compared to what we issued on our last call.
Speaker 2: Let me go through how our Q3 operating expenses are expected to compare to Q2.
Speaker 2: We expect non-GAAP R&D as a percentage of revenue to increase by about a point.
Speaker 2: and we expect non-GAAP sales and marketing to increase by about two points due to the sales and marketing spend that I mentioned that we shifted from Q2 to Q3.
Speaker 2: non-GAAP Q&A will be relatively stable as a percentage of revenue in Q3.
Speaker 2: In Q2, our average subscription revenue per subscriber declined by about 7% year over year, driven by foreign exchange impacts and regional pricing. At current exchange rates, we expect that the year over year decline in this metric has bottomed out and that the year over year change will approach zero by Q4 as we finish lapping FX and regional pricing impacts.
Speaker 2: Our guidance assumes current prevailing foreign exchange rates, and as a reminder, roughly half of our revenue comes from outside the US. So every 1% increase or decrease in the value of the dollar versus our basket of currencies has about a $1 million headwind or tailwind respectively on total bookings for the second half of the year.
Speaker 2: As Luis mentioned, we're excited by Generative AI's potential to help us accelerate our mission, and we are experimenting with that in Duolingo MAX, our higher tier subscription. We have not yet included any material amount of bookings or revenue for MAX in our guidance, and we'll keep you updated on our progress in the coming quarters.
Speaker 2: Finally, we ended the quarter with approximately 48.8 million fully diluted shares outstanding, using the quarter and closing price.
Speaker 2: We continue to expect to end the year with about 2% dilution from equity issued to employees. And with that, I'll turn it back to Luis.
Speaker 1: Thank you, Matt. I'd like to thank our team of amazing and talented duos for all their hard work and helping us deliver another record quarter.
Speaker 1: These results would not be possible without their dedication and passion. And now we would be happy to take your questions. I'll turn it back to Debbie to manage the queue.
Speaker 3: All right, thanks, Lise. As I mentioned earlier, if you have a question, you can use the raise hand feature.
Speaker 3: So the first question comes from Ryan McDonald of Needham.
Speaker 4: Thanks for taking my questions and congrats on an excellent quarter. Luis, I wanted to start with a commentary around social marketing and that you talked about in the shareholder letter. You've always done a really great job of being able to drive usage and users to the platform from some of these social media channels.
Speaker 4: doing there from a marketing perspective and whether or not you think this can be sort of an additional tail end to users to your platform based on those initiatives.
Speaker 1: Well, thank you, great question. So yes, Threads, I mean, on the day it launched, our social media team was all over it. We actually got quite a good number of engagements with it. So we're looking into it. I mean, in the end, if Threads becomes a very powerful social network, you bet we'll be there. Always blowing ourJune 10th youtube video. Well, thank you, great question.
Speaker 1: significantly smaller than things like TikTok or YouTube. So we're not seeing the impact there, but we're definitely, you know, you will see us experimenting there for sure. I mean, we have an excellent social media team. You know, what I'll say in addition to this is, it's important for people to understand all of this marketing is not paid for us. I mean...
Speaker 4: more about that. Second question is on the use of AI and how it's being built into the product. I'd be curious to hear some of the additional feedback of what you're hearing from customers so far that are using the Duolingo Max features and then how did you see the AI integration?
Speaker 4: evolving over time. We're starting to see newer models where maybe instead of leveraging open AI and that functionality and sort of having to bear the cost on a per interaction that some vendors are starting to build customized large language models for their own content which can potentially save on costs and you know
Speaker 4: create some proprietary nature of the AI. But just curious how that continues to evolve for you.
Speaker 1: Yeah, these are excellent questions. So, 1st of all for Max, just to remind everyone where we're at. So, Max is a higher tier subscription offering. It is, you know, we're testing the price, but right now, roughly 2x the price of super, although you really are going to see us test the price all over the place because we're testing everything.
Speaker 1: We're testing Max on a very small fraction of our users, and this is very standard of our feature development, especially for very large features. So what we do is we start with a tiny fraction of our users and we start making the features better and better, and as they get better and better, we start giving it to larger and larger fractions of our users. For a large thing like Max.
Speaker 1: Just as an example, the last very large change we did was whenever we changed to a new home screen, we did the past home screen, that took us about a year to roll it out from the first test to finally giving it out to our users.
Speaker 1: I don't know how long Max will take, but it is something like that. And it has, when we first started testing Max, it had two features. One was called Role Play, which allowed users to practice conversation. And the other one was called Explain My Answer, which gives you an explanation for when you make a mistake.
Speaker 1: We've been working on making those two features better. For example, role play now is a lot more interesting. So whereas before it was probably a dry conversation where you had to maybe just order a croissant, now you may order a croissant but something weird happens in the middle where like, I don't know, something like a burglar enters and something weird happens in the middle.
Speaker 1: So mayhem happens, and it's a much more interesting conversation. So we're improving those features. And then the other thing that we just did for Max is we added another feature, which is an in-lesson coach. Basically, before you submit your answer in a lesson, you can tap the thing, and it will give you some hints about how to answer, and then you can tap the thing, and it will give you some more
Speaker 1: The reception is very good. I'm very happy with it. So far, we're very happy with it. But we're just testing our way so that by the time we give it to all our users, we will have found what we believe to be close to an optimal price and close to optimal features to give it up with.
Speaker 1: but so far so good. In terms of costs and in terms of developing our own model, for now we're sticking, we're using OpenAI and we're very happy with it. Our belief internally is that the cost of these models is gonna go down. And for now we're spending most of our effort on just making the best.
Speaker 1: basically starting to optimize the cost of this is what we would do after we're super happy with all the features.
Speaker 1: And we just haven't gotten there yet.
Speaker 4: Thanks for the color and congrats on again on a strong quarter.
Speaker 1: strong core. Thank you. Thank you Ryan.
Speaker 3: Thanks, Ryan. Next question comes from Mario Lou at Barclays.
Speaker 5: Great, thanks for taking questions. The first one is on the average description revenue per sub. So Matt, I think you mentioned by the end of this year it's going to be approaching like flattish growth. Just curious to hear your thoughts on just dueling those pricing power overall and you know the thought of increasing pricing on the core products and certain GIS going forward.
Speaker 2: as we have seen from other consumer mobile apps. Yeah. No, it's a great question. And Mar, you're exactly right. We expect that by the year end, your point, the year of your growth in ARPU will be essentially flattish. And then when you talk about pricing power, I think.
Speaker 2: It goes back to what we've said a bunch of times on these calls, which is we experiment with price and packaging a lot around the world. So like in the US or Western Europe , raising price will be just a normal experiment, such as a normal course and we'll test from time to time. There are times when we do bigger.
Speaker 2: pricing tests like Q2 of last year when we did the regional pricing tests in about 100 countries at once. But, you know, we're always, you know, I guess fine tuning our price. And that includes raising prices over time in certain places. So yeah, we're definitely gonna consider that.
Speaker 5: as something that could happen in the future. Great, thank you. And then maybe just a high level one. I saw on your blog that you guys had an article in terms of streaks by user age. And I think it said that users over 60, like 30% have had a streak of over a year.
Speaker 5: whereas users 13 and 17 was less than 5%. I guess why is that? And any learning that could be applied to kind of the younger users from the older generation. Thanks.
Speaker 1: I probably don't have teenage children.
Speaker 1: It's harder to get them to do something. I mean, it's just it's just the case that we have noticed that people who are older just are more constant in their habits.
Speaker 1: And that's that. Now, I'll say, I mean, we are very happy with our results for younger audiences. I mean, we are much more well known among younger audiences.
Speaker 1: than we are with older people. It just so happens that older people are a lot more committed. I don't know if we can change that, but we're always working, just in general, not necessarily per age, we're just always working to make the product more engaging. And you can see that in a number of ways, for example.
Speaker 1: Our DAU to MAU ratio keeps getting better and better. It's now 29% essentially, and it just keeps getting better and better every quarter. And the other thing that keeps getting better and better is the number of people with long streaks, so the number of people with streaks longer than a year. That number keeps growing and it's multiple millions.
Speaker 1: Generally, we just keep making the product more engaging.
Speaker 1: So yeah, I mean just generally we just keep making the product more engaging. Great, thank you.
Speaker 3: Okay, next question comes from Ralph Sheckert of William Blair.
Speaker 2: Since your IPO, you did a very strong consistent performance, particularly on the top line, but even more so on the bottom line, this year the new guidance is somewhere in the range of 1,000 basis points increase year over year, which is exceptional. Just philosophically, how are you thinking about margins going forward without quantifying
Speaker 2: Definitely agree. We've since we've gotten public the.
Speaker 2: Top to bottom, our performance has been strong. Strong user growth, strong top line, and this year in particular, strong adjusted EBITDA performance.
Speaker 2: As we said before, we're glad that the business is both getting more profitable, more cash generative, etc.
Speaker 2: the way we think about it is we always want to invest back in the business first.
Speaker 2: because the growth opportunities ahead of us are so robust. I mean, we're at the start of monetizing our own user base and monetizing a very large market. So we're gonna continue to invest. That's it, I think this year we're proving that we can grow nicely and become materially more profitable. So it's a yes and for us.
Speaker 2: If you're thinking about your comments around letting margins run, if you look at other companies and our industry, our IPO core, roughly our time when we went public, when they first become materially profitable, their first year of real profitability, it's usually a big step change, kind of like ours.
Speaker 2: is looking to be. And then after that, they make steady progress towards their long-term EBITDA targets. And I think that's more in line with what we're thinking over time.
Speaker 2: Great. And Luis, I think you've been asked this before maybe a couple of quarters ago, just in terms of, you know, size of TAM in terms of users, and some people do compare, compares to the dating apps or companies. Maybe just kind of go back to that, give you an opportunity to have any updated thoughts and sort of like the long term penetration.
Speaker 1: Yeah, I mean it's an excellent question. So for one, there's language learning as a whole. I mean our best estimate is there's about two billion people in the world learning a foreign language.
Speaker 1: So it's kind of really hard to know exactly how many people we can get to. I mean, we're getting close to 100 million MAUs. We're like getting close there. I think we can get much farther than that, but it's just hard to know exactly how much because we're growing the market. Okay, great. Thanks, Luis. Thanks, Matt. Thanks, Raul. Next question comes from Eric Sheridan of Goldman Sachs. Thanks so much for taking the question. Maybe come back to the element of what you see as some of the most critical investments in content.
Speaker 5: as we look out not only this year, but to the longer term, that could be elements of driving incremental user growth, time spent, engagement, and also monetization of the user base. And how, I know you talked a little bit about it earlier, Luis, but how AI can sort of lower some of the friction to creating content versus some of it that might just be sort of elements of sort of building away from the AI initiatives.
Speaker 1: we need to invest on in terms of content are number one, more advanced content for some of our courses. So, you know, like we've said in the past, not all our courses cover the same, to the same level of proficiency. I mean, for example, our course to learn French covers a lot more than our course to learn Italian.
Speaker 1: So, we need to basically get all our courses to teach to pretty high levels of proficiency. So, that's one place where we're adding content. In particular, we are interested in adding a lot more content to our English courses, our courses that teach English because we know there's a large opportunity there of English learners. In general, in the world of English learners, we're trying to get a lot more content to
Speaker 1: you know, worldwide they usually have some previous knowledge for English, the English learners. So there's a lot of content that we are adding to our English courses, but to all of our courses to be more advanced. That's kind of one big chunk. Another big chunk is just making our content more interesting.
Speaker 1: and in particular making it have kind of a narrative with all of our characters.
Speaker 1: So we've been working on adding stories and storylines for all of our characters and making them better and better over time. So those are kind of two big initiatives. In both of those cases, AI can help us and we've been working hard to make it so that with AI we can generate it faster and cheaper.
Speaker 1: And the hope is that it's also of the same quality. I would say for things like creating stories that are fun, we can probably do it faster and cheaper. I don't think we're quite yet there of the same quality as very, you know.
Speaker 1: essentially Hollywood writers or something like that. We're getting there, but it's not quite there yet. So that's kind of what we're working on. And we do think that AI can help us really do much better there. Yeah, I think that's what, I'll stop there. I think that's the.
Speaker 6: No matter what I have to say. Great. Thank you so much.
Speaker 2: pricing, packaging, and retention. So when you look at, since the IPO, our platform LTV has increased a lot because we've shifted retention up on a blended basis because we have more annual subscribers and they have better retention. That's increased platform LTV. We've also have a brand new SKU, the family plan, which is a higher price and higher retention SKU. So that has also shifted platform LTV up. So on a platform LTV basis, we've increased that value. When you look at, when you look at the
Speaker 2: overall blended retention, it's about the same as it was when we went public. Some of the plans like annual plan or monthly, some of those retentions have moved around, but when you blend it all together, it's basically the same as when we went public. And we think that's likely to be stable, at least throughout the rest of the year. So that's how we're thinking about retention as part of
Speaker 2: increasing platform LTV. And then, Luis, you talked about more of the advanced learner market earlier. What are the key product levers that you need to unlock there to really open up that market? And then just help us size that, right? Is that the majority of the 60 billion?
Speaker 1: or is that a minority? Like how do you think about the potential there? Thanks so much guys. Yeah this is a great question. It is a huge opportunity. If you look at just the the total language learning market, the majority of it is people learning English.
Speaker 1: And many of these people do want something more advanced than just beginner stuff. So this is why we're working a lot on adding a lot more content to our English courses.
Speaker 1: And yeah, that's the, I think it's just a major opportunity and it's a weird thing because
Speaker 1: If you look at where our revenue comes from, the majority of our revenue comes from, for example, half our revenue roughly comes from the United States. These are usually not people learning English, they're learning kind of Spanish or French, etc. If you look at the language learning market as a whole, the percentage of people learning English is about half of the population.
Speaker 1: you know, it's highly skewed towards people learning English in non-English speaking countries. So you see them, you know, they're in Asia, Latin America, Western Europe , etc., non-English speaking countries. So...
Speaker 1: We're kind of flipped, but it's because in part because we're a digital product and you know We make our revenue kind of like how digital products make their revenue if you look out worse When you know Spotify or Netflix or stuff like that make the revenue. It's kind of similar to us We make it from the US and kind of English speaking countries, etc. So so there's that but
Speaker 1: Because of the language learning market, we think there's a huge opportunity to make a lot of our money from different markets. And the unlocks that we need to do there, one, is we just need to have all of our English courses reach more advanced levels. We are working on that and it will be a few more months until we have that.
Speaker 1: But that by itself is not the only thing that will unlock more revenue from English learners. That's one thing that's needed. Another thing that's needed is truthfully in our product, we need to get better at whenever you come in with prior proficiency, we need to get better at placing you. That's another big unlock that we need to do. We just need to get better at that. And then after that, we need to get better at that.
Speaker 1: we need to get better at convincing, especially English learners, that we have this more advanced content, so we need to do that. And then after that, or around that same time, we also need to get to the point where in some of these countries we have not yet cracked.
Speaker 1: how we're going to get them to pay because in many of these countries
Speaker 1: There's just a lot less likelihood to pay, even if you reduce the price of something that makes sense in GDP per capita. They're just, you know, they're always in the sense of like, well, I'm not going to pay if I don't have to. And our product is freemium. And many of them are just like, well, the free product is kind of good enough. So we need to unlock that.
Speaker 1: And we've seen a few companies do a better job than us. For example, Spotify has done a better job than us at that. So I think we just need to experiment on how to do that. So there's a number of things that need to happen, but once all of those things happen, which we are working on, we think this is a major opportunity for us. I mean, it's the majority of the market.
Speaker 7: Thank you. Next, we have a question from Arvind Ramnani at Piper Sandler. Thanks, Debbie. I want to ask about this daily average users. I mean, certainly it's been kind of tracking it really healthy kind of phase.
Speaker 7: How should we think externally as like, you know, I mean, the higher the number is obviously better, but what's like a healthy number either in terms of growth rate or in terms of like total numbers?
Speaker 8: I mean.
Speaker 1: Go ahead Luis, do you want to take the first stab at it? Well, that's a very hard question to answer. I mean, look, the way we see it is this is the main thing we are optimizing for because of our freemium model. The more daily active users we have, the more people we can convert to payers.
Speaker 1: I mean, it's just generally good. And also, the more daily active users we have, the more data we have to run more experiments to be able to personalize things for you better, et cetera. So, it's just a gift that keeps on giving when we have more daily active users. So, for us, that's just, you know, the more we can grow it, the better. We're very happy with the fact that for the last eight quarters in a row, we've been able
Speaker 1: not have accelerating user growth forever, that just, you know, at some point you're younger humans.
Speaker 1: So, but it is, you know.
Speaker 1: On our end, I don't know, for me it's very hard to say what's a healthy number. We just need to continue growing, and we've been.
Speaker 7: Yeah, I mean, many ways it's like money, right? Like more of it is good, it solves a lot of problems, but like I'm just trying to figure out like is there.
Speaker 7: like money right like more of it is good it solves a lot of problems but like i'm just trying to figure out like is there like
Speaker 7: Is there a ratio in terms of paid users versus like, I mean, I'm sure you're good on some part of like, what's the number where below, it gets to below particular level, you're gonna get more aggressive in terms of like, paying for users or any of that.
Speaker 2: Yeah, one way to approach this Arvind was, you know, before we went public, you know, we had a lot of years of data, you know, and user growth then, you know, was in the 20, you know, 25, 30% pitch range. And that was really healthy. And it brought us to a nice scale.
Speaker 2: Now, I don't think that anyone on this call, Luis and I and our teams would be super happy if next quarter that's where growth went to. But certainly that was healthy pre-IPO. So at some point, that'll be a healthy growth rate in the future. Again, I don't think that's next quarter, but.
Speaker 2: you can still produce an enormous amount of subscribers, revenue, bookings, and profit if your growth rate was in that level. And we think that level should be attainable or achievable for over the long term. So that's one way to kind of approach what's like healthy or not healthy.
Speaker 7: By the way, right now it feels healthy though. So just. Yeah, of course. And then just on AI, you know, you've given us a favorite commentary on AI and you know, Duolingo Max is sort of the first sort of tangible kind of product. Is there anything you can provide to us like in terms of like, where do you think like, you know.
Speaker 7: applications of where you look to apply here in the next six to 12 months in terms of like a tangible product we're able to charge for it.
Speaker 1: I mean, in terms of what we're going to be charging for, the majority of it, of our efforts, are going to be on Duolingo Max. There are other places where we're applying AI within the company, and we've been. I mean, for example, we're making our content faster. We're making our content......
Speaker 1: creation cheaper. We're doing a lot of things inside the company to do that, but in terms of things that we're going to sell to users, I think most of the effort is going to be on Duolingo Max.
Speaker 7: Yeah, perfect. Yeah, by the way, great start to your earnings call. I don't know if you can top that on the next one, but you know, I thought bringing out the deal last on his call was good, but you're out of your let's see if able to top that next next earnings.
Speaker 9: Bye.
Speaker 1: I should say all of these celebrities, we do not pay celebrities for doing that. They use us.
Speaker 3: Thanks, Arvind. Next question comes from Mark Mahaney at Evercore.
Speaker 10: Okay, thanks Debbie. I had one or two for Matt and one or two for Luis. Matt, this really strong growth in MAUs, do you want to give us any color as to whether there's anything unusual in terms of where these MAUs are coming from? Any reason to think that the most recent kind of surge in growth that you've seen in MAUs comes from?
Speaker 10: markets that are more dependable or less dependable than what you've seen in the past. And the second finance question for you is, what's the first quarter in which your incremental margins were actually above your 30 to 35% long term EBITDA margins? So, it just seems pretty positive into the back half of the year. I don't know.
Speaker 10: At what point do you reconsider where your margins can go long term or is it that you may want to just tamper, you may want to be leaning more into investments? Do you feel like near term you're over earning and you want to lean more into investments as we go through the next kind of 12 to 18 months? Yeah.
Speaker 2: Thanks, Mark. Great, great questions, as always. In terms of the user growth, I'll say three things. So the first one is that we saw great top of the funnel user growth and great kind of current user or active user retention and growth. So it's really
Speaker 2: across the funnel, we saw really strong growth and have for the past several quarters. The second thing is that it has been broad based geographically. So one of the things we look at is, you know, is it lopsided or is it basically all around the average? Obviously around the average things move. There's some that are going fast or some that are going slower. But it's still broad based, meaning that like, you know, the US is growing really, really, really well.
Speaker 2: Western Europe is growing very fast and then plenty in Asia is growing fast as well, so broad-based.
Speaker 2: And then the last thing we look at is, you know, how strong are these cohorts in terms of free to pay conversion? And we've seen great trends on free to pay conversion as well. So we feel not only is the user growth fast and impressive, but it's high quality and broad based. So we feel really good about that performance to date. And then we feel good about the forward on it as well.
Speaker 2: long-term margin. You know, we have not updated our view on long-term margin. We still think it's the same as it was when we went public, you know, 30 to 35% long-term adjusted EBITDA margins. What we've shown this year is that there's power in this model is a very profitable model. And so we can
Speaker 2: get to that level of incremental profit slightly above this quarter. But I think, again, I'll just go back to our capital allocation strategy that I mentioned, the answer to another question. First and foremost, we're at the early stages of growing this business. It can be a very large business. And so we're going to continue to invest into the business.
Speaker 2: while also maintaining that profitability threshold we talked about getting towards the long-term margins.
Speaker 2: You should not read into this quarter as us redefining the long term on that.
Speaker 10: Okay, and then Louise, two quick questions. Just any update on my favorite math subject, you know, just what kind of traction you're seeing. And then your comment about building out more content. Maybe think about like vertical language. You know, there's English and then there's legal English.
Speaker 10: there's different terminology, it can get very sophisticated, very complicated. I would also think highly profitable for any company that can solve learning medical English for somebody coming, making this up from India or from Guatemala, whatever the example is. So is that a possibility, kind of verticalizing and...
Speaker 1: Math, we're very happy with the progress so far. It continues being the case that the app is growing and the growth looks a lot like early Duolingo. So we're very happy with that. In terms of what we're doing and what we need to do, we know we need to add more content to it, just more subjects within math and we're working hard on doing that.
Speaker 1: So you'll see over the next few months there will just be significantly more content. And that's the main thing, but the growth looks good. I'm very happy with it. In terms of, you know... best place in Pepsiomo has been Fate passes which is great, but even the Fischer includes a MAKE isn't it enough.
Speaker 1: kind of verticals of English. We know that this is a big business, kind of things like business English, medical English, et cetera. For now, that is not something we're addressing. In the future, we may, but right now we're just a lot more keyed in on really getting all of our English courses to get to teach.
Speaker 1: pretty advanced English even though it may not be specialized but pretty advanced English. At some point we may get into specialized English. The one thing that I'll say about specialized English is the audiences start getting pretty small and we do much better with large audiences. I mean if you think about it we're an app business.
Speaker 1: It's rare to find apps where people pay a ton of money, like a single person pays thousands of dollars to learn on an app. That's rare to find. And when the audiences are small, if you want to make a lot of money, you need to charge a lot. And so we're more in the business of getting very large audiences.
Speaker 1: And so that's why we haven't done it yet, but at some point, you know, we'll probably investigate it. Thanks, Luis. Thanks, Matt. Thank you, Mark. Thanks, Mark. And now we have a question from Justin Patterson of KeyBank.
Speaker 2: Thank you very much. I'll start a few things. Source and big picture, I actually kind of want to go back to something both Andrew and Mario brought up in their question. Time spent is obviously a great social choice in the app. On the one side, you've got younger generations that are interested in some skills, which are very goal, which I think is the best
Speaker 2: you know, have short attention span. On the other hand, you've got older consumers who also have limited time to spend at the app. So if you look at something like Duo Max or Premium here, how can you really kind of position this to unlock some of those pain points while also we're seeing from the room with what you've told Andrew.
Speaker 1: finding that right price point to really succeed in these international markets that have lower productivity to pay and just succeed on that mission or making this a global education platform. Thank you. I mean I think generally you know we're going to be testing a lot of the way we work with all of our products is we kind of test our way into things.
Speaker 1: younger versus older audiences with max etc. I think we'll just test a lot and find a sweet spot where because of the price and because of the features that are being offered a pretty large number of people are buying max.
Speaker 1: But ultimately, you know, I'll refer to just the fact that for all of these it's hard for us to know in advance what things will resonate with which users. So this is why we test and part of the reason is that our user base is just so broad. It's not just older versus younger. I mean we have users.
Speaker 1: in the lower economic or in the higher economic end of the spectrum. We have users in every single country in the world, etc. So we just, it's hard to think about in terms of for us a priori, but in the end we'll just test our way to it. That's what we'll find.
Speaker 11: All right, thank you.
Speaker 3: And it looks like we have a question from Zach Morrissey of Wolf Research.
Speaker 12: Great, thanks Debbie. Just curious on an update in terms of you called out paid influencers spend in Asia and LATAM last quarter kind of working well. Just curious for an update there and if you see an opportunity to kind of translate that kind of strategy also to kind of core Western markets as well if you're seeing kind of good returns.
Speaker 1: Yeah, I mean, generally, you know, I'll say for our marketing per our shareholder letter this time, the vast majority of our marketing is geared towards just viral stuff that we don't even pay for.
Speaker 1: In some cases, particularly in Asia and Latin, we have found that working with paid influencers actually makes a lot of sense.
Speaker 1: And we've gotten really good results with that.
Speaker 1: we have not gotten as good results in places like the US for influencers. And in part that's because influencers in the US are just very expensive and we don't see the returns. I mean for similar types of video views or something like that in the US versus in a place like Brazil or something the difference in price.........
Speaker 1: that you have to pay an influencer. I don't know off the top of my head, but it's something like 10x. And you just don't get the 10x returns. It's just much more expensive to pay Beyonce to do something versus to pay whatever the equivalent in Brazil is of a Beyonce. It's just much cheaper.
Speaker 1: So we have not cracked that and I don't know if we ever will. For now, in markets like the US, our marketing is just much more, you know, our owl doing on Hinge stuff on TikTok or on YouTube shorts and stuff like that, and that has worked really well.
Speaker 12: Got it. That makes sense. And then just one on Gen AI, right? I think you kind of talked about healthy product roadmap for Max.
Speaker 12: Do you see an opportunity for in-app purchases products from Gen AI or is the primary focus right now just driving kind of a premium tier on Macs and maybe in-app purchases or something down the road that you can kind of layer in over time?
Speaker 1: It's the latter. I mean, there's definitely an opportunity for in-app purchases for almost everything we do. But, you know, historically we've just...
Speaker 1: It's the latter. I mean, there's definitely an opportunity for in-app purchases for almost everything we do. But, you know, historically, we've just... our subscription business is just so good.
Speaker 1: That's where we're putting our effort in. At some point, once we've really nailed what Max will be like.
Speaker 1: We may start selling some of these features a la carte or we may start having kind of power-ups or something like that, but for now the effort is going into the higher tier subscription.
Speaker 3: Thanks, Zach. All right, so I'm not showing any other further questions, so I'll turn it back to Luis to wrap up.