Q4 2023 Duolingo Inc Earnings Call

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Unknown Attendee: Language app Duolingo bucked the celebrity trend with this just five second ad. Yes, it looks weird, but his ass is now fluent in Spanish.

Our language Abdul Lingo bucked the celebrity trend with this just five second ad.

Speaker Change: Thank you.

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Yes, it looks weird, but has asked US now fluent in Spanish.

Yes.

Unknown Attendee: Good evening, everyone. Welcome to Duolingo's fourth quarter and full year 2023 earnings webcast. Today, after market close, we released this quarter's shareholder letter, a copy of which you can find on our IR website at investors.duolingo.com. On today's call, we will have Luis Vanon, our co-founder and CEO, and Matt Skaruppa, our CFO. They'll begin with some brief remarks before opening the call to questions.

Luis: Good evening, everyone welcome to <unk> fourth quarter and full year 2023 earnings webcast today after market close we released this quarter's shareholder letter a copy of which you can find on our IR website at investors not duolingo Dot com on today's call. We will have Luis mine on our co founder and CEO.

Luis: And that's scary about our CFO, who 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 and please note. This event is being recorded and all attendees are in listen only mode.

Unknown Attendee: Analysts will be able to ask a question by using the raise hand feature, and please note this event is being recorded and all attendees are in listen only mode. Just a reminder that we'll 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 of our filings with the SEC.

Just a reminder, that 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.

Unknown Attendee: These forward-looking statements are based on assumptions 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. Additionally, we'll 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 program. Thank you, Debbie, and welcome.

These forward looking statements are based on assumptions, 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.

Luis: 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.

Luis: And with that I'll turn it over to Luis.

Luis Alfonso von Ahn Arellano: Thank you Debbie and welcome everyone.

Luis: We delivered stellar 2020 free surpassing the ambitious expectations, we set out for ourselves at the beginning of the year.

Luis Alfonso von Ahn Arellano: We deliver stellar results. Passing the Ambitious Expectations We Set Out, This was capped off by record user growth, bookings, and revenue profitability. [inaudible] Stepping back, I'd like to put our 2023 performance in context by talking about how far we've come in the last year. When we went public in July, we laid out a plan showing rapid growth. Unknown Attendee.

Luis: This was capped off by a record user growth bookings in revenue profitability and free cash flow in the fourth quarter.

Luis: Stepping back I would like to put our 2023 performance in context by talking about how we.

Luis: Far we've come in the last few years when.

Luis: When we went public in July 2021, we laid out a plan showing rapid growth with increasing profitability over time.

Luis Alfonso von Ahn Arellano: In 2021, and, We delivered 55% and 45% year-over-year revenue growth, and Harabal broke even. In 2023, we reached an inflection point, demonstrating our ability to get operating leverage and added over 13 points. That took our margin to over seven.

Luis: In 2021, and 2022, we delivered 55% and 45% year over year revenue growth, respectively and had about breakeven adjusted EBITDA margins.

Luis: In 2023, we've reached an inflection point, demonstrating our ability to get operating leverage and added over 13 points of adjusted EBITDA margin.

Luis: That took our margin to over 17%.

Luis Alfonso von Ahn Arellano: In short, we've been able to demonstrate that we can turn our incredible product, How did we do this? We did this by making our app more fun, engaging, and effective. The more learners we attract to our platform, the more learners we convert. And the more subscribers we have, the more money we have to invest in our courses to make them even more fun and engaging. With the IPO, we've added about 18 million daily, most of whom have come to our platform. Supplementing that organic growth with a cost-effective, social-first marketing strategy earned us 3 billion social media impressions last year. Now, we have accelerated DAU on Penn Street.

Luis: In short we have been able to demonstrate that we can turn our incredible product into a profitable business.

Luis: Now how did we do this.

Luis: We did this by making our app more fun, engaging and effective which encourage learners to tell their friends and family about us.

Luis: More learners, we attract to our platform the more learners, we convert to subscribers and more subscribers. We have the more money we have to invest in our courses to make them, even more fun engaging and effective and so on.

Luis: Since the IPO, we've added about 18 million daily active users and over 50 million monthly active users most of whom have come to our platform through word of mouth.

Luis: We've supplemented that organic growth with a cost effective social first marketing strategy, which earned US 3 billion social media impressions last year alone.

Luis: Now, we accelerated <unk> growth for 10 straight quarters.

Luis Alfonso von Ahn Arellano: Q3 2021. For more information, visit www. FEMA.gov, and I'm proud.

Luis: From Q3, 2021 through Q4, 2023, and I'm proud of them.

Luis Alfonso von Ahn Arellano: But as we've said before, we can't accelerate user growth. For Q1, we expect DAU growth to be closer to the mid 50s. [inaudible] For the full year 2024, we expect strong top-line performance from rapid user growth and continued improvements in free-to-play, as an example of the work we're doing around conversion and monetization. We're experimenting with ways to help free users select the best. We will test different names, appearances, and packages to help users choose between our free, super, and macro.

Luis: But as we said before we can't accelerate user growth forever.

Luis: Q1, we expect to hear your growth to be closer to the mid <unk>, which is still impressive given how large our user base has become.

Luis: For the full year 2024, we expect strong topline performance from rapid user growth and continued improvements in free to paid conversion.

Luis: As an example of the work we're doing around conversion on monetization. This year, we're experimenting with ways to help for us to select the best description plan for them.

Luis: We will test different names appearances and packages to help users choose between our free Super and Max description tiers.

Luis Alfonso von Ahn Arellano: We're also putting more resources behind our family plan, which has higher retention and increases our platform. Today, our family plan has grown to about 18% of our subscriber base, and this year, we started a dedicated family plan team. University of Michigan.

Luis: We're also putting more resources behind our family plan.

Luis: Each has higher retention and increases our platform LTV.

Luis: Today, our family plan has grown to about 18% of our subscriber base and this year. We started a dedicated family plan team, we'll look to capitalize on its organic momentum.

Luis Alfonso von Ahn Arellano: We will also make additional strategic investments to drive long-term growth. We will continue developing advanced content for English learners, who make up the largest part of our address book. We will also continue to develop our math and music courses by expanding their content and making them even more fun, engaging, and effective for learners. Last year, we reached an incredible mom.

Luis: We will also make additional strategic investments to drive long term growth. We will continue developing advanced content for English learners, who make up the largest part of our addressable market.

Luis: We will also continue to develop our math and music courses by expanding the content on making them, even more fun engaging and effective for learners of all ages.

Luis: Last year, we reached an incredible milestone our.

Luis Alfonso von Ahn Arellano: Our learners completed their $100 billion. Perhaps even more impressive is that we have about 90% of the global online language market. [inaudible] I see so much more potential and opportunity. There are hundreds of millions of language, math, and music learners out there who have yet to sign up, and we're working on it. So while we're proud of how far we've come, I speak for everyone who works at Duolingo when I say we want to have more... University of Waterloo. We want to thank you. Thank you, and that's what you'll see from us in 2024 and beyond. With that, I'll turn it over to you. Thank you.

Luis: <unk> completed the $100 billion lesson.

Luis: What's even more impressive is that we have about 90% share of global online language learning meus.

Luis: And yet we still see so much more potential and opportunity ahead of US there are hundreds of millions of language map and music lenders out there who have yet to sign up for dueling and we're working on winning them over so.

Luis: So while we're proud of how far we've come I speak for everyone, who works at Duolingo, when I say, we want to have more impact and we want to move faster.

Luis: And Thats, what Youll see from us in 2024 and beyond as we continue to build a 100 year company. We're just getting started.

Luis: And with that I'll turn it over to Matt.

Matthew Skaruppa: Thanks, Luis. I'll provide some additional color on what drove our outperformance this quarter, and then I'll discuss our guidance for the year. As Luis shared, we had a fantastic year capped off with record bookings and profitability in Q4. We exceeded our bookings forecast in part because of the continued acceleration in user growth in the fourth quarter, because we saw strength in our family plan throughout the quarter, and because we saw better than expected performance in our New Year's promotion. Our continued strength in user and subscriber growth drove bookings and revenue growth of 51% and 45% year over year, respectively, or 49% and 43% on a constant currency basis. Now turning to 2024, as Luis said, we want to continue doing this year what worked so well in 2023.

Matt: Thanks Luis.

Matt: I'll provide some additional color on what drove our outperformance this quarter and then I'll discuss our guidance for the year.

Matt: As Louis shared we had a fantastic year capped off with record bookings and profitability in Q4, we exceeded our bookings forecast in part because of the continued acceleration in user growth in the fourth quarter, because we saw strength in our family plan throughout the quarter and because we saw better than expected performance in our nearest promotion.

Matt: Our continued strength in user and subscriber growth drove bookings and revenue growth of 51% and 45% year over year, respectively, or <unk> 49, and 43% on a constant currency basis.

Speaker Change: Now turning to 2024 as Louis said, we want to continue doing this year will work so well in 2023.

Matthew Skaruppa: And we have strong momentum, which is why we feel good about our 2024 bookings outlook, which has bookings growth of 28% year over year at the midpoint. This growth comes even as we lament the really extraordinary growth we had in 2023. To give a bit more detail on our outlook, we are guiding to a Q1 bookings growth of about 35% year-over-year. We expect our bookings growth rate to gradually step down throughout the year from Q1 to Q4.

Speaker Change: And we have strong momentum, which is why we feel good about our 2024 bookings outlook, which has bookings growth.

Speaker Change: 28% year over year at the midpoint.

Speaker Change: This growth comes even as we lap the really extraordinary growth we had in 2023.

Matt: To give a bit more detail on our outlook, we are guiding to a Q1 bookings growth of about 35% year over year.

Matt: We expect our bookings growth rate to gradually step down throughout the year from Q1 to Q4.

Matthew Skaruppa: And, as usual, we expect that Q4 will be our biggest quarter in terms of dollar bookings. More specifically, from Q1 to Q2, we expect bookings growth to step down by about five points as we lament our exceptional results from last year. At current prevailing exchange rates, we expect foreign currency to have no material impact on Q1 or on full year 2024 book use gross rate, and we'll continue to make progress towards our long-term profit target. We expect to add an additional 500 basis points of adjusted EBITDA margin this year to reach 22.5% at the midpoint.

Matt: And as usual, we expect that Q4 will be our biggest quarter in terms of dollar bookings.

Matt: More specifically from Q1 to Q2, we expect bookings growth to step down by about five points as we lap our exceptional results from last year.

Matt: Current prevailing exchange rates, we expect foreign currency to have no material impact on Q1 or on full year 2020 for bookings growth rates.

Matt: And we'll continue to make progress towards our long term profit target.

Matt: We expect to add an additional 500 basis points of adjusted EBITDA margin. This year to reach 22, 5% at the midpoint.

Matthew Skaruppa: Our adjusted EBITDA margin will vary a bit quarter-to-quarter given our bookings and hiring seasonality. Specifically, we expect adjusted EBITDA margin for Q2 to be lower than Q1, Q3 to be about the same as Q1, and Q4 to be the highest. For the full year, we are targeting an incremental margin at or slightly above our long-term adjusted EBITDA margin target of 35%. This year, we expect to achieve our adjusted EBITDA margin expansion by achieving operating leverage across all three cost categories of non-GAAP operators. As to those categories of spend, R&D will remain our largest category because we have several areas in which to invest this year, and because R&D is effectively a growth lever that drives word of mouth user acquisition for us.

Matt: Adjusted EBITDA margin will vary a bit quarter to quarter, given our bookings and hiring seasonality specifically, we expect adjusted EBITDA margin for Q2 to be lower than Q1 Q.

Matt: Q3 to be about the same as Q1 and Q4 to be the highest.

Matt: For the full year, we are targeting an incremental margin at or slightly above our long term adjusted EBITDA margin target of 35%.

Matt: This year, we expect to achieve our adjusted EBITDA margin expansion by getting operating leverage across all three cost categories of non-GAAP Opex.

Matt: As to those categories of spend R&D will remain our largest category because we have several areas in which to invest this year because R&D is effectively a gross loan growth lever that drives word of mouth user acquisition for us and it's how we make our app more fun engaging and effective over time.

Matthew Skaruppa: And that's how we make our app more fun, engaging, and effective over time. For sales and marketing, we plan to continue improving efficiency by being creative and scrappy, evidence of which you saw at the opening of this call with our five-second Super Bowl ad. We spent $700,000 on that in total and yet earned over 60 million social media impressions.

Matt: For sales and marketing we plan to continue improving efficiency by being creative and scrappy evidenced evidence of what you saw at the opening of this call with our five second Super Bowl AD.

Matt: We spent $700000 on that in total and yet earned over 60 million social media impressions.

Matthew Skaruppa: For GNA, we expect to continue to get operating leverage as we scale. As for how our operating leverage will spread throughout the year, sequentially, starting in Q1, we expect to see slight leverage in total non-gap OPEX as a percentage of revenue compared to Q4 2023. In Q2, we'll delever by a couple points, mostly in R&D, given the timing of our hiring and the seasonality of our bookings. And then we plan to see leverage again in both Q3 and Q4. Finally, we ended the year with approximately 49 million fully diluted shares outstanding, using the year-end closing price.

Matt: For G&A, we expect to continue to get operating leverage as we scale.

Matt: As to our operating leverage will spread throughout the year sequentially. Starting in Q1, we expect to see slight leverage in total non-GAAP opex as a percentage of revenue compared to Q4 2023.

Matt: In Q2, we will delever by a couple of points, mostly in R&D, given the timing of our hiring and the seasonality of our bookings.

Matt: And then we plan to see leverage again in both Q3 and before.

Matt: Finally, we ended the year with approximately 49 million fully diluted shares outstanding using the year end closing price and.

Luis Alfonso von Ahn Arellano: In 2024, we expect to end the year with about 1% net dilution from equity issued to employees, which is similar to the dilution we had in 2023. And with that, I'll turn it back to Luis. Thank you, Matt. I want to close by congratulating our marketing team and our design department for their ingenuity to cheekily insert us into the most watched program in the U.S. It has generated a lot of social buzz. And now, we would be happy to take your questions. Turn it back to Debbie.

Matt: 2024, we expect to end the year with about 1% net delusion from equity issued to employees, which is similar to the dilution we had in 2023.

Matt: So with that I'll turn it back to Luis.

Luis Alfonso von Ahn Arellano: Thank you Matt.

Luis Alfonso von Ahn Arellano: I want to close by congratulating, our marketing team and our defined department for them for their ingenuity to Cheekily can start ups into the most watched program in U S television history, with our Super Bowl AD, which generated a lot of social Buzz and brand love.

Luis Alfonso von Ahn Arellano: Now we would be happy to take your questions I will turn it back to Debbie to manage the queue.

Unknown Attendee: Okay, thanks, Luis. And as I mentioned earlier, if you have a question, just use the raise your hand feature. And the first question comes from Ralph Schackart of William: Good afternoon, Luis and Matt. How's it going?

Debbie: Okay. Thanks Louise.

Debbie: And as I mentioned earlier, if you have a question just use the raise hand feature.

Debbie: And the first question comes from Ralph Shakur of William Blair.

Ralph Edward Schackart: Good afternoon, Luis amount has gone just a couple of questions if I could.

Ralph Edward Schackart: Just a couple questions if I could. In the letter and on the call, you talked about the family tear. I think you have about 18% now, and you talked about having higher retention rates. Maybe if you could frame, you know, the retention here versus the rest of the business. And then more broadly, you know, how should we think about retention rates going forward versus how we trended in 2023? Then I have a follow-up question. Sure.

Ralph Edward Schackart: The letter and on the call you talked about the family Tara I think you had about 18% now and you talked about having higher retention rates, maybe if you can frame the retention here versus the rest of the business and then more broadly how should we think about retention rates going forward versus how we tried it in 2023.

Debbie: Sure.

Matthew Skaruppa: Yeah, happy to talk about the family plan retention rate. So Ralph, as you know, we manage the business to LTV. So that's why retention is important. The family plan does have a materially higher retention rate on an annual basis compared to the other plans.

Speaker Change: Yes happy to.

Debbie: Talk about the families and retention rates. So Ralph as you know we manage the business to Ltv's. That's why retention is important a family plan does have a materially higher retention rates on an annual basis compared to the other to the <unk>.

Matthew Skaruppa: And so, and it also has a higher price point. So it's just all around a higher LTV product. So as we shift more towards the family plan, we're just really trying to optimize the LTV of the platform over time, and we think there's a lot of opportunity to do that this year. Right, and then historically, I think you've talked about adjusting regional pricing, maybe sort of give us a reminder of your strategy for the rollout for the share, will be a phased approach will be sort of country by country, just any color you could add on that'd be great. Thank you.

Debbie: Your plan and so and it also has a higher price point. So it's just all around a higher LTV product. So as we shift more towards family plan. We're just really trying to optimize the LTV of the platform over time.

Debbie: And we think Theres a lot of opportunity to do that this year.

Speaker Change: Alright, and then historically I think you've talked about adjusting regional pricing, maybe sort of give US a reminder of your strategy for the rollout for the share you don't want be phased approach will be sort of country by country. Just any color you could add on that'd be great. Thank you yeah. Yeah. So again pricing is another lever that we use from time to time, we experiment with.

Matthew Skaruppa: Yeah, yeah. So again, pricing is another lever that we use from time to time and experiment with. This year, I think the pricing story will be less around regional pricing. So, if you remember, we rolled out a pretty broad, around the world, regional pricing change in 2022. We've basically lapped that through from a revenue perspective throughout the course of 2023. If we change prices this year, we will from time to time with experiments, but the bigger, overall price change for this year will be as we experiment with the three tiers. So we saw a lot of demand at higher prices for our max offering. And you know, we're going to experiment with that this year and see what happens. And that's where I would expect to see more impact on pricing throughout the year as we roll that out. Thank you. South.

Debbie: This year I think the pricing story will be less around regional pricing. So if you remember we rolled out a pretty broad based.

Debbie: Around the world.

Debbie: Regional pricing change in 2022.

Debbie: Basically lapped that.

Debbie: Yes.

Debbie: And a revenue perspective throughout the course of 2023.

Speaker Change: Well, if we change prices. This year, we will from time to time with experiments, but the bigger.

Debbie: Overall price change for the for this year will be as we experiment with the three tiers. So we saw a lot of demand at higher prices.

Debbie: For our Max offering.

Debbie: And we're going to experiment with that this year and see what happens and Thats, where I would expect to see more impact on pricing throughout the year as we rollout.

Speaker Change: Thank you.

Aaron Michael Kessler: And the next question comes from Aaron Kessler of Seaport Research. All right, thanks, guys. A couple questions. Maybe just first on in-app purchases, if you can give us your thoughts on growth there, how we should be thinking about that for 2024, as well as maybe some of the other revenue lines within that, including doing English tests and advertising, and then just anything, ways we should be thinking about paid subconversion as well for 2024. Sure, I'm happy to start, and Luis can jump in.

Speaker Change: And the next question.

Speaker Change: Question comes from Aaron Kessler of Seaport research Great. Thanks, guys. A couple of questions maybe just one.

Speaker Change: <unk>.

Aaron Kessler: In App purchases, if you could give us your thoughts on growth there, how we should be thinking about that for 2024 as well basically the other revenue lines within that including.

Debbie: During our English test in advertising and then just.

Aaron Kessler: Anything we should be the ways, we should be thinking about pace of conversion as well for 2024.

Speaker Change: Sure I'm happy to start and movies can jump in so yes.

Matthew Skaruppa: So, you know, again, Aaron, as you know, the biggest line item of our business is subscriptions; that's going to continue to be the focus both of revenue growth and bookings growth this year, but then also of resourcing. And so when we look at ads, you know, ads grew a lot slower than subscriptions in 2023. I expect that kind of ad growth delta to be relatively similar in 2024. But I don't see ads picking up speed compared to our subscription product. DET is still early in its journey, but it's seen enormous growth over the past several years. It's 30x.

Speaker Change: Again, Aaron as you know the biggest line item of our businesses subscriptions, that's going to continue to be the focus both of.

Debbie: Revenue growth bookings growth this year, but then also of Resourcing.

Debbie: And so when we look at ads ads grew a lot slower than subscriptions and.

Debbie: 2023, and I expect that kind of AD growth delta to be relatively similar in 2024, I don't I don't see.

Debbie: <unk> picking up.

Debbie: Speed compared to our subscription product.

Debbie: <unk> is still early in its journey, that's had enormous growth over the past several years <unk> 30 <unk>.

Matthew Skaruppa: It's a little bit harder to forecast, but it typically grows slower than our subscriptions as well. And then IAP is the last remaining piece. In 2023, it grew really impressively, and in 2024, I would expect it to grow nicely as well. But, you know, it grew so rapidly in 2023, by hundreds of percent. I don't think it can grow as fast as that. So I'd expect it to grow probably more in line with all the other revenue lines. Great

Debbie: A little bit harder to forecast, but it's typically grow slower than our subscriptions as well.

Debbie: And then IAP is the last remaining piece in 2023 it grew really impressively.

Debbie: And in 'twenty 'twenty, four I would expect it to grow nicely as well but.

Debbie: It grew so rapidly in 2020 really hundreds of percent I don't think it can grow as fast as that so I would expect it to grow probably more in line with all the other revenue lines.

Matthew Skaruppa: And just that paid subconversion, any good ways to think about that for 2024? Yeah, so the way we think about paid subconversion internally is on a cohort basis. And throughout 2023, essentially every cohort of new users had higher free to paid conversion. So we felt that that was evidence of really adding high-quality users to the platform. We don't see any reason that that's likely to change in 2024 as of now. What that means is that the aggregate level, on a, if you do the subs to last 12 months MAU ratio that we publish, I wouldn't expect that to move all that much this year, just given how rapidly our MAU base has skewed. Okay, the next question comes from Zach Morrissey of Wolfe. Great, thank you.

Speaker Change: Great and just a paid sub conversion any way good way to think about that for 2024.

Speaker Change: So.

Speaker Change: The way, we think about paid sub conversion internally is on a cohort basis and.

Speaker Change: Throughout 2023, essentially every cohort of.

Speaker Change: New users had higher free to paid conversion. So we felt that that was evidence of really adding high quality.

Speaker Change: Users to the platform.

Speaker Change: We don't see any reason that that's likely to change in 2024 as of now.

Speaker Change: What that means is that the aggregate level.

Speaker Change: On a if you do the subs to the last 12 months <unk> ratio that we publish I wouldn't expect that to move all that much. This year, just given how rapidly our mou basis scale.

Speaker Change: Great. Thank you.

Speaker Change: And your next question comes from Zach Morrissey.

Speaker Change: Wolf.

Zachary Tempe Morrissey: I guess first, just on the 2024 outlook on the user side of things, just, you know, only kind of expecting a slight deceleration. You know, historically, we've seen, you've called out kind of these one-off events like Barbie or House of Dragons, that's kind of been a nice tailwind for users. So just curious, kind of what you're seeing today, or kind of have line of sight to throughout the course of the year that kind of gives you comfort on, you know, user growth kind of sustaining these really strong growth rates going forward. Yeah, thanks for the question. So, you know, the majority of our growth comes from just making our product better, mainly word of mouth. And because of that, it's actually quite predictable.

Zachary Tempe Morrissey: Alright, thank you.

Zachary Tempe Morrissey: I guess first just on the portal for Alex on the user side of things just only kind of expecting a slight deceleration historically, we've seen what you've called out kind of these one off events like Barbie hasnt dragging its kind of been a nice tailwind for users. So just curious kind of what you're seeing today or kind of have line of sight to you throughout the course of the year that kind of gives you comfort on.

Zachary Tempe Morrissey: The user growth kind of sustaining these really strong growth rates going forward.

Speaker Change: Yeah. Thanks for the question so.

Alex: The majority of our growth comes from just making our product better I mean, it's mainly word of mouth and because of that it's actually quite predictable I mean, it's not perfectly Brexit what is quite predictable because we just know that our product just keeps getting better and better. So we expect that to be the case in this.

Luis Alfonso von Ahn Arellano: I mean, it's not perfectly predictable, but it's quite predictable because we just know that our product just keeps getting better. So we expect that to be the case throughout this process. I'm, you know, we're, of course, very proud of the fact that for 10 quarters in a row, we accelerate user growth. And, you know, that's what Unknown Attendee, Deborah Belevan, Matthew Skaruppa, Duolingo Unknown Attendee, Aaron Kessler, Nathaniel Schindler, Arvind Ramnani, Ryan MacDonald, have, So there's just a lot more room to grow and feel pretty.

Alex: Throughout this year.

Alex:

Alex: We're of course very proud of the fact that for 10 quarters in a row, we accelerated user growth.

Alex: And.

Alex: That's what's.

Alex: Kind of surprising, but we just we always kept on thinking well. Maybe this is we're going to kind of not accelerate user growth anymore.

Alex: But we did that for 10 quarters in a row and this time around we expect kind of mid <unk> going forward.

Alex: And.

Alex: Part of the thing that also helps us feel comfortable at this is we just have so much more of a tam.

Alex: Sure.

Luis Alfonso von Ahn Arellano: Great, thanks. And then just one on, you know, I think you're leaning into AI to kind of help generate content creation and personalization for some of these courses. Just curious for like a progress update there. And kind of, you know, I think there were press reports earlier this year in terms of that kind of helping also drive cost efficiencies in the business as well. Just curious how you're thinking about the kind of opportunities to see kind of further kind of leverage from AI there. Yeah, well, first of all, the press reports, you know, they're kind of a trigger point for me. The press reports that we did layoffs based on AI, but that is actually not what happened.

Alex: About 2 billion people in the World learning a foreign language.

Alex: We have close to but slightly under $100 million Miu. So there's just a lot more room to grow.

Alex: We feel pretty good about that.

Speaker Change: Great. Thanks, and then just one on.

Alex: I think you are leaning into AI to kind of help generate kind of concentration and personalization of some of these courses just curious for like a progress update there.

Alex: And kind of I think there were press reports earlier this year in terms of that kind of helping also.

Alex: Drive cost efficiencies in the business as well just curious how youre thinking about the opportunities to see kind of further kind of leverage from AI.

Alex: Yeah.

Alex: The press reports back that kind of a trigger point for me.

Speaker Change: <unk> reported that we did lay offs based on AI that is actually not what happened.

Luis Alfonso von Ahn Arellano: We, you know, we've always had a contractor force; these are some of you know, hourly workers doing some stuff like translation and stuff like that for some of our content. We did reduce our contractor force, but this was not like full-time employee layoffs or anything like that. And yeah, probably the biggest reason for the reduction in the contractor force was the use of AI.

Speaker Change: We've always had a contractor force, but these are some of you know hourly workers doing some stuff like translation and stuff like that for some of our content we.

Alex: We did reduce our contractor force, but this was not like fulltime employee layoffs or anything like that.

Alex: And probably the biggest reason for the reduction of contractor force, what's the use of AI I mean, we are wherever we can in the company.

Luis Alfonso von Ahn Arellano: I mean, wherever we can in the company, we, you know, if something can be done by AI, we're gonna, we're gonna take the opportunity. The places where we're using AI, there's kind of two big places. One is just in our content creation. And not only are we reducing costs there, but probably even more importantly, we're able to do things a lot faster. And what's good about that is it also allows us to experiment faster. See, it used to be the case, for example, we have this feature that we're, you know, rolling out that's called dual radio that requires the generation of a bunch of data. If somebody had asked me to do dual radio 5 years ago, I would have told them, you're crazy.

Alex: If something can be done by AI.

Alex: When I take the opportunity.

Alex: The places where we're using AI. It's got two Big places one is just in our content creation.

Alex: And we're just not only are we.

Alex: Reducing cost there, but probably even more importantly, we're able to do things a lot faster.

Alex: And what's good about that it also allows us to experiment faster so it used to be the case for.

Alex: For example, we have this feature that we're.

Alex: Rolling out Thats called dual radio that requires the generation of a bunch of data. If somebody had asked me to do dual radio five years ago I would've told them you are crazy, it's going to take US 10 years to generate that data.

Luis Alfonso von Ahn Arellano: It's going to take us 10 years to generate. Now we know that, you know, it'll take us a few months to generate that data. So now we're actually willing to create a feature based on it. So it's, you know, the fact that we've accelerated this just opens the doors to a lot of stuff. That's what I'm most excited about. That's one place for AI.

Alex: Now we know that it will take us a few months to generate that data. So now we are actually willing to create a feature based on it. So it's the fact that we've accelerated this just opens the door for a lot of stuff. That's what I'm. Most excited about at one place for you and the other places just generating features or putting out features that are.

Luis Alfonso von Ahn Arellano: And the other place is just generating features or, you know, putting out features that are interactive based on AI. So we have role play. We have explain my answer. We're starting to experiment with actually having a spoken conversation with one of our characters. And it's a really cool feature.

Alex: Interactive based on AI, So we have roleplay.

Alex: We have explained my answer we're starting to experiment with actually having a spoken conversation with one of our characters.

Alex: And it's a really cool feature so so that's the type of stuff that you'll see us do I mean, we're leaning very hard on this.

Andrew M. Boone: So that's the type of stuff that you'll see us do. I mean, we're leaning very hard on this. Great, thank you. Okay, the next question comes from Andrew Boone of JMP securities. Great, thanks so much for taking my questions. Um, I wanted to ask about top of funnel trends as it relates to the mid 50s percent growth guidance that you guys gave. understood last year had a bunch of moments in terms of Barbie and everything else, like the clip you guys showed at the beginning.

Alex: It's a great technology.

Speaker Change: Great. Thank you.

Speaker Change: Okay.

Speaker Change: And your next question comes from Andrew <unk> of JMP Securities.

Speaker Change: Okay.

Andrew: Great. Thanks, so much for taking my questions.

Andrew: I wanted to ask about top of funnel trends as it relates to the mid Fifty's percent growth guidance that you guys gave.

Andrew: Understood last year had a bunch of moments in terms of Barbie and everything else. The clip you guys said at the beginning.

Luis Alfonso von Ahn Arellano: Can you just talk about top of funnel and maybe download growth as it relates to 23 versus 22 and then extract white batches of 24? Whatever top of funnel metric you want, Matt. Yeah, I mean, you know, I could let Matt talk about some of the stuff.

Andrew: Can you just talk about top of funnel and maybe download growth as it relates to <unk> 23 versus <unk> 22, and then extrapolate that into 'twenty four.

Andrew: One of our top of funnel metric you want that.

Andrew: Yes.

Speaker Change: I can let Matt talk about some of the stuff, but we feel pretty good about top of funnel like I said, it's a vast majority of our growth comes from just word of mouth and these are.

Luis Alfonso von Ahn Arellano: But you know, we feel pretty good about top of funnel. Like I said, the vast majority of our growth comes from just word of mouth. And these are, you know, there's some nice events like the Barbie and stuff like that, and they're good. But still, it is the case that most of it just comes from people telling their friends or family members to download Duolingo. And that just remains pretty constant. So, you know, from what we see, it just looks very strong. I don't know, Matt, if you have anything else.

Matt: Some nice events like the Barbie and stuff like that.

Andrew: Good but still it is the case that most of it just comes from people telling their friends or family member to download dwelling one that just remains pretty constant.

Matt: So we see from what we see just looks very strong.

Andrew: I don't know, Matt if you have anything else to say no and I think thats right I think we're getting.

Matthew Skaruppa: No, I think that's right. I think we're getting, you know, we have visibility, obviously, into Q1. And that's the mid-50s.

Matt: We have visibility obviously into Q1 and thats, the mid fifties and being in the 50% to 60% range and seeing that go up or down.

Matthew Skaruppa: And being in the 50 to 60% range and seeing that go up or down. The point we are trying to make is just that it's not always going to accelerate from here in terms of the top of the funnel. I think I just want to remind everyone that there are brand new users on the platform, and then there are resurrected users, which we call folks who haven't been using the platform for the past 30 days but have come back, resurrected. Those are about an equal proportion on any given day.

Matt: The point, we're trying to make is just that it's not always going to accelerate from here in terms of top of funnel I think I'd just remind everyone that like there is brand new to the platform users and then theres resurrected users, which we call folks we call.

Matt: Folks who haven't been using the platform for the past 30 days, but come back.

Matt: Resurrected.

Matt: Those are about in equal proportions on any given day and so it's.

Matthew Skaruppa: And so it's word of mouth that Luis talked about, but then it's also just making sure that folks are reminded that they like Duolingo, and they'll come back even if they haven't been using it for a while. And that's a big part of this. So, like Luis said, we feel pretty good about it, and we don't see anything right now that says it's going to be all that different than what we're talking about.

Matt: It's word of mouth that Luis talked about but then its also just making sure of that.

Andrew: Folks are reminded that they like duolingo and they'll come back even if they haven't been using it for a while and that's a big portion of this so like Louis said like we feel pretty good about it.

Andrew: I don't I don't we don't see anything right now that says it's going to be all that different than than what we're talking about.

Andrew M. Boone: And then I wanted to ask about the tiers that you guys are testing. I understood that you guys are going to have, you know, a premium kind of standard and a free model. But what about the opportunity to just take prices within the US, right? I understood you guys were regionally. How do you guys think about pricing more broadly for the US where you guys are seeing that strong demand? Thanks.

Andrew: And then I wanted to ask about the tiers that you guys are testing.

Andrew: Understood that you guys are going to have.

Speaker Change: Our premium kind of standard free model, but what about the opportunity to just take price within the U S. Right I understood. You guys were regionally how do you guys think about pricing more broadly for kind of you ask where you guys are seeing that strong. Thanks, Nick yeah, generally with pricing I mean, we're going to experiment.

Luis Alfonso von Ahn Arellano: Yeah, generally with pricing, I mean, we're going to experiment. I mean, we're, we're, we're, we're pretty open to price experimentation. And we do that. And, you know, just to remind you, in terms of monetization, RR is an improvement. We just have a lot of levers where we can, and we try to order them by kind of return on investment. Pricing is one lever. We have the multi-tier strategy as another lever. We also have the family plan as another lever.

Nick: We're pretty open to price experimentation and we do that.

Andrew: To remind you in terms of.

Andrew: R.

Andrew: Our improvements in monetization, we just have a lot of levers, we can pull and we try to order them by kind of return on investment pricing is one lever we have the multi tier strategy is another lever we have the family plan is another lever we have all these and so the teams that are working on this have a long list of things on a quarter by return on investment pricing.

Luis Alfonso von Ahn Arellano: We have all these. And so the teams that are working on this have a long list of things, and it's ordered by return on investment pricing. You'll probably see us experiment pricing, not just in the U.S., but worldwide. And I just can't tell you what the results of those experiments are going to be because I just don't know myself.

Andrew: We will probably see us experiment pricing not just in the U S.

Andrew: Worldwide.

Andrew: I just can't tell you what the results of those experiments are going to be because I, just don't know myself, but youll see us experiment for sure.

Luis Alfonso von Ahn Arellano: But you'll see us experiment for sure. Thank you. [inaudible] Great, thank you. Luis, I know it's a bit early to talk about the results of having some of the English content, the advanced English content that you talked about in the shareholder letter, but there are 17 courses now with advanced English available. How do you plan to kind of grow the awareness of any formal marketing plans behind that and then think about broader monetization now that you have that in there? Excellent question, because it's something that we are, you know, really talking about. So just to just put things in context, um, if you look at the larger language learning market, like the market as a whole, Unknown Attendee. By far, the largest number of learners and also the largest amount of spend come from English.

Speaker Change: Thank you.

Speaker Change: Okay. Next question comes from Alex Sklar Raymond James.

Alexander James Sklar: Great. Thank you Luis I know, it's a bit early to talk about the results from having some of the English did.

Alexander James Sklar: The advanced English content that you had talked about in the shareholder letter, but 17 courses now with advanced English available how do you plan to kind of grow the awareness of the any formal marketing plans behind that and then think about broader monetization now that you have that in there.

Speaker Change: It's an excellent question because it's something that we are.

Speaker Change: We're really talking about so just to just to put things in context.

Speaker Change: If you look at the larger language learning market like the market as a whole.

Speaker Change: By far the largest number of learners and also the largest amount of spend comes from English learners, it's like 80% give or take.

Luis Alfonso von Ahn Arellano: It's like 80%. That is not quite true on our platform, so this is why we see this as a major problem. Now, the reason that hasn't been quite true on our platform is because... Our English courses have not been, you know, very advanced. We actually have a different English course based on your native language, so we have an English course for Spanish speakers, an English course for Chinese speakers, etc. And, you know, they go to varying degrees of proficiency. The first thing we needed to do if we really wanted to increase our business among English learners was to take all of these courses to a more advanced level, or at least have the content. I'm very happy to say that we have now put the content there. That's good. And we, in fact, see that the number of users, you know, this is one of the nicest graphs that we have in the company, is the number of users that are interacting with our advanced English learners. It's basically up to 100,000.

Speaker Change: That is not quite true in our platform. So this is why we see this as a major opportunity now the reason that hasnt been quite join our platform is because.

Speaker Change: Our English courses have not had.

Speaker Change: Very advanced content.

Speaker Change: We actually have a different English course based on your native language. So we have an English course for Spanish speakers and English course force Chinese speakers et cetera, and they went to varying degrees of proficiency. The first thing we needed to do if we really wanted to increase our business among English learners.

Speaker Change: All of these courses to a more advanced level at least have the content there.

Speaker Change: I'm very happy to say that we have now put the content. There that's good and we in fact fee that the number of users. This is one of the nicest graph that we have in the company is the number of users that are interacting with our advanced English learners basically up into the right.

Speaker Change: So we see that users are starting to interact with it.

Speaker Change: And we think there's a lot more room there.

Luis Alfonso von Ahn Arellano: So, it's a pretty good number. It's a good number, It's a good number. It's a good number, It's a good number.

Speaker Change: No.

Speaker Change: Adding the content with just the first step.

Speaker Change: In a multi step strategy because first you have to add the content. The second thing the second problem, we needed to solve and that is one we are currently solving it has not yet been installed.

Luis Alfonso von Ahn Arellano: So we see that users are starting to interact with it, and we think there's a lot more room there. Adding content was just the first step in a multi-step strategy, because first you have to add content. The second thing, the second problem we needed to solve, and that is one we are currently solving, it has not yet been solved. [inaudible] English learner Because English is such a cultural language for the world, people know this weird patchwork of knowledge where they, you know, most of them took some amount of English in like middle school or high school, but they watch some movies, but also they listen to some Taylor Swift songs, but also they, so they have, they just have this weird patchwork of knowledge, and we haven't done a great job when they come in at placing them in the right spot.

Speaker Change: English learners are a little different than learners of most other languages.

Speaker Change: For most of his language learning is a French learn from Spanish we have pretty good idea of what they know before they come to do willing when usually by the way they know very little and they just.

Speaker Change: A pretty good idea of what you know so it's relatively easy to place them in the course English learners.

Speaker Change: Because because English is such a cultural language for the world people know these weird patchwork of knowledge, where they most of them took some amount of English and like Middle School High school, but also they watch the movies, but also they've listened to some Taylor Swift songs, but also so they just have this weird patchwork of knowledge and we have not done.

Speaker Change: Great job when they come in and placing them at the right spot. So thats one thing that we're working on and when we're able to do that I think that we're going to be a much better product for people, who are coming to learn English because the vast majority of English learners have some prior proficiency and just kind of weird patchwork way. So that's step number two and that's what we're working on step number three is what you mentioned.

Luis Alfonso von Ahn Arellano: So that's one thing that we're working on, and when we're able to do that, I think that we're going to be a much better product for people who come in to learn English because the vast majority of English learners have some prior knowledge in this kind of weird patchwork way. So that's step number two, and that's what we're working on. Step number three is what you mentioned. We do have to get the word out that we're good for advanced English learners. That is not currently as well known as for either beginner English learners or other languages.

Speaker Change: We do have to get the word out that we're good for advanced English learners that is not currently as well known as you know for either beginner English learners for other languages. So we're probably going to you're probably going to do some amount of marketing for that and then of course, the last step is being able to capitalize on.

Luis Alfonso von Ahn Arellano: So you're probably going to see us do some amount of marketing for that. And then, of course, the last step is being able to capitalize in terms of getting people to subscribe. But we need to do the first few steps before we do that. So my sense is that it's going to be 2024 and 2025 where you see us kind of really grow this user base, and somewhere in 2025, we'll start really capitalizing on this. You know, you may see some amount this year, but my sense is more will come. That's a great context.

Speaker Change: In terms of getting them to subscribe.

Speaker Change: But we need to do the first the first few steps before we do that so so my sense is that it's going to be 2024, and 2025, where you see us kind of really grow this user base and somewhere in 2025, we will start really capitalizing on this.

Speaker Change: You may see some amount this year, but my sense is more will come in about a year.

Unknown Attendee: Just as a follow-up, Matt, just given what you've talked about tonight in terms of the family plan booking success, you're going to lean into that a little bit more, it sounds like in the coming year. With continued international growth, how should we think about the shape of the blended RPUM heading into 2024? Yeah, it's a great question. So I'll just give you my normal disclaimer, which is that we don't run the business on ARPU.

Speaker Change: That's great context.

Speaker Change: And the follow up Matt just given what you've talked about Tonight in terms of the family plan bookings success, you're going to lean into that a little bit more it sounds like in the coming year.

Speaker Change: <unk> International growth, how should we think about the shape of kind of the blended ARPA heading into 2024.

Matt: Yes, it's a it's a great question.

Matt: So I'll just give you my normal disclaimer, which is we don't run the business on <unk>, we run the business on platform LTV and experiments to drive bookings that said, our ARPA, obviously comes out of that and we pay attention to it.

Matthew Skaruppa: We run the business on platform LTV and experiments to drive bookings. That said, ARPU obviously comes out of that, and we pay attention to it. In 2023, the ARPU, because, as I mentioned, we were lapping the price change we did in 2022, ARPU for about every quarter went down between seven and eight percent, more or less in 2023, except for Q4, which went down by about four percent.

Matt: In 2023, the <unk> because as I mentioned, we are lapping the price change we did in 2022 <unk> about every quarter went down between 7% 8%.

Matt: Or a less in 2023.

Matt: Except for Q4, which went down by about 4%.

Matthew Skaruppa: And then we expect Q1 to be a little closer to zero, and then, you know, lap it throughout the rest of the year. So that's roughly our trend. But that will change depending on the experiments, right?

Speaker Change: And then we expect Q1 to be a little closer to zero and then lap it throughout the rest of the year. So roughly our trend now that will change depending on the experiments right. So if we.

Matthew Skaruppa: So if we have a successful set of experiments on a three-tier strategy, that could raise ARPU. Luis and I have already mentioned pricing experiments as well, so, but that's the current course and speed. Awesome. Thank you both.

Speaker Change: Have a successful set of experiments on a three tiered strategy that could raise our view.

Speaker Change: And I already mentioned pricing experiments as well, so but thats the current course and speed.

Speaker Change: Thank you Bob.

Bob: Thank you next question comes from Ryan Macdonald of Needham.

Ryan Michael MacDonald: All right, next question comes from Ryan MacDonald of Needham. Thanks for taking my questions and congrats on yet another great year. Luis, I'm curious, so you obviously launched math and music into the core app late in 23.

Ryan Michael MacDonald: You need them.

Ryan Michael MacDonald: Alright, thanks for taking my questions.

Ryan Michael MacDonald: That's on yet another great year.

Ryan Michael MacDonald: At least I'm curious so you, obviously launched math and music into the core App late in 'twenty three.

Luis Alfonso von Ahn Arellano: I'm curious, as you're sort of monitoring the progress there. I think learners have the capability to sort of complete their Duolingo each day, not just in language, but in math and music. And just curious what you're seeing in the early days of the progress there. And if we're getting to a stage yet, especially with math, where you can start to see enough usage where you kind of turn the screw on monetization there? Yes, a great question. So, to put things in context, we did add math and music as courses to the main language app, the Duolingo app, really, about a quarter.

Ryan Michael MacDonald: Curious as you're sort of monitoring the progress there I think learners have the capability to serve complete their their dual lingo each day, not just from language, but in math and music and just curious what youre seeing in sort of the early days.

Ryan Michael MacDonald: On the progress there.

Ryan Michael MacDonald: And if we're getting to a stage that especially with math, where you can start to then see enough usage, where you kind of turn the screw on monetization there.

Speaker Change: Yes, it's a great question, so yes to put things in context, we did we added math and music of courses into the main language app into our main Abdul and go out.

Speaker Change: Really about a quarter ago.

Luis Alfonso von Ahn Arellano: Um, uh, and what that means is that, as you said, basically all of our growth mechanics work for math and music, so you can complete your streak by doing math, with math users competing in the leaderboards, etc. And musically, so basically all the growth mechanics come for free by having added math and music to the main app. This is why we did that.

Ryan Michael MacDonald: And what that means is that it's just as you said basically all of our growth mechanics work for math on music. So you can complete your streak by doing our math lesson.

Ryan Michael MacDonald: With massive users compete in the leaderboards et cetera and musically.

Ryan Michael MacDonald: So basically all the growth mechanics come for free by having added met the music to the to the main App. This is why we did that were very happy with the results so far.

Luis Alfonso von Ahn Arellano: We're very happy with the results. They're obviously much smaller than our language courses because we're well known worldwide as a language learning app. We're not yet as well known as a math app or a music app. So they're much smaller than our language courses.

Ryan Michael MacDonald: They're obviously these courses obviously are much smaller than what language courses, because world, where well known worldwide.

Ryan Michael MacDonald: As a language learning App, we're not yet as well known as a map app or.

Ryan Michael MacDonald: Our music App. So they are much smaller than our language courses, but even even if.

Luis Alfonso von Ahn Arellano: But even if that's the case, and even if it's only been for like three months, our belief is that we're either already the largest or among the top largest in terms of DAUs of apps where you can learn math or music. So, that just shows you the power of our platform. Now, Even though that's true, these are so much smaller than language learning that for, you know, for my senses, for this whole year, you're probably not just going to see a lot of impact. I mean, these are growing quite a bit. It took us 12 years to get there for language learning.

Ryan Michael MacDonald: If that's the case then even if it's only been for like three months. Our belief is that we're either already the largest or among the top largest in terms of D. A use of apps, where you can learn math or music. So that's just just shows you the power of our.

Ryan Michael MacDonald: Our platform now.

Ryan Michael MacDonald: Even though that through.

Ryan Michael MacDonald: These are so much smaller than language learning about four.

Ryan Michael MacDonald: My sense is for this whole year, you're probably not just not going to see a lot of impact I mean, these are growing quite a bit it took us 12 years to get there for language learning. The hope is it won't take US 12 years to get there from Apple music, but it will probably take us a few years.

Luis Alfonso von Ahn Arellano: The hope is it won't take us 12 years to get there for math and music, but it'll probably take us a few years. I mean, these things are still in the oven, but the results that we have so far are very happy with, and they are much better than the results we had when we launched language learning.

Ryan Michael MacDonald: These things are still in the oven, but the results that we have so far we're very happy with them. They are much better than the results that we had.

Ryan Michael MacDonald: After we launched language learning so.

Luis Alfonso von Ahn Arellano: So, you know, if you rewind 10 years ago, and you look at language learning, these courses are just way ahead. So we're, we're very happy with that. But, but again, these things are still in. So cool.

Ryan Michael MacDonald: If you Rewind 10 years ago, and you look at language learning. These courses are just way ahead.

Ryan Michael MacDonald: We're very happy with that but again these things are still in the oven.

Luis Alfonso von Ahn Arellano: Maybe this one's a bit more qualitative, I guess. You know, obviously, you talked about the success you've had with sort of large viral moments or cultural moments over the past year. And maybe some of that came by chance, some of that being strategic. But are you taking any learnings from this in 23 and applying that in 24 to maybe be more proactive in how you're creating that marketing strategy around, you know, let's say you've got a large dune release coming up this weekend that seems to be highly anticipated to try to position yourself better for some of those moments moving forward? Yeah, I mean, it's an excellent question. I think, you know, it's true that some of these things we just can't control. I mean, there is just, it comes, it comes from us.

Ryan Michael MacDonald: So maybe this one is a bit more qualitative I guess, obviously you talked about the.

Ryan Michael MacDonald: The success, you've had with sort of.

Ryan Michael MacDonald: Large viral moments are cultural moments over the past year and maybe some of that came by chance some of that being strategic but im taking any learnings from that this in 'twenty three and applying that in the 24 to maybe be more proactive in how you're creating that marketing strategy around let's say you've got a large deal.

Ryan Michael MacDonald: <unk> released coming up this weekend that seem to be highly anticipated to try to position yourself better for some of those moments moving forward.

Speaker Change: Yeah, I mean, it's an excellent question I think.

Ryan Michael MacDonald: It is true that some of these things we just can't control.

Ryan Michael MacDonald: If it comes it comes from US we got a lot of you about where we are in a very nice position where.

Luis Alfonso von Ahn Arellano: We get a lot of inbound, we're, in a very nice position where, um, brands or movies or TV shows think of us, and they come to us. We can't control that much, but it's awesome that that happens. That said, our marketing has just gotten so good at knowing what, where to get involved, what to comment on that, you know, even though some of these things we can't control, many others we can. And many of the other things that may just seem like they were just out of the blue were things that were fully planned by our market. So we're just going to continue doing that. I mean, I've seen the plans. I don't want to spoil the surprises, but we have a robust plan for the rest of the year in terms of viral moments. But not all of them will work.

Ryan Michael MacDonald: Brands or movies or TV shows think of us and they come to us we can't control that much but it's awesome that that happens, but that said our marketing team has just gotten so good at knowing what the.

Ryan Michael MacDonald: Where to get involved what to comment on.

Ryan Michael MacDonald: Even though some of these things we can control many others. We can in many of the other things that may just seemed like they were just out of the blue were things that were fully planned by our marketing team and so we're just going to continue doing that I mean there.

Ryan Michael MacDonald: I mean I've seen the plans I don't want to spoil the surprise, but we have a robust plan for the rest of the year in terms of a viral a moment now.

Ryan Michael MacDonald: Not all of them will work.

Luis Alfonso von Ahn Arellano: You know, we'll try some stuff that will probably flop, but some of it will work, and we feel very good about that. So I think I've just gotten really good at being in the zeitgeist. So, yeah, I'm very. My meetings with our CMO are. I can only imagine.

Ryan Michael MacDonald: We'll try some stuff that will probably slop, but some of it will work and we feel very good about that so I think I think just the team has.

Ryan Michael MacDonald: Just gotten really good at being in the zeitgeist.

Ryan Michael MacDonald: And so I'm very happy with that.

Ryan Michael MacDonald: My meetings with our CMO are usually awesome because he always has really funny videos to show me off things that they are preparing.

Ryan Michael MacDonald: Well, congratulations again. Thanks for taking the question. Thanks Ryan. And the next question comes from Mark Mahaney of Evercore. I'll ask you two questions, please.

Ryan Michael MacDonald: I can only imagine well congrats again, thanks for taking my questions.

Speaker Change: Thank you thanks Ryan.

Ryan Michael MacDonald: And the next question comes from Mark Mahaney of Evercore.

Mark Stephen F. Mahaney: First, on the incremental margins that you're guiding to for this upcoming year, 35%. So those are very intrinsically robust; even without margins, they are lower than what you did in 2023. Is there anything to read into that?

Mark Stephen F. Mahaney: I'll ask two questions. Please first on the incremental margins that you're guiding to for this upcoming this year, 35%. So those are very intrinsically robust EBITDA margins. They are lower than what you did in 2023 is there anything to read into that is there any sort of structural change in the.

Matthew Skaruppa: Is there any sort of structural change in the business in terms of cost requirements of new growth areas or something like that? And then secondly, you've given interesting disclosures in the past on how growth in terms of bookings or revenue in your most mature markets, the US, compares with that on your global average. Any update you could provide there?

Ryan Michael MacDonald: In the business in terms of.

Ryan Michael MacDonald: Cost requirements of new growth areas or something like that and then secondly, you can.

Ryan Michael MacDonald: Interesting disclosures in the past on how growth in terms of bookings or revenue.

Ryan Michael MacDonald: Your most mature markets. The U S compares with that of your global average any update you can provide there obviously U S bookings growth with North American bookings growth compare with that business as a whole. Thank you very much.

Matthew Skaruppa: How does the US bookings growth and North American bookings growth compare with that of the business as a whole? Thank you very much. Yeah. Thanks, Mark. So the Incremental Adjusted EBITDA comment in the guide, you know, look, our belief is that we want to make every year progress towards our long-term margin. To do that, you have to be at or above your long-term margin in terms of incremental margin.

Speaker Change: Thanks Mark.

Speaker Change: The adjusted incremental adjusted EBITDA.

Debbie: Comment in the guide now look our Billy.

Debbie: Belief is that we want to make every year progress towards our long term margin to do that you have to be at or above your long term margin in terms of incremental margins and so.

Matthew Skaruppa: And so that's what we're doing this year. As we talked about on some calls last year, companies that we respect in our industry that go from being kind of not profitable to then, you know, materially profitable usually make a big jump in their first year where their incremental margins are a lot higher, and then that usually comes back down to their long-term margins.

Debbie: And that's what we're doing this year as we talked about on some calls last year companies that we respect and our industry.

Debbie: <unk> go from being kind of not profitable to then materially profitable usually make a big jump in their first year, where the incremental margins are a lot higher and then that usually it comes back down towards our long term margin. So I don't think were paving new ground. There I think that's normal course.

Matthew Skaruppa: I don't think we're paving new ground there. I think that's a normal course. In terms of why that is, though, I just want to remind you the reason is because we have a ton of runway ahead of us in our core markets, and we're adding math and music. And, you know, we're just excited about that investment in our R&D function. And so there's really nothing else to read into it, other than we're excited about the opportunity ahead of us, and we're going to continue to invest in kind of our core R&D and in business in that regard and still make progress, though, every, every year towards our long-term margin. And then can you remind me that the second question, oh, was the disclosure around geography.

Debbie: In terms of why that is though I just want to remind you like the reason is is because we have a ton of runway ahead of us in our core markets, and we're adding math and music and.

Debbie: We're just excited about the investment in our R&D function and so there's really nothing else to read into it other than we're excited about the opportunity ahead of us and we're going to continue to invest in kind of our core R&D and in.

Debbie: And business in that regard and still make progress, though every every year towards our long term margin.

Debbie: And then can you remind me the second question how was the disclosure around geography. So historically when we've talked about usually is.

Matthew Skaruppa: So historically, what we've talked about usually is DAU growth. And so what we're looking at is, when we grow so rapidly, is that what we call high quality and broad based, broad based, meaning, you know, countries that are big for us, like the US or some European countries, are those growth rates close to the average growth rate or not? And they can, they still are close. And then we look at the conversion from free to paid to see how high-quality those users are, and are those cohorts globally trending the right way over time? And they have.

Debbie: The <unk> growth and so we're looking at is when we grow so rapidly is that what we call consider high quality and broad based broad based meaning countries that are big for us like the U S or some European countries are those growth rates close to the average growth rate or not and they can they still are close.

Debbie: And then we look at the conversion from free to paid to see how high quality those uses are.

Debbie: Are those cohorts globally trending the right way over time, and they have been and so our growth in Q4.

Matthew Skaruppa: And so our growth in Q4 was still broad-based and high quality. And then, would you one last question, would you call out any interesting international markets the English language can have such a material impact on? Unknown Attendee, earnings generation for people in multiple countries outside of the U.S.

Debbie: We're still broad based and high quality.

Debbie: And then would you one last question would you call out any.

Debbie: Interesting international markets.

Debbie: English language sheets.

Debbie: Okay.

Debbie: Such a material impact on.

Debbie: It will cost.

Debbie: Earnings generation for people in multiple countries outside the U S not someone's here.

Matthew Skaruppa: I know some of us here need to improve our English, I know that myself. But are there particular international markets you'd want to call out as showing particularly interesting organic growth for Duolingo? Yeah, we bucket the world into kind of four big segments, and one of our segments is, you know, Southeast Asia and Japan, and then including China as well, and then Europe.

Debbie: I do.

Debbie: Are there particular international markets you'd want to call out is going particularly interesting organic growth for duolingo.

Debbie: Yes.

Debbie: We bucket.

Debbie: The world into kind of four big segments, and one of our segments is.

Debbie: Southeast Asia.

Debbie: And Japan, and then including China as well and then Europe. Both of those have shown really robust growth in Japan in particular is growing really nicely.

Matthew Skaruppa: Both of those have shown really robust growth. Japan, in particular, has grown really nicely. You know, we've seen a lot of countries in Europe grow nicely, so it's hard to single out one particular country just given how broad-based it's been, but those are a couple I'd say have grown really nicely over the past year.

Debbie: We've seen a lot of countries in Europe very nicely. So it's hard to single out one particular country just given how broad based it has been but those are a couple.

Debbie: They have grown really nicely.

Matthew Skaruppa: Thank you, Matt. Unknown Attendee. So our next question comes from Justin Patterson of KeyBank, who I understand is driving and not going to be on video. Be careful, Justin.

Debbie: Over the past year.

Speaker Change: Thank you Matt.

Speaker Change: Okay.

Speaker Change: From.

Speaker Change: Our next question comes from Justin Patterson of Keybanc, who I understand is driving and not going to be on video be careful investment.

Justin Tyler Patterson: Yeah, but thank you very much. And I'd also like to echo Luis's thanks to the marketing team for allowing me to cheekily insert myself into the call with this avatar while I was in transit, so thank you. You know, I try, Matt.

Justin Tyler Patterson: Yes, Thank you very much and I'd also like.

Justin Tyler Patterson: Echo Luis is thanks to the marketing team for allowing me to cheaply insert myself on the call with the sabotage.

Speaker Change: In transit.

Speaker Change: So thank you.

Justin Tyler Patterson: Yeah.

Justin Tyler Patterson: I try. So, just a big picture one for you and Luis. You've had the new user interface out for over a year now.

Justin Tyler Patterson: That's right.

Justin Tyler Patterson: A big picture one for you and Luis you have had the new user interface out for over a year now how much how much more the ceiling do you think you have to go here with the product and growth teams as you just look at the opportunity to improve kpis. It just feels like you have a much broader canvas the AB test against.

Justin Tyler Patterson: How much more the ceiling do you think you have to go here with the product and growth teams, as you just look at the opportunity to improve KPIs? It just feels like you have a much broader canvas to A-B test against. And you also have a much larger DAU base that's grown over the past year. Yeah, it's an excellent question.

Justin Tyler Patterson: You also have a much larger base, that's growing over the past year.

Speaker Change: Yes, it's an excellent question.

Luis Alfonso von Ahn Arellano: I mean, the teams that are dedicated to trying to figure out how to grow faster are just firing on all cylinders, and also, they, you know, what you'll see, you'll see us. We have a portfolio approach where you'll see us try a lot of these really small A-B tests that end up compounding a lot. So we're definitely going to do that. But we also see them try bigger things.

Speaker Change: Oh.

Luis Alfonso von Ahn Arellano: The teams that are dedicated to trying to figure out how to grow faster or just they're firing on all cylinders.

Speaker Change: They.

Speaker Change: What youll see Youll see us we have a portfolio approach, where you'll see us try a lot of kind of these really small AB test that ended up compounding a lot.

Speaker Change: So we're definitely going to do that but we also see us.

Luis Alfonso von Ahn Arellano: I mean, one of the things that we will probably see more of in the coming months or years is just our app becoming more and more. You will see that we are spending a lot of effort on that. You are also going to see us experimenting with placing people better. This is what I was talking about with the English learners. You're also going to see us experimenting with [inaudible] literally hundreds of A.B. tests. That pace has not decreased at all.

Speaker Change: Tried bigger things I mean, one of the things that you probably see more of in the coming months or years.

Speaker Change: Becoming more and more social.

Speaker Change: You'll see that we're spending effort on that.

Speaker Change: You're also going to see.

Speaker Change: US experimenting with placing people better and this is what I was talking about with the English learners.

Speaker Change: You're also going to see us experimenting with just teaching.

Speaker Change: Conversation a lot better.

Speaker Change: And so these are kind of the big things that we're doing but really there's a lot of stuff out there that they're working with.

Justin Tyler Patterson: Got it. Thank you. Okay, great. The next question comes from Chris Kuntarich of UBS. Great, thanks for taking the question. Can we just unpack some of the strengths?

Speaker Change: Literally hundreds of AB tests per month.

Speaker Change: Pace has not decreased at all since.

Speaker Change: Since the last few years.

Speaker Change: Fact that pace is increasing.

Speaker Change: Got it thank you.

Speaker Change: Okay, Great and next question comes from Chris <unk>.

Chris: <unk> of UBS.

Chris: Great. Thanks for taking the question can we just unpack some of the strength.

Christopher Louis Kuntarich: Yeah, just a little bit more color on the strength of the family plan that you saw in 4Q. And maybe can you just talk about how we should think about or what you all are seeing as far as family plan adoption from English learners versus non-English learners? Yeah, I'm happy to start, and then Luis, you can jump in on the last one. So when we talk about the strength of the family plan, what's been surprising is that we haven't actually had a ton of resources devoted to taking that product and adding and doing our normal A-B testing on that as a tier or as a subscription bucket. What we did was we released it, we were excited about it, and it's grown really naturally organically.

Chris: A little bit more color on the strength of the family plan that you saw in <unk> and maybe can you just talk about how we should think about or what you all are seeing as far as family plan adoption from English learners versus non English learners.

Speaker Change: Yes, I'm happy to start then Luis you can jump in on the last one so when we talk about the strength in the family plan.

Speaker Change: What's been surprising is that we haven't actually had a ton of resources devoted to.

Speaker Change: Taking that product and adding in doing our normal AB testing on that as a as a tier or as a subscription bucket.

Luis Alfonso von Ahn Arellano: What we did was we released it we were excited about it and it's grown really naturally organically.

Matthew Skaruppa: So when we talk about strengthening Q4, you know, it grew over 100% year-over-year. So there's just an enormous amount of organic demand for that product because it's a fun product. You want to do Duolingo with friends and family. You want to do math and music with friends and family. It's just kind of a natural fit.

Speaker Change: So when we talk about strength in the Q4, it grew over 100% year over year.

Speaker Change: So just an enormous amount of organic demand for that product because it's a fun product you want to do.

Speaker Change: Duolingo with friends and family you want to do math and music with friends and family is just kind of a natural fit.

Matthew Skaruppa: And that's why this year, you know, I can't lay out specific roadmaps other than what Luis has already talked about generally, making it more social, just making it a more engaging experience. But we're going to have more devoted resources to it this year, which gives us confidence that it could really, you know, grow nicely, even above and beyond kind of that organic demand that we're seeing in the platform. Yeah, I'm generally very excited by the roadmap. It'll just be a much better. I mean, right now, we just put a plan out there. And you know, there were all kinds of things.

Speaker Change: And that's why this year I can't lay out specific roadmaps other than what we started talked about generally like making it more social just making it a more engaging experience, but we're going to have more devoted resources to it this year, which gives us confidence that.

Speaker Change: And then it could really.

Speaker Change: Grow nicely, even above and beyond kind of that organic demand that we're seeing in the platform.

Speaker Change: Yes.

Speaker Change: Generally very excited by the by the roadmap of it'll just be a much better I mean right now we just put a plan out there.

Luis Alfonso von Ahn Arellano: For example, we just saw the really dumb bug that was you, you in the family plan, your children were there, but you actually couldn't see their names. Um, it's just that that was just dumb. Um, so we, you know, this is, we're just starting with that, but we are going to see us just making it a much more robust product. And, you asked about the difference between English learners or not in terms of adoption of the family plan. I don't think there's anything different in terms of the family plan versus the rest of our subscriptions. I mean, generally, we see higher penetration of subscription in wealthier families. Certainly, the U.S. has higher penetration, and usually English learners come from less wealthy countries, so there's probably a, you know, basically family plan is no different than the other.

Speaker Change: And they were all kinds of things for example, we just solve that really dumb bug that was you.

Speaker Change: In the family plan your children, where there we actually couldnt see their name.

Speaker Change: It's just that was a dumb.

Speaker Change: So this is we're just starting with that but we're going to see us just making it a much more robust product.

Speaker Change:

Speaker Change: And.

Speaker Change: You asked about the difference between.

Speaker Change: English learners or not in terms of adoption of a family plan I don't think theres anything different in terms of family plan versus the rest of our subscriptions I mean, generally we see higher penetration of subscription and wealthier countries certainly the U S S higher penetration and usually English learners come from less wealthy countries. So that's probably you know basically family plan is no different than the <unk>.

Speaker Change: Their subscriptions.

Christopher Louis Kuntarich: Got it. Very helpful. Maybe just one follow up. Any way to think about the kind of shape of marketing spend their sales and marketing expense throughout the year?

Speaker Change: Got it very helpful. Maybe just one follow up.

Speaker Change: Any way to think about.

Speaker Change: Kind of the shape of marketing spend sales and marketing expense throughout the year. Thanks.

Matthew Skaruppa: Unknown Attendee. Yeah, for sure. So I mean, in general, you should continue to expect two things from our Unknown Attendee. The first is that it should increase in absolute dollars, but it should grow obviously slower than bookings. And so historically, I don't think there's going to be anything from a seasonality perspective this year that would be all that different from last year. So you typically see us spend a bit more in the Q3 timeframe, for example. That's usually our summer campaign back to school area. But I think the seasonality of sales and marketing should grow, and should go roughly as it has in the past couple of years.

Speaker Change: Yeah for sure. So I mean in general you should continue to expect two things from our.

Speaker Change: Sales and marketing spend the first one is that it should increase on absolute dollars, but it should grow obviously slower than <unk>.

Speaker Change: Bookings and so historically I don't think theres going to be anything from a seasonality perspective. This year that would be all that different than last year. So you typically see us spend a bit more in like the Q3 timeframe for example.

Speaker Change: That's usually our summer campaign, Dr School area, but I think the seasonality for sales and marketing should grow should go roughly as it has in the past couple of years.

Unknown Attendee: Okay, thank you. And our next question comes from Curtis Nagle at B of A, who is also not able to be on camera. Do we lose Curtis? Okay, I don't see Curtis in the queue anymore.

Speaker Change: Okay. Thank you.

Speaker Change: And our next question comes from Curtis Nagle with Bofa, who is also not able to be on camera.

Curtis Smyser Nagle: Did we lose Curtis.

Speaker Change: Okay, I don't see Curtis in the queue anymore.

Unknown Attendee: So that looks like our last question. I think I'll turn it back to Luis to wrap up. Thank you, Debbie. And just thank you all for joining us. And we look forward to next quarter. Do your Duolingo lessons. We expect you to have a perfect streak next quarter.

Speaker Change: So that looks like our last question I think I'll turn it back to Luis to wrap up.

Luis Alfonso von Ahn Arellano: Well, thank you Debbie and just thank you all for joining us and we look forward to speaking to you next quarter. Please do your dwelling what lessons. We expect you to have a perfect streak next quarter.

Luis Alfonso von Ahn Arellano: Thanks everyone. See you guys later. Goodbye.

Luis Alfonso von Ahn Arellano: Have a great evening.

Speaker Change: Thanks, everyone, Hey, guys Goodbye.