Q3 2023 Duolingo Inc Earnings Call

November 8, 2023

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Good evening, everyone do you have an accident, we tuned into a replay of dual card. This was actually doing dose third quarter earnings webcast.

Good evening, everyone do you have an accident leaching into a replay of dual kind if there's actually dooling goes third quarter earnings webcast.

Today after market close we released this quarter shareholder letter a copy of which you can find on our IR website at investors Dot Duolingo dotcom.

Today after market close we released this quarter shareholder letter a copy of which you can find on our IR website at investors Dot Duolingo Dot com.

On today's call, we have Luis drawn on our co founder and CEO and Matt screw about our CFO. They will begin with some brief remarks before opening the call to questions.

On today's call, we have Luis burn on our co founder and CEO and not screw about our CFO. They will begin with some brief remarks before opening the call to questions analysts will be able to ask a question by using the raise hand feature. Please note that this event is being recorded and all attendees are in listen only mode.

Analysts will be able to ask a question by using the raise hand feature. Please note that this event is being recorded and all attendees are in listen only mode.

And just a reminder, we will make forward looking statements regarding future events and financial performance, which are subject to material risks and uncertainties. Some of these risks have been set forth in the risk factors in our filings with the SEC. These forward looking statements are based on assumptions that we believe to be reasonable as of today and we have no obligation to update these statements as a result of new information or.

As a reminder, we will make forward looking statements regarding future events and financial performance, which are subject to material risks and uncertainties. Some of these risks have been set forth in the risk factors in our filings with the SEC.

These forward looking statements are based on assumptions that we believe to be reasonable as of today and we have no obligation to update these statements as a result of new information or future events.

Future events.

Additionally, we will present, both GAAP and non-GAAP financial measures on today's call. These non-GAAP measures are not intended to be considered in isolation from a substitute for or superior to our GAAP results and we encourage you to consider all measures when analyzing our performance.

And now I'll turn it over to Luis.

And now I will turn it over to Luis.

Thank you Debbie and welcome everyone. We had another fantastic quarter, we surpassed our expectations and had impressive user bookings and revenue growth.

Thank you Debbie and welcome everyone.

Another fantastic quarter, we surpassed our expectations and had impressive user bookings and revenue growth.

And it was a fun quarter two with the Barbie campaign and also preparing for a best to a condo.

And it was a fun quarter two with the Barbie campaign and also preparing for a best to conduct.

We also feel very good about the coming quarter, which is why we're raising our full year guidance to now reflect 40% year over year bookings growth.

We also feel very good about the coming quarter, which is why we are raising our full year guidance to now reflect 40% year over year bookings growth and.

And we're also materially raising our full year adjusted EBITA margin, Matt will share more details on our results and outlook shortly.

Every year, we run thousands of experiments to make our products more fun engaging and effective.

A lot of these experiments result in small wins that I hope overtime. If you look back at the past two years you can see evidence of this in action in Q3 2021, we had about 10 million da use and this past quarter, we had over $24 million.

All of these experiments result in small wins that I hope over time, if you look back at the past two years you can see evidence of this in action in Q3 2021, we had about $10 million da use and this past quarter, we had over $24 million.

In Q3 of 2021, we had $2 2 million subscribers in this past quarter, we had nearly $6 million.

In Q3 of 2021, we had $2 2 million subscribers in this past quarter, we have nearly $6 million.

The way we have done this has been through a process of making small changes running a test to see how users react and then doubling down where we see gains.

We've also had some exceptional home runs for example, our marketing has been a source of extraordinary wins that were fantastic for the business, even though they are hard to predict.

We have also hit some exceptional homeruns.

Example, our marketing has been a source of extraordinary wins that were fantastic for the business, even though they are hard to predict I.

Think of our partnership with Hbo's houses the Dragon and most recently, our Barbie social campaign built around the inclusion of our trademark being in the Barbie movie.

Think of our partnership with HBO household the Dragon and most recently, our Barbie social campaign built around the inclusion of our trademark being in the Barbie movie.

The campaign generated $140 million organic social impressions, which is a record for us.

To create the opportunity for both incremental improvement on homeruns every so often we make bolder moves that open up entirely new areas for experimentation for example last year, we redesigned the homescreen to give us more room to experiment with engagement efficacy and monetization and earlier this year, we set out to create a multi subject app experience.

To create the opportunity for both incremental improvement on homeruns every so often we make bolder moves that open up entirely new areas for experimentation for.

For example, last year, we redesigned the homescreen to give us more room to experiment with engagement efficacy and monetization.

And earlier this year, we set out to create a multi subject app experience by integrating our existing math course, and a new music course into our flagship App.

By integrating our existing math course, and a new music course into our flagship App.

This change, adding mapping music to the main App is a good example to highlight.

This change, adding mapping music through the main App is a good example to highlight.

We did this to give our users an even more engaging experience by adding new subjects into the main app. We believe we can more rapidly scale. These new subjects with our gamification mechanics like streets leaderboards and questions that have been so effective in the language learning.

We did this to give our users even more engaging experience by adding new subjects into the main app. We believe we can more rapidly scale. These new subjects with our gamification mechanics like streaks leaderboards and questions that have been so effective in the language learning now.

As more users access these new courses, we believe it will increase their commitment to our platform and that there'll be more likely to recommend us which will further drive organic user growth.

It is clear that our strategy is working as demonstrated by our exceptional growth as I've said before we can't expect to accelerate forever.

But it's very gratifying to see that our product improvements on creative marketing efforts are resonating with our learners.

And I am excited about our ongoing innovation and look forward to all the energy that our new year brings and with that I'll turn it over to Matt.

Thanks Luis.

Thanks Louise.

I'll walk through how we did this quarter in more detail and then I'll provide our Q4 and updated full year guidance.

As we shared we were extremely pleased with this quarter's performance, which exceeded our expectations. Thanks to our team's continued strong execution.

As we shared we are extremely pleased with this quarter's performance, which exceeded our expectations. Thanks to our team's continued strong execution.

Our <unk> increased 63% year over year to $24 2 million, an Mou increased 47% to $83 1 million. This growth continues to be not only rapid but also high quality and broad based with strong growth from around the world with improving free to paid conversion as well.

Our <unk> increased 63% year over year to $24 2 million an.

<unk> increased 47% to $83 1 million. This growth continues to be not only rapid but also high quality and broad based with strong growth from around the world with improving free to paid conversion as well.

Our total paid subscribers increased by 60% to $5 8 million.

This continued strength in user and subscriber growth drove bookings and revenue growth from 49% and 43% year over year, respectively.

This continued strength in user and subscriber growth drove bookings and revenue growth of 49% and 43% year over year, respectively.

<unk>, 48% and 42% on a constant currency basis.

48% and 42% on a constant currency basis.

Turning to profitability, we've made tremendous progress in expanding the bottom line is we continue to see very strong topline growth coupled with cost discipline.

Our net income totaled $2 8 million compared to a net loss of $18 4 million in the year ago quarter.

We also posted an adjusted EBITDA of $22 5 million or 16, 3% adjusted EBITDA margin. This is a roughly 14 point expansion year over year.

This quarter, we capitalized additional R&D expenditures compared to Q3 last year as we continued to innovate on Max and math and music exclude.

Excluding this would have led to an adjusted EBITDA margin expansion of about 12 points year over year.

Based on our strong results and the trends, we're seeing so far we feel confident about raising our full year outlook issuing the following Q4 guidance.

For Q4, 2023, we are guiding to $167 million to $170 million in total bookings.

$145 million to $148 million in revenue and an adjusted EBITDA margin of 19, 8% to 28%.

For the full year 2023, we are raising our guidance to $598 million to $601 million in total bookings.

$525 million to $528 million in revenue.

$525 to $528 million in revenue and.

And we are updating our adjusted EBITDA margin range to 16, 6% to 16, 9%.

Updating our adjusted EBITDA margin range to 16, 6% to 16, 9%.

Our full year guidance calls for 40% and 42% year over year bookings and revenue growth respectively at the midpoint.

As a reminder, at the end of every December we started promotion that discounts are annual subscription.

Since we offer this promotional we once a year Q4 bookings performance is more seasonal variance than other quarters.

Since we offer this promotion only once a year Q4 bookings performance is more seasonal variance than other quarters.

Note that our guidance assumes current prevailing foreign exchange rates as well.

And because we have achieved significant operating leverage this year across the business, we feel good about raising our full year adjusted EBITDA margin guidance by about 225 basis points at the midpoint versus our last call.

Now I'll provide some color on average revenue per subscriber opex and share count.

Now I'll provide some color on average revenue per subscriber opex, we share count.

Our average revenue per subscriber has declined by about 7% to 8% for each of the past few quarters, driven by a combination of foreign exchange impacts and regional mix shifts.

Q3 saw higher than expected conversions in non U S countries, which kept the year over year change in that same range.

Q3 saw higher than expected conversions in non U S countries, which kept the year over year change in that same range we.

We expect the year over year change in <unk> to improve in the coming quarters.

We expect the year over year change in our view to improve in the coming quarters.

As to Opex compared to Q3 of this year and Q4, we expect non-GAAP R&D as a percentage of revenue to decrease by two points and non-GAAP sales and marketing to decrease by almost two five points, we expect non-GAAP G&A to be roughly flat as a percentage of revenue in Q4.

As the Opex compared to Q3 of this year and Q4, we expect non-GAAP R&D as a percentage of revenue to decrease by two points and non-GAAP sales and marketing to decrease by almost two five points, we expect non-GAAP G&A to be roughly flat as a percentage of revenue in Q4.

We ended the quarter with approximately $48 8 million fully diluted shares outstanding using the quarter and Coke closing price.

We ended the quarter with approximately $48 8 million fully diluted shares outstanding using the quarter encode closing price.

Do we expect to end the year with about one to one 5% dilution from equity issued to employees.

And we expect to end the year with about one to one 5% dilution from equity issued to employees.

Finally, as Louis said, a few moments ago. The last years have been extraordinary for our business.

Our user growth has benefited from compounding continuous product improvements, including homerun improvements like we've seen with our street mechanic, we have unlocked social first marketing kind of had some big brand moments like the Barbie movie and we've also seen large increases in conversion from free to paid conversion.

Your user growth has benefited from compounding continuous product improvements, including homerun improvements like we've seen with our freeze mechanic, we have unlocked social first marketing kind of had some big brand moments like the Barbie movie and we've also seen large increases in conversion from free to paid conversion.

Looking ahead, we feel very good about next year, but as Luis has already reminded you our user growth is unlikely to accelerate forever and it may be hard to repeat some of the onetime events that have happened this year, even though we feel good about our ability to continue our strong top line growth and make progress towards our long term margin.

So we feel good about our ability to continue our strong topline growth in the <unk>.

Progress towards our long term margin.

And with that I'll turn it back to Luis.

Thanks, Matt.

I just want to thank the team for all their hard work and dedication. We know we've only made a tiny dent in the massive market opportunity ahead of us and we're just getting started and now we would be happy to take your questions.

I just want to thank the team for all their hard work and dedication. We know we've only made a tiny dented the massive market opportunity ahead of us and we're just getting started and now we would be happy to take your questions.

Turn it back to Debbie to manage the queue.

Alright, Thanks Louise.

As I mentioned earlier, if you have a question you can use the right hand feature and.

As I mentioned earlier, if you have a question you can use the Raytheon feature.

Your first question comes from Ralph Shakur, It at William Blair.

Your first question comes from Ralph Shakur at William Blair.

Good afternoon. Thanks for taking my question, let me start with you and been public for a couple of years now and you've seen some pretty extraordinary growth and I am sure. Some of this has been based on conservatism. The outperformance and then the business is obviously doing really well, maybe just kind of taken a step back into your isolate maybe the top one two or three things that have really driven this significant outperformance.

Good afternoon. Thanks for taking my question, let me start with you I've been public for a couple of years now and you've seen some pretty extraordinary growth and I am sure. Some of this has been based on conservatism. The outperformance and then the business is obviously doing really well, maybe just kind of taken a step back if you would isolate maybe the top one two or three things that have really driven this.

Difficult outperformance that'd be really helpful. I think for investors and I have a follow up from that.

<unk> that'd be really helpful. I think for investors and I have a follow up on that.

I will thank you for the Great question, Yes, we've had really good growth.

Hello. Thank you for the Great question, Yes, we've had really good growth.

Honestly, it's exceeded our expectations.

The main the main two things that have made us grow so fast the first one is just <unk>.

The main the main.

Two things that have made <unk>. The first one is just.

Product improvements I mean, we run hundreds of AB test every quarter and the compound and so our product is just significantly better than it was two years ago.

Product improvements I mean, we run hundreds of AB tests every quarter and the compound and so our product is just significantly better than it was two years ago.

So thats the biggest thing than the second biggest thing is we just got a lot better with our marketing.

And the combination of getting much better with marketing and the product getting better has made us a a duolingo has really struck a chord with.

And the combination of getting much better with marketing and the product getting better has made it to the duolingo has really struck a chord with.

It's like now part of the Zeitgeist.

And part of the reason that we've exceeded our expectations. It's because things have happened that we did in <unk>.

And part of the reason that we've exceeded our expectations just because things have happened that we didn't.

There was no way for us to expect we would not expect that the Barbie movie was going to add a dual England. There we could not expect that there would be <unk> and stuff like that so that I think that's the combination why that's happened I mean, we're very happy, but it's been hard to also forecast.

There was no way for us to expect we would not expect that the Barbie movie was going to add a dual England. There we could not expect that there would be <unk> and stuff like that so that I think that's the combination why that happened I mean, we're very happy, but it's been hard to also forecast.

Alright, and then maybe Matt in the prepared remarks, you talked about the potential for <unk> to improve and I think youll be coming up on two years. Since you did some price adjustments in Europe, just maybe give some color on how <unk> prove going forward. Thank you.

Great and then maybe Matt in the prepared remarks, you talked about the potential for <unk> to improve and I think youll be coming up on two years. Since you did some price adjustments in Europe, just maybe give some color on how <unk> group going forward. Thank you.

Thanks Ralph.

So <unk> has been impacted by foreign currency, that's hard to predict.

So <unk> has been impacted by foreign currency, that's harder to predict.

But the other thing was the regional pricing that you mentioned, so we did that about a year ago. So as Q2 of 2022.

But the other thing was the regional pricing that you mentioned, so we did that about a year ago. So with Q2 of 2022.

So that impacted bookings in that quarter, and then going forward and has flowed through to revenue that was expected and thats, what we mentioned on the last call.

So that impacted bookings in that quarter, and then going forward and has flowed through to revenue that was expected and thats. What we mentioned on the last call in terms of.

In terms of.

This quarter. There was some experiments we ran that were really effective of driving free to paid conversion outside the U S. So that kept it range bound this quarter I think the reason we continue to think we'll see improvements.

This quarter. There was some experiments we ran that were really effective of driving free to paid conversion outside the U S. So that kept it range bound and this quarter I think the reason we continue to think we'll see improvements.

Starting to lap the pricing changes that we did in Q2 of last year and also our pricing philosophy is one that we continue to experiment with pricing and you've added a lot of value to the product over time. So we will experiment with raising prices over time as well.

Starting to lap the pricing changes that we did in Q2 of last year and also our pricing philosophy is one that we continue to experiment with pricing and we've added a lot of value to the product over time. So we will experiment with raising prices over time as well.

Alright, Thanks, Louise Thanks, Bob.

Thank you Robyn.

Alright next question comes from Justin Patterson of Keybanc.

Great. Thank you very much and good afternoon I appreciate the call out of experiments in the letter Louise as you've expanded the range of products in the core App to music and now Matt.

Great. Thanks, very much and good afternoon I appreciate the call out of experiments in the letter Louise as you've expanded the range of products in the core App to music and now Matt.

How should we think about just the pace of experiments and tests really ramping to really kind of optimize these new elements within the App and then for Matt The Incrementals on the business remained very attractive north of 50% margins within the Q4 guide as Youre sitting here today thinking about 2024 budgets, but what are really the.

Really the key investment areas that you are thinking about to keep driving this healthy growth going forward. Thank you.

Key investment areas that you are thinking about to keep driving this healthy growth going forward. Thank you.

Thank you Dustin and excellent shirt.

Thank you just been an excellent start.

So you asked about <unk> music on what Thats going to tour experiments. So I think it's worth just saying.

So you asked about <unk> and your thinking on what that is connected to our experiments. So I think it's worth just saying.

What we did what we had what we saw.

What we did what we had.

Still have a map app and we've been developing our music course, we decided the best strategy was to put both the mass and means of course.

We still have a map app.

And we've been developing our music course, we decided the best strategy was to put both the math Adam is of course.

Inside our main App, there's many reasons for this.

But the biggest reason is that we can immediately take advantage of any any positive change that we do in the main app for engagement or for monetization of ramping immediately take advantage of those because mapping music are just going to be other courses in the app, just like French or Spanish just as if we were adding another language.

We're adding another language.

So so that will.

What that'll do it will allow us to grow. These courses are the subject of a lot faster than if they were independent apps, we're very happy with that now I should mention and I should caution. The main thing that we are concentrated on for the for the short term is really making both the mass and music courses.

That'll do it will allow us to grow these courses are the subjects a lot faster than if they were independent apps, we're very happy with that now I should mention and I should caution. The main thing that we are concentrated on for the for the short term is really making both the mass and use of courses.

More comprehensive and really work on them a lot we haven't even launched them technically they are going to be launched to all our users on iOS starting tomorrow.

So once we launch them, we're going to be working specifically on the courses. So I would not expect too much increasing revenue in the short term, but over the long term the hope is that.

So once we launch them, we're going to be working specifically on the courses. So I would not expect too much increasing revenue in the short term, but over the long term the hope is that the.

Duolingo gets known and not just as a language learning out but also as an app, where you can learn math on music. So we will start attracting users for that.

Duolingo gets known and not just as a language learning out but also as an app, where you can learn math and music. So we will start attracting users for that and a lot of the monetization experiments that we run will apply to mapping music.

A lot of the monetization experiments that we run will apply to mapping music.

So that's the idea my sense is that it will probably slightly increase the pace of experimentation.

And so on.

And so.

It was basically answered your question.

Basically answered your question.

Great Yes.

Great.

And a follow up on budgeting in 2024.

To follow up on budgeting in 2024.

The amazing thing about the business right now is that the core business.

We're still early in the opportunity. So we have tons of room to run. So the vast majority of our investment next year will be in the core business just to remind everyone. How we invest in that.

Still early in the opportunity. So we have tons of room to run so the vast majority of our investment next year will be in the core business just to remind everyone. How we invest in that there.

There is really three areas, we invest in we invest in growth.

A bunch of engineers and product managers and designers, who helped design experiments to drive things like innovations on the street mechanic or make them more social.

A bunch of engineers and product managers and designers, who helped design experiments to drive things like innovations in the street mechanic or make that more social.

We invest in monetization so driving free to paid conversion and then we invest in learning.

To make our app more effective that's going to make up the vast majority of our investment next year just like it did this year, we have incremental layers on top of that that we add so we're investing in Max we're investing in math and music like we just mentioned.

To make our atmore effective thats going to make up the vast majority of our investment next year just like it did this year, we have incremental layers on top of that that we add so we're investing in Max we're investing in math and music like we just mentioned.

But I don't want folks to lose side of the fact that the investment we're going to make next year is going to be like this year, which is in that core app, which has great growth momentum and a huge market that we're still growing into.

But I don't want folks to lose sight of the fact that the investment we're going to make next year is going to be like this year, which is in that core app, which has great growth momentum and a huge market that we're still growing into.

Thank you both.

Thanks, Justin.

Thanks Austin.

Our next question comes from Ryan Macdonald of Needham.

Alright, Thanks for taking my question Congrats on the nice quarter Luis I'm curious with the integration of math and music into the core App, how do we start to think about moving forward about.

Alright, Thanks for taking my question Congrats on the last quarter Luis I'm curious with the integration of math and music into the core App, how do we start to think about moving forward about.

Experience for the learner based on whether you are a paid subscriber versus a free user on map and music and the core App and how do we think about moving forward incentivizing more.

The experience for the learner based on whether you're a paying subscriber versus a free user on math and music in the core app.

Do you think about moving forward incentivizing more.

Consistent engagement and moving the MAA Youtube you overtime.

Consistent engagement and moving that <unk> over time.

Yes. So thank you for the question. So in terms of monetization from methane music you really the way to think about them for now.

Yes. So thank you for the question Ryan.

In terms of monetization from methane music you really the way to think about them for now.

They were another language course.

All of that applies to language courses or apply to.

All of that applies to language courses.

<unk>.

Matthew music. So for example, if you are a free user and you do the Spanish courts at the end of the lesson you have to see on add similarly for user and Youre doing the math of course at the end of a lesson you have to C&I.

<unk> method music. So for example, if you are a free user and you do the Spanish courts at the end of a lesson you have to see on add similarly for your for you there and Youre doing the math of course at the end of a lesson you have to C&I.

It's also a notion of also hearts, where whenever you make a mistake you lose the heart that happens in math that happens in music and that happens in the language, where they're very similar in that respect.

Theres also a notion of also hearts, where whenever you make a mistake you lose the heart that happens in math that happens in music and that happens in the language. They are very similar in that respect.

We are.

We're going to continue working on trying to monetize our users better by basically offering.

Extra things in the premium subscription so there maybe just like with languages, we have things like the practice hub or certain extra things, we're going to have extra things for both mathematically now I should remind you know there's a lot of questions about mapping music, which is great.

Extra things in the premium subscription so there maybe just like with languages, we have things like the practice hub or certain extra things, we're going to have extra things for both math of music now I should remind you that there's a lot of questions about mapping music, which is great were very.

Very excited about my amusing, but I should remain for the foreseeable future. The vast majority of our business is in language learning. There is still a lot of room to growth to grow in language learning so the.

Excited about my phone using but I should remain for the foreseeable future. The vast majority of our business is in language learning. There is still a lot of room to growth to grow in language learning also.

The majority of the experimentation is still going to be there.

A majority of the experimentation is still going to be there.

So, yes, I think thats about it.

So, yes, I think thats okay.

That's helpful and maybe I'll follow up excuse me from that are released.

That's helpful and maybe I'll follow up excuse me from that or Luis.

I thought it was interesting in the shareholder letter about the experimentation you did on paid advertising this year and how that drove sort of a 50% increase in users on the platform will just love to hear a little bit more color on maybe what you did differently. This year that drove such a notable increase.

So there's a number of things.

Just gotten a lot better at figuring out what to say in our in our ads and also we are in a really interesting position, where we are we are a company that has users.

<unk> gotten a lot better at figuring out what to say in our in our ads and also we are in a really interesting position, where we are we are a company that has users.

Essentially every single country in the world.

And we don't have to deal with things like licensing music or anything like we don't have to deal with stuff. We just we just conserve the app to any country in the world. So one of the things that we've gotten really good at is being able to shift budget between countries if prices get higher in one country and Laura and another we just shift budget because for us it doesn't matter all that much whether our user.

For us it doesn't matter all that much whether our user comes from Vietnam or from Thailand, or something I mean it matters.

Comes from Vietnam, or from Thailand, or something I mean it matters.

And the conversion rate, but we have the math to figure out when it makes sense to shift budget from one country to another and so we've gotten very effective right.

The conversion rate, but we have the math to figure out when it makes sense to shift budget from one country to another and so we've gotten very effective at that and thats something that not many apps can do because because for us. It's just really we just have users in every single country of the world for stuff like that that were just over time have gotten.

And that's something that not many apps can do because because for us. It's just really we just have users in every single country in the world for stuff like that that were just over time have gotten.

Smarter app.

Yes.

I should mention though we did that but it is still it is the case that the overwhelming majority of our users coming organically.

I should mention though.

Did that but it is still it is the case that the overwhelming majority of our users coming organically. I mean this is we have relatively small small marketing budgets, where we're doing that but we've gotten a lot better at it.

We have relatively small small marketing budgets, where we're doing that.

We've gotten a lot better at it.

Okay.

Alright, Thanks, Brian.

Question comes from Zach Morrissey of Wolfe Research.

Next question comes from Zach Morrissey of Wolfe Research.

Great. Thanks, So I just wanted to double click on the user growth side of things.

You've talked about the improvement in retention in prior years and quarters.

<unk> current user retention rate.

The current user retention rate.

Kind of think about the growth we've seen this year. It's obviously been very impressive can you kind of parse through how much of that has come from an improvement in the retention and as we kind of look ahead to next year. How do we think about kind of room for further improvement in retention kind of supporting user growth.

Kind of think about the growth we've seen this year. It's obviously been very impressive can you kind of parse through how much of that is coming from an improvement in the retention.

And as we kind of look ahead to next year, how do we think about kind of room for further improvement in retention kind of supporting user growth.

And then second just on competition.

Then second just on competition.

Obviously, the you hit the growth you guys are posting kind of speaks to your ability to kind of execute well, but obviously, Google last month kind of grab some headlines kind of entering the space.

You hit the growth you guys are posting kind of speaks to your ability to kind of execute well but.

Obviously, Google last month kind of grab some headlines kind of entering the space.

You can just kind of talk about your views on kind of the evolving competitive landscape and more specifically, how dueling goes kind of competitive moats can kind of.

Just kind of talk about your views on kind of the evolving competitive landscape.

More specifically, how dueling goes kind of competitive moats can kind of.

Last relative to a larger platform such as Google with has scale data technology et cetera.

Relative to a larger platform such as Google with has scale data technology et cetera.

So great questions.

It's a great question for user growth, we believe that the.

For user growth, we believe that the debt.

The main thing that have affected user growth if improvements in free user retention.

That's it I mean, it's not 100% like I said a lot of our marketing has helped too but I would say more than 50% is just improvements in user retention.

Our current user retention rate is probably the biggest lever that we have had it is not the only one but it's the biggest lever that we have to move.

Current user retention rate is probably the biggest lever that we've had it's not the only one but it is the biggest lever that we have to move.

We expect there is still a lot of room there for us to improve I mean, obviously again, just like with user growth and you cannot improve user retention forever. You also cannot improve user growth forever.

We expect there is still a lot of room there for us to improve I mean, obviously again, just like with user growth I mean, you cannot improve user retention forever. You also cannot improve user growth forever.

But do we still think there's room there.

But we still think there's room there.

We're happy with that.

In terms of competition.

There was the headline about Google Google of course is in.

There was the headline about Google Google of course is then.

The company that we all admire I spent a couple of years ago, a lot of us have spent time at Google.

The particular feature that made headlines.

We actually the team that have that's working on this feature which is a small research team has been in contact with us. They are trying to do something just make the search experience better for people who are in the language learning.

We actually the team that have working on this feature which is a small research team has been in contact with us. They are trying to do something just make the search experience better for people who are in the language learning.

Ecosystem and one of the things that they wanted to start sending those users to apps like ours. So we don't see them really is competitive.

Ecosystem and one of the things that they wanted to we start sending those users to apps like ours. So we don't see them really is competitive.

And.

And that's.

That's kind of one thing the other thing is.

And just for Jan in general for competition.

We have a strong belief that the hardest thing about learning a language staying motivated.

And that is something that we really excel at.

And that is something that we really excel at and we just don't see our competition spending much effort and Thats, certainly not Google, but kind of the rest of our competition and I think that was that's really probably the biggest thing that has made us grow a lot because a lot of our users.

We just don't see our competition spending much effort and Thats, certainly not Google, but kind of the rest of our competition and I think that was that's really probably the biggest thing that has made us grow a lot. It is because a lot of our users.

Give them motivation to continue going and that has done things for example, we've got at this stat before.

Give them motivation to continue growing and that has done things for example, we've got at this stat before.

In the U S, 80% of our users we're not learning a language before duolingo.

In the U S, 80% of our users were learning a language before duolingo. So the reason we're getting so many of these new services because we have made at learning a language, so easy and so engaging that they just come and so.

So the reason we're getting so many of these new centers because we have made learning a language so easy and so engaging that they just come and so.

To me that's the biggest moat I mean, we have other things the strength that's a big moat. For example people don't want to lose their strength when they go to another app. That's a big moat. Our brand has essentially become synonymous with language learning, particularly with younger users. So there's a lot of most like that but I would say the biggest one is just that we have a product that is more engaging and is getting more and more engaging the more users we have because we can.

That's the biggest moat I mean, we have other things the street gets a big moat. For example people don't want to lose their strength when they go to another app. That's a big moat. Our brand has essentially become synonymous with language learning, particularly with younger users. So there's a lot of most like that but I would say the biggest one is just that we have a product that is more engaging and is getting more and more engaging the more users we have because we can.

Run more experiments.

One more experiments.

So that's kind of our view on it.

So thats kind of our view on it.

Very helpful. Thank you.

Yeah.

Alright next question comes from Alex Sklar of Raymond James.

Alright. Thank you Luis first for you just as this is a bit of a follow up to Justin's question and it's a bit early given you just launched music, but how do you think about the ideal content or course footprint within the within the main App is moral is better is there an optimal level of choice that you've found and as you think about kind of future organic or inorganic content do you think it will always.

Alright. Thank you Luis first for you just as this is a bit of a follow up to Justin's question and it's a bit early given you just launched music, but how do you think about the ideal content quartz footprint within the within the main App is more always better or is there an optimal level of choices that you've found and as you think about kind of future organic or inorganic content do you think it will always.

It makes sense now to keep it in one primary.

It makes sense now to keep it in one primary app.

I'm not sure I fully understand your question in terms of more you mean more subjects or more general kind of hours of content I am not sure I fully understand more more subjects more more subject more languages or more.

I'm not sure I fully understand your question I mean in terms of more you mean more subjects or more general kind of hours of content I am not sure I fully understand more subjects more more subject more languages or more.

Expansions into things like math or music or et cetera, yes.

Yes.

You are not going to see us expand in every single subject at least not for the time being I mean in fact that youre not going to see us be adding more subjects other than mass and music maybe will add a few other languages yes.

You are not going to see us expand in every single subject at least not and for the time being I mean in fact, youre not going to be adding more subjects other than math and music maybe will add a few other languages yes.

Languages, but youre not going to see us add other subjects in the in the short to medium term, we're very committed to making math and music succeed I mean, we haven't even launched them. So.

You cannot possibly say they are successful yet in the may not because we haven't even launched them. So we're very committed to making them succeed.

You cannot possibly say if they are successful yet in the may not because we haven't even launched them. So we're very committed to making them succeed.

Our belief is that.

There are things that make a lot of sense to learn with the duolingo app. They are usually things that you can learn on your own that take a long time to learn where the thing that you are learning requires a lot of repetition.

There are things that make a lot of sense to learn with the duolingo app. They are usually things that you can learn on your own I think a long time to learn where the thing that you are learning requires a lot of repetition.

Certainly a lot of the arithmetic on a lot of the parts of math the way you learn to Mr. A lot of repetition that's true for music and Thats also true for languages, so things that require a lot of repetition.

Certainly a lot of the arithmetic on a lot of the parts of math. The way you learned in this to a lot of repetition that is true for music and Thats also true for languages, so things that require a lot of repetition.

That takes a long time to learn and also that we think will have a very large audience. These are the types of things that we will be adding to the app, although for the time being we're going to stay just with math and music.

Yes, I think that whats youre only part of your question right Yeah, no perfect great color there.

Yes, I think that was your only part of your question right Yeah, no perfect great color there.

And then maybe just as a follow up in terms of kind of tracking the tracking about risk paid subscribers.

What did you see in kind of the months after you announced math and music and the main app.

Terms of kind of usage of that costs that cohort.

Okay.

Hi.

People who are at risk.

Perhaps they're paid subscribers are using it less.

And kind of bringing.

And kind of.

Bring them back.

I don't I actually don't know the answer to your question I don't know if we've kept track my sense is that if there had been a big change I would have heard about it. So there probably wasn't a very big change, although I am answering here I don't actually know the answer to your question Alright, great. Thank you.

Alright, great. Thank you.

Yeah.

Alright next question comes from Andrew Byrne of JMP.

Hi, guys. Thanks for taking my question.

Luis can you provide us an update on Max and what I really want to also dig in on this is just anyone that watched open AI is that day and understand your partnership there, but text to speech is just it feels like it's coming and so talk to us about a what prevents that from coming to duolingo and how does Max.

Luis can you provide us an update on Max and what I really want to also dig in on for gas is just anyone that washed open AI is that day and understand your partnership there, but text to speech is just it feels like it's coming and so talk to us about a what prevents that from coming to duolingo and how does Max star.

Start to evolve is just more of these tools.

To evolve is just more of these towards come back.

Okay, well, thank you for asking about Max Okay. So just to provide.

Color about map map.

Color about map maps.

So we announced the Max earlier this year.

When we announced that it has a higher tier subscriptions, so we had free dwelling or super Duolingo and Max.

We announced that it has a higher tier subscriptions. So we had free dwelling or Super Duolingo and then Max.

What we put into Max in this higher tier where two features based on.

We put into Max in this higher tier where two features based on.

Generative AI and in particular open AI generative AI.

Jonathan AI.

And in particular open AI generative AI.

One was role play and the other one was explained my answer.

What we've been doing.

What we've been doing and.

And when we announced it we said look this is a large feature usually for large feature as it takes us about a year to roll it out to all our users because in that time, what we're doing is we're giving it to a fraction of our users typically a first a very small fraction of our users we improve the feature and then we need to give it to a larger and larger fraction et cetera by now.

When we announced it we said look this is a large feature usually for large features it takes us about a year to roll it out to all our users because in that time, what we're doing is we're giving it to a fraction of our use is typically up first the very small fraction of our users we improve the feature and then we need to give it to a larger and larger fraction et cetera by now.

Halfway ish from this we have.

We have increased the rollout by now.

A significant fraction of our users on iOS that are learning either French or Spanish have access to Max at least can bias, we presented to them.

And the reason we've increased their orders because we feel good about the features themselves. We've improved both the role play and explained my answer to the point, where people are using them more et cetera. So that's kind of one thing.

And the reason we've increased the rollout because we feel good about the features themselves. We've improved both the role play and explained my answer to the point, where people are using them more et cetera. So that's kind of one thing.

Another thing that I think it's important to mention that when we announced Max we said well we're putting this.

AI features in a higher tier subscription in part because we have to pay for them.

But we also said we believe that the cost of using this off of putting these features on our App is actually going to go down because.

But we also said we believe that the cost of using this off of putting these features on our app, it's actually going to go down because.

Accessing large language models like open AI as the price is going to go down and we have already seen that I mean this is.

Accessing large language models like <unk> and AI as the price is going to go down and we have already seen that I mean this is.

The price is actually going down so what youre going to see us do.

The price is actually going down so what youre going to see us do over the next few months.

Due over the next few months.

I think it's important to start.

Docking separately about the fact that we have a three tier subscription and AI features because what youre going to see US do is we're probably going to be shuffling features to see an experiment and each time of course to see what is the best place to put our feature so it may be the case that explained my answer goes into Super apps.

Docking separately about the fact that we have a three tier subscription and AI features because youre going to see US do is we're probably going to be shuffling features to see and experimenting each time of course to see what is the best place to put our feature so it may be the case that explained my answer goes into Super I suppose.

<unk> to Max and then we take some features from Super and put them into Max So youre going to see us do that and the idea is really to maximize.

To Max and then we take some features from Super and put them into Max So youre going to see us do that and the idea is really to maximize.

The revenue that we can make and also to maximize the amount of.

The revenue that we can make and also to maximize the.

The amount of.

Features that we give to our users or a value that we give to our users in a three pillar strategy without necessarily saying well the highest tiers AI on the other side for AI.

We're going to continue developing these features because we're very happy with them.

We're going to continue developing these features because we're very happy with them and so so that's kind of what we're going to see we don't have anything to say specifically yet about how much contribution.

So that's kind of what we're going to see we don't have anything to say specifically yet about how much contribution.

Yes.

The three tier system is going to have for example for 2020 for bookings.

Thats a three tier system is going to have for example for 2024 bookings.

Because there's just there's a lot of stuff that a lot of moving parts.

Because there's just there's a lot of stuff that a lot of moving parts, but we knew this that when we introduced a three tiered system. It was going to take us a while to figure this out.

We knew this that when we introduced a three tier system. It was going to take us a while to figure this out.

Your next question was about text to speech, which is basically speech synthesis from open AI.

<unk>.

We have our own speech synthesizer, we're very happy because we made our voices for own characters.

For now we are probably going to continue with that because each one of our characters as its own voice et cetera over time, if we see that open AI speech synthesis is very good.

For now, we're probably going to continue with that because each one of our characters as its own voice et cetera over time, if we see that open AI speech synthesis is very good.

Of course, we may evaluate it.

Of course, where we may evaluate it.

I'll use my follow up to follow up on that.

In terms of just the capabilities, though right like you clearly see somebody else, but has now become a conversational in terms of language and so how do we put that progress back to Julia.

In terms of just their capabilities, though right like you clearly see somebody else that has now become a conversational in terms of language and so how do we put that progress back to Julin Guy.

Sorry, I'm not quite sure I understand.

Within chat GBT it feels like it's becoming more conversation unless you use it or have it then like the premium tiers right and so the question is how do we think about language learning is starting to become conversational and really more advanced in terms of one on one tutoring.

Within chat GPT it feels like it's becoming more conversation unless you use it like that.

The premium tiers right and so the question is how do we think about language learning starting to become conversational and really more advanced in terms of one on one tutoring.

Yes.

We are definitely working on features.

That are related to that you will see US you will see I mean, I don't have anything specific to announce but we are definitely working on features that will feel a lot more like that and youll see us.

In the next few months.

Start experimenting with them.

Thought experiment with them.

Alright, thank you.

Great. Thank you.

Okay. Thanks, Andrew.

Our next question comes from Arvind <unk> from 90 at Piper with an awesome and background.

And the next question comes from Arvind <unk> Piper with an awesome and background.

Got it.

Alright. Thanks.

Thanks, Matt.

Kind of compete with Justin.

Right.

Okay.

But.

I guess my first question.

I guess my first question on how does a great creative in trial.

Thanks <unk>.

When you open up the our prepared remarks.

When you open up they are.

Our prepared remarks.

At what point do you take a group of analysts out here and you cannot this into home video.

At what point do you need to take a group of analysts out here and you can read this into home video.

<unk> been showing up in our conference call.

Showing up we have a conference call again.

Yes, Megan market loss last quarter.

Megan market loss last quarter.

When do we get.

Okay.

We're working on in Ireland.

Marvin I wanted to be in one of our Tic docs is that what youre, saying yeah. Yeah. This is human it has.

I want to be in one of our doctors is that what youre, saying, yes, yes. This is Jim.

Okay.

David.

Note that in the Hopper Arvind.

Arvind.

Yes.

Perfect.

I wanted to ask about your product development roadmap. The many ways you can go.

I wanted to ask about your product development roadmap.

Any way you can go you have.

<unk>.

In particular, our core language.

Thank you.

Our language and you kind of a duty of a Max deal of radio and you have that kind of enhancing the core sort of language and then of course like Madmen music. This is another very interesting Victor.

You can't have a duty of a Max do you have right now and you have that kind of enhancing the core sort of language and then of course like Matthew.

Is another very interesting Victor.

How would you like.

Like maintenance choice is between like.

Choices between like.

Product enhancements.

On your core versus going to expansion.

Yes, it's an excellent question.

The majority of the effort is going into the core.

We believe that.

Language learning if a very big business that we are only scratching the surface on and that is where we are the category leaders. We are not yet the category leaders for macro music education. We are the category leaders for our language vacation. So we're spending the majority of effort on that.

Language learning is a very big business that we are only scratching the surface on and that is where we are the category leaders. We are not yet the category leaders for Maverick music education. We are the category leaders for our language vacation. So we're spending the majority of effort on that.

That said whats nice about putting math and music into the main app is that a lot of the changes that we make to improve the core.

Immediately help math on music. So for example, we may make a change to make the lead our board is more exciting.

Immediately helped mapping music. So for example, we may make a change to make the lead our board is more exciting.

Matthew music already in the App so.

It'll immediately go into into math on music so.

It'll immediately go into into math of music so.

Most of the effort goes into the court, but some of that goes into mapping music and then just to give you an idea math of music I mean, the total number of people working on mapping music is like 50%.

Most of the effort goes into the core but some of that goes into the math of music and then just to give you an idea I mean, the total number of people working on map and music is like 50%.

Which is a small fraction of our of our whole product team.

So that's just to give you an idea.

And I guess.

Are there any gating factors.

Are there any gating factor.

In terms of.

Kind of investing is it like you may have counterbalanced Mike.

Kind of investing is it like any of counterbalanced, Mike Crawford profitability there.

Profitability there.

Matt kind of keeping the bursting of the data kind of indicated let's getting profitability and.

Matt kind of keeping that things have kind of indicated let's kind of profitability.

Or is it more like the people.

What's the gating factor.

That will allow you to kind of.

Push push on both.

Push push on both yes that's.

Great question, the truth of the matter is that the gating factors I don't know why I cannot explain this but the gaining factor for any kind of product development ends up being time is this funny thing where it takes like two years to make a good product.

I've never been able to see something goes faster and it doesn't help you throw a ton of people into it because they just kind of step on each other's toes. The right way I think this could grow up product just to start with a small team and when the product is gaining traction you put more and more people that is the right way to grow a product and so.

Never been able to see something goes faster and it doesn't help if you throw a ton of people into it because they just kind of step on each other's toes. The right way I think that the <unk> product is to start with a small team and when the product is gaining traction you put more and more people that is the right way to grow product.

<unk>.

It's interesting I mean, we really do we have increased their profitability quite a bit but in the day to day conversations we don't find ourselves being like Oh, My God I wish I had 30 more people to throw at this problem. It's more just getting our act together on really.

What it means to scale the content for math, what exactly do we want to teach for math next usually throwing more people at this just.

Has not helped us in the past so that's the gating factor is just it's kind of like it has to be a certain time in the oven. It's like you can't Cook uptake much faster.

Has not helped us in the past so that's the gating factor is just it's kind of like it has to be a certain time in the oven cook uptake much faster.

We're bigger take much faster, but that's it.

Our bigger take much faster, but that's it.

Terrific, that's very helpful and phenomenal dominated with us.

Terrific.

Helpful and phenomenon.

This is Brent.

Alright. Thank.

Thank you.

Alright next question comes from Mark Mahaney at Evercore.

Hey, Thanks, two questions. Please first.

And a lot of questions on that the music, so maybe something a little bit more niche. There was some news article about chest and that just made us think about that.

What about what about skilled games of skill.

What about skilled games of skill skilled categories like that.

Skill categories like that.

Long term debt is there an interesting appeal to <unk>.

Long term is that is there an interesting appeal to <unk>.

Including those somehow in.

In the App.

And then secondly, these bookings.

Bookings growth in that.

The sub growth is super impressive, but could you give us some color.

Around where these new may use these kind of almost record levels in the us and matched record levels of new subs, where they're coming from.

Around where are these new may use these kind of almost record levels in the us and matched record levels of new subs, where there can be problems.

Or you're just getting a flood of new people coming in from from China or from India, just to help us realize what the source of these new subs and it's strictly from a geographic perspective. Thank you.

Or are you just getting a flood of new people coming in from from China or from India, just to help us realize what the source of these new subs and particularly from a geographic perspective. Thank you.

Okay.

In terms of the.

Adding content to teach things like gesture things like games.

Youre unlikely for one youre unlikely to see us into that four one in the next.

Youre unlikely for one youre unlikely to see us to do that for one in the next.

Again in the short to medium term, we're not going to be adding more subjects other than mapping music because.

Because we want to make those.

Really succeed but in the long term just me personally and I think thats true for a lot of people that work or billing or just a lot more interested in pure education.

Really succeed but in the long term just meet personally and I think thats true for a lot of people that work or billing or just a lot more interested in peer education.

And so that's.

There is nothing wrong with teaching kind of play chess or games or anything like that love that love chest, but its just I think we're a lot more interested in just kind of peer education.

There's nothing wrong with teaching how to play chess or games or anything like that love that love chest, but its just I think we're more interested in just kind of peer education.

So, that's probably where you're going to see.

That's probably where you're going to see.

For the second question I'll, let Matt take that one yeah. So as I mentioned in my prepared remarks.

The second question I'll, let Matt take that one yeah. So as I mentioned in my prepared remarks.

Mark.

The beauty of our growth.

It has been it has been broad based so when you look at kind of the countries with the biggest <unk> around the world can you try to see.

It has been it has been broad based so when you look at kind of the countries with the biggest MAA review around the world can you try to see.

User growth has been via your growth has been around 60% for the past several quarters.

What's the variation like as the U S growing fast it's growing close to average and then theres. Other countries are growing above average, but it's broad based around the world.

What's the variation like as the U S growing fast it's growing close to average and then theres. Other countries are growing above average, but it's broad based it's around the world.

So the user growth is really.

Yes, its super geographically diverse we're glad about that in terms of subscribers we look at.

Yes, its super geographically diverse we're proud about that in terms of subscribers we look at.

Where our subscriber growth is coming from and it Hasnt changed I mean every quarter the stack rank of countries kind of fluctuates every so little bit but.

Where our subscriber growth is coming from and it Hasnt changed I mean every quarter.

Jack rank of countries kind of fluctuate.

A little bit, but it's not really fundamentally changed over the past couple of quarters. So that's why we mentioned we felt like the user growth has been broad based and high quality. So we feel good about it.

Not really fundamentally changed over the past couple of quarters. So that's why we mentioned we felt like the user growth has been broad based and high quality. So we feel good about it.

And then one question just on the level of investments going forward, you're obviously ramping up margins very aggressively that sounds that is fundamentally a good thing.

Yes.

Just kind of address.

Just kind of address like date.

Is there any risk that you just have a lack of investment opportunities I know that doesn't sound great.

Is there any risk that you just have a lack of investment opportunities I don't know that doesn't sound right.

Yes.

How do you make how do you balancing like youre ramping up profitability balancing that with kind of the the.

Do you make how do you balance sheet like you are ramping up profitability balancing that with kind of the knee.

The need for whatever it took to invest in dwellings over the next three to five years, Yeah. I think it's a great question I'm sure Luis has some thoughts as well, but just from the raw mechanics of the math, we mentioned on the last call that I think if you look at other tech companies.

Need for whatever it took to invest in dual link over the next three to five years, Yeah. I think it's a great question I'm sure Luis has some thoughts as well, but just from the raw mechanics of the math, we mentioned on the last call that I think it's if you look at other tech companies.

Certainly ones with respect to the U S. You guys follow.

Certainly ones that we respect the U you guys follow.

In their first year of real profitability, they typically see a pretty big jump.

And profit margin and then they see steady progress towards our long term margin.

And profit margin and then they see steady progress towards their long term margin.

That's kind of what we expect as we said on last call is what we expect on this call and while we've been doing this path towards increased profitability. This year, we've been hiring.

That's kind of what we expect as we said on last call is what we expect on this call and while we've been doing.

This path towards increased profitability this year, we've been hiring.

And we've been investing in the product and the business. So I think we feel good about our balancing long term growth.

With long term profitability.

Over time, and so I think Luis mentioned on the last one of the last questions.

The gating factor so far has not been.

Investment in our in our <unk>.

Investment in our in our product cycle or product journey.

Product cycle or product journey.

I am Luisa do you have anything else to add to that Matt will not let us eat lobster everyday anymore, and we are upset about that.

Luisa do you have anything else to add to that Matt will not lead us lobster everyday anymore, and we are upset about that.

I'm kidding.

<unk>.

Regardless of the cost.

So the cost discipline and it turns out.

Cost discipline and it turns out.

I'm kidding.

No I mean, just generally I don't I don't think that we've been really there has never been a product initiative that we haven't done.

Just generally I don't I don't think that we've been really there has never been a product initiatives that we haven't done because we can't hire the people. There has been we have not done it because we don't think it's a good idea or because we don't think we're ready to do it et cetera.

Because we can't hire the people there has been we have not done it because we don't think it's a good idea or because we don't think we're ready to do it et cetera. So.

I think we keep invest investing really well at least in R&D.

Thank you Louise Thank you Matt.

Our next question comes from Chris Nagel at Bofa.

Great next question comes from Chris Nagel at Bofa.

Awesome, Thanks, very much for taking the question.

Thanks, very much for taking the question.

I think you made a kind of an interesting point in terms of the free to paid conversion.

I think you made a kind of an interesting point.

Okay.

Free to paid conversion and some of the regions I think it was last call you talked about how.

And some of the regions I think it was last call you talked about how it can be very difficult.

It can be very difficult.

To drive that whether youre lowering prices or whatever you are trying to do so.

To drive that whether youre loan prices or whatever you are trying to do so.

Obviously something changed so it'd be great to hear a little bit more about.

Obviously something changed so it'd be great just to hear a little bit more about.

Correct.

What led to some success.

In this quarter.

Yes.

So Chris I think on the one who said that in my prepared remarks.

The answer is going to be one of your.

The answer is going to be one that you are.

Can you get used to us hearing which is it's actually not one thing it's a bunch of experiments that we've been running.

We got used to us hearing which is it's actually not one thing it's a bunch of experiments that we've been running.

Around the world to understand how that free to paid conversion can increase.

And this particular quarter one of the things. We did was we optimize how we're showing what we call. The hook to go from free to paid so the.

This particular quarter one of the things we did was we optimize how we're showing what we call. The hook to go from free to paid so the.

The kind of internal Super AD that says would you like to try duolingo.

The kind of internal Super AD that says would you like to try.

We optimize that in a bunch of markets around the world changed the language a little bit native more.

We optimize that in a bunch of markets around the world changed the language a little bit Nader more.

Local more colloquial and then that was a big win but again, that's one of many.

Local more colloquial and then that was a big win but again, that's one of many wins across the quarter. So that's really what drove it.

Across the quarter, so that's really what drove it.

Over the past three four months.

Over the past three four months Lewis I don't know if you have any.

I don't know if you have anything else.

Generally a lot of we have teams exactly dedicated to getting more people to subscribe.

Okay makes sense and then Matt just a quick follow up so.

Okay makes sense and then Matt just a quick follow up.

If I heard correctly dilution I think one to one size right.

If I heard correctly dilution I think one to one size.

I think that was brought down by.

It was brought down by.

Q so.

<unk> so.

Just I guess, what's the delta.

Yes, it has come down in part because we.

When we made our plans for the full year and guided to that 2% range will probably higher end up hiring a few couples.

Fewer people this year, but then the other thing is that's on.

Treasury stock method, so as the share price goes up.

Treasury stock method, so as the share price goes up the amount of shares we grant over the course of the year goes down right and those are the two factors nothing.

Amount of shares we grant over the course of the year goes down right.

Two factors nothing.

Nothing crazy.

Okay. Thanks very much.

Sure.

Our next question comes from Chris <unk> at UBS.

Great. Thanks for taking my question, maybe just a bit of a follow up on what was just asked there on the rieger regional payer penetration.

Great. Thanks for taking my question, maybe just a bit of a follow up on what was just asked there on the rieger regional payer penetration just curious how we should be thinking about like.

Curious, how we should be thinking about like.

Really how much of this is kind of a rinse and repeat on a on a market by market basis versus kind of what needs to be done is really kind of the experimentation and the unknown kind of really what the payer penetration is going to look to look like in some of these more nascent markets and just kind of curious how we should be thinking about across that 8% payer.

And attrition like where are some of these earlier markets that we're at on a payer penetration versus some of our more advanced and then maybe just one follow up after.

<unk> like where are some of these earlier markets that we're at on a payer penetration versus some of our more.

Advanced and then maybe just one follow up after.

Okay.

Im happy to I think it's a little bit of both I think some of it is look there are some experiments that we're running that helped payer penetration in every single country.

Im happy to I think it's a little bit of both I think some of it look there are some experiments that we're running that helped payer penetration in every single country.

It's just sometimes talking about talking about.

It's just sometimes talking about.

Looking about.

Exact language that we use is better and we find better language to use that helped the whole world.

That said.

There's a big difference in payer penetration in our country and a wealthy country like the U S versus a country like India and that's not just true for Duolingo. This is true for essentially every every product out there. So there are some things that you're probably going to see us try they're not.

Not just decreasing the price, which we've already done but there are things like well, maybe we sell.

Just decreasing the price, which we've already done but there are things like well, maybe we sell.

More through their family plan. That's just an example, or maybe we sell more through in App purchases or something because we do know that for some of these markets. Some slight differences are just needed.

So I think it's a bit of both my if I had to guess Mike.

So I think it's a bit of both.

If I had to guess.

My sense is that we're going to do more of a global stuff in the specific market specific.

My sense is that we're going to do more of the global stuff in the specific market specific.

It's kind of.

It takes a lot of effort to do a lot of market specific stuff, we may do market specific stuff, where very large countries like China and India.

Makes a lot of effort to do a lot of market specific stuff. We may do market specific stuff for very large countries like China and India.

You won't see us do market specific stuff, where countries kind of smaller like I don't know, the Czech Republic, or something like that which is a significantly smaller country.

You won't see us do market specific stuff, where countries kind of smaller like the Czech Republic, or something like that which is a significantly smaller country.

Okay.

Got it very helpful and just the follow up would be on I think you had talked last quarter that revenue per sub would be effectively flat and I think you are now talking about improving should we be taking that is assuming that we're down kind of low single digits as far as revenue per subscriber or just any more color you could provide around that would be helpful. Thanks.

Yes.

<unk>.

It's the same general trend.

It's the same general trend. So this quarter, we thought it would be slightly less.

This quarter, we thought it would be slightly less.

Of a decline on our view.

Of a decline.

Year over year.

And it would have been but for the fact that we found this other.

Lever around the world.

Lever around the world that drove mix shift outside the U S and that was a trade off we were happy to make because it drove LTV.

Drove mix shift outside the U S and that was a trade off we were happy to make because it drove LTV positive subscription so that was the right decision.

<unk>, so that was the right decision.

Probably delayed.

Probably delayed the lapping or the kind of.

<unk> or the kind of.

Zero percent year over year growth by a quarter or so, but it's still the general trend the same trend as it was on the last call.

Kind of zero percent year over year growth by a quarter or so, but it's still the general trend same trends was on the last call.

Okay.

Got it thank you.

Alright, I'm not showing any further questions. So I'll now turn it back to Luis to wrap up.

I'm not showing any further questions. So I'll now turn it back to you Louise to wrap up.

Thank you everyone.

Thank you for the great questions and we will see you next quarter.

Goodbye.

Q3 2023 Duolingo Inc Earnings Call

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