Q2 2024 Duolingo Inc Earnings Call

Speaker Change: With Duolingo, with Duolingo, you can learn English during your commute. With Duolingo, with Duolingo, you can also learn Korean while waiting. You can learn 40 languages in your spare time. Duolingo, always free.

Debbie Belevan: Good evening, everyone, and welcome to Duolingo's second quarter 2024 earnings webcast. I'm Debbie Belevan, Head of Investor Relations. 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 have Luis Fanon, our co-founder and CEO, and Matt Skaruppa, our CFO.

Debbie Belevan: Good evening, everyone, and welcome to Duolingo's second quarter 2024 earnings webcast. I'm Debbie Belevan, Head of Investor Relations.

Speaker Change: Today, after market close, we released this quarter shareholder letter, a copy of which you can find on our IR website at investors.duolingo.com.

Debbie Belevan: They'll begin with some brief remarks before opening the call to questions. Analysts will be able to ask a question by using the raise their hand feature. And please note, this event is being recorded, and all attendees are in listen-only mode.

Speaker Change: On today's call, we have Luis Vaughnan, our co-founder and CEO , and Matt Skaruppa, our CFO . They'll 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.

Debbie Belevan: Just a reminder, 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 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. Additionally, we'll present both GAAP and non-GAAP financial measures on today's call.

Speaker Change: Just a reminder, 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.

Speaker Change: 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.

Debbie Belevan: 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.

Speaker Change: 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 performance.

Speaker Change: And with that, I will turn it over to Luis.

Luis Fanon: Thank you, Debbie, and welcome, everyone. I'm excited to report that we delivered another strong quarter, with daily active users growing 59% and revenue growing 41% year over year. We had a record adjusted EBITDA margin of 27%, and this marked our fifth consecutive quarter of being profitable. We also achieved two milestones, surpassing 100 million monthly active users and reaching 8 million paying subscribers. This is particularly impressive considering that only three years ago, at the time of our IPO, we had 38 million MAUs and just under 2 million subscribers.

Luis: Thank you, Debbie, and welcome, everyone. I'm excited to report that we delivered another strong quarter, with daily active users growing 59% and revenue growing 41% year-over-year.

Luis: We had a record adjusted EBITDA margin of 27%, and this marked our fifth consecutive quarter of being net income positive.

Luis: We also achieved two milestones.

Speaker Change: surpassing 100 million monthly active users and reaching 8 million paying subscribers.

Speaker Change: This is particularly impressive considering that only three years ago, at the time of our IPO, we had 38 million MAUs and just under 2 million subscribers.

Luis Fanon: Our top of funnel growth remains strong, driven both by new users and those returning to the app after having been away for over a month, and that's across both more and less penetrated markets. Our free, fun, and effective app gets better over time through continuous testing and iteration. And that's why in Q2, our DAU growth accelerated, and we reached a record high 33% DAU to MAU ratio.

Our top of funnel growth remains strong, driven both by new users and those returning to the app after having been away for over a month, and that's across both more and less penetrated markets.

Luis: Our free, fun, and effective app gets better over time through continuous testing and iteration. And that's why in Q2, our DAU growth accelerated and we reached a record high 33% DAU to MAU ratio.

Luis Fanon: And not only did our business perform well, but we're also making substantial progress on our long-term growth initiative. This year, our monetization priorities are optimizing both our family plan and our tiered subscription plans so that we can offer learners more choices at various price points and increase LTV. We continue to see excellent growth in our family plan.

Luis: And not only did our business perform well, but we're also making substantial progress on our long-term growth initiatives.

Luis: This year our monetization priorities are optimizing both our family plan and our tiered subscription plans so that we can offer learners more choices at various price points and increase LTV.

Luis Fanon: We've rolled out improvements to increase engagement between family members, and we're also helping existing individual subscribers discover and convert to the family plan more often. As a result of these efforts, the family plan now makes up about 20% of our subscribers. At the end of Q2, we began to see the impact of Duolingo Max, our highest priced tier with AI-enabled features. The rollout of MAX has progressed so that, as of now, it's available in five countries, in five courses in 27 countries, covering about 15% of our DAU. During Q3, you will see us expand the number of countries Max is available in, and by year-end, we expect it to be available in most countries on both Android and iOS.

Speaker Change: We continue to see excellent growth in our family plant.

Luis: We've rolled out improvements to increase engagement between family members, and we're also helping existing individual subscribers discover and convert to Family Plan more often. As a result of these efforts, the Family Plan now makes up about 20% of our subscribers.

Luis: At the end of Q2, we began to see the impact of Duolingo Max, our highest-priced tier with AI-enabled features.

Luis: The rollout of MAX has progressed so that as of now, it's available in five courses in 27 countries, covering about 15% of our DAUs.

Speaker Change: During Q3, you will see us expand the number of countries Max is available in, and by year-end, we expect it to be available in most countries on both Android and iOS.

Luis Fanon: This will set us up to see the impact of MaxMore fully in 2025. We will also be introducing new Mac features that we believe will resonate with learners. This includes AI-powered immersive conversational practice, one of the most requested features over the last 10 years. Join us at Duocon on September 24th for the unveiling of this new magical experience.

Speaker Change: this will set us up to see the impact of maximmore fully in two thousand and twenty-five

Speaker Change: We will also be introducing new Max features that we believe will resonate with learners. This includes AI-powered immersive conversational practice, one of the most requested features over the last 10 years.

Speaker Change: Join us at Duocon on September 24th for the unveiling of this new magical experience.

Luis Fanon: I want to conclude by talking about our initiative to better serve advanced English learners, which will allow us to more effectively reach the approximately 1.6 billion English learners who aren't on Duolingo today. We now have more advanced content in all 20 of our English courses, as well as a standalone English course for intermediate to advanced learners. We have exciting plans for the addition of dual radio and stories to the more advanced levels of these courses.

Speaker Change: I want to conclude by talking about our initiative to better serve advanced English learners, which will allow us to more effectively reach the approximately 1.6 billion English learners who aren't on Duolingo today.

Speaker Change: We now have more advanced content in all 20 of our English courses, as well as a standalone English course for intermediate to advanced learners.

Speaker Change: we have exciting plans for the additionalof dual radio on stories to the more advanced levels of these courses

Luis Fanon: We're also improving how we place learners with prior proficiency so that they feel adequately challenged but without hurting their engagement. As a reminder, our English Learners Initiative is a multi-year effort that we expect to monetize over the medium to long term. As you can see, we believe in investing in innovation to drive both current and long-term growth. We have very ambitious goals for our business and believe that Duolingo Max and our more advanced English content give us more options than ever before to achieve them. Of course, this path will not be linear, but we're excited by the huge growth opportunity we see ahead. And with that, I'll turn it over to Matt.

Speaker Change: We're also improving how we place learners with prior proficiency so that they feel adequately challenged but without hurting their engagement.

Speaker Change: As a reminder, our English Learners Initiative is a multi-year effort that we expect to monetize over the medium to long term.

Speaker Change: As you can see, we believe in investing in innovation to drive both current and long-term growth.

Speaker Change: We have very ambitious goals for our business and believe that Duolingo Max and our more advanced English content give us more options than ever before to achieve them. Of course, this path will not be linear, but we're excited by the huge growth opportunity we see ahead. And with that, I'll turn it over to Matt.

Matt Skaruppa: Thanks, Luis. I'll provide some additional color on our G2 results and then update our guidance for the remainder of the year. To emphasize what Luis said in his remarks, Q2 was a strong quarter for us. We re-accelerated DAU and MAU growth to 59% and 40%, respectively. We continued to see healthy top-of-funnel growth, and we saw particular strength in resurrected users, who are users who come back to the platform after more than 30 days away. Thanks to a seasonal feature we launched that focused on reminding them to do their lives.

Matt: thanks louice i'll provide some additional color on our qy two results and then update our guidance for the remainder of the year

Matt: To emphasize what Luis said in his remarks, Q2 is a strong quarter for us. We re-accelerated DAU and MAU growth to 59% and 40% respectively.

Matt Skaruppa: we continue to see healthy plofationalal growth and we saw particular strength and resurrected users who are users who come back to the platform after more than thirty days away

Speaker Change: thanks to a seasonal feature we launched that focused on reminding them to do their lessons

Matt Skaruppa: In Q2, bookings grew 38% year over year, revenue grew 41% year over year, and we posted our highest quarterly adjusted EBITDA and adjusted EBITDA margin. And, as Luis mentioned, this was our fifth consecutive quarter of being in net income. All around, it was a strong quarter.

Speaker Change: In Q2, booking grew 38% year-over-year, revenue grew 41% year-over-year, and we posted our highest quarterly adjusted EBITDA and adjusted EBITDA margin.

Speaker Change: And as Luis mentioned, this is our fifth consecutive quarter being net income positive.

Matt Skaruppa: Going forward into the second half of the year, we feel good about the business, even as we lament the incredible strength we saw in the back half of last year. For the full year, we are raising our guidance so that, at the midpoint, we are guiding to year-over-year bookings and revenue growth of about 32.5% and 38.5%, respectively. Our guidance implies a year-over-year growth rate for the second half of the year of about 27 percent.

Luis: all around it was a strong quarter

Luis Vaughnan: Going forward into the second half of the year, we feel good about the business even as we lap the incredible strength we saw in the back half of last year.

Speaker Change: For the full year, we are raising our guidance so that at the midpoint, we are guiding to year-over-year bookings and revenue growth of about 32.5% and 38.5% respectively.

Speaker Change: Our guidance implies a year-over-year growth rate for the second half of the year of about 27 percent.

Matt Skaruppa: Note that if FX rates were constant year over year, our Q3 bookings growth rate would be about two points higher, and our full year bookings growth rate would be about one. To put our top line growth into context, we grew bookings at about 40% year over year in the first half of this year, which is roughly the same rate as we grew bookings in the first half of 2023. In the second half of 2023, though, our year-over-year bookings growth accelerated materially, up to about 50%. A meaningful part of that acceleration came from an extraordinary set of tailwinds.

Speaker Change: Note that if FX rates were constant year over year, our Q3 bookings growth rate would be about 2 points higher, and our full year bookings growth rate would be about 1 point higher.

Speaker Change: To put our top line growth into context, we grew bookings at about 40% year-over-year in the first half of this year, which is roughly the same rate as we grew bookings in the first half of 2023.

Speaker Change: In the second half of 2023, though, our year-over-year bookings growth accelerated materially up to about 50 percent.

Matt Skaruppa: Our signature ding was featured in the Barbie movie, providing an incredible brand boost, and in many ways, that was indicative of our commanding presence in the zeitgeist last year. It also helped our summer marketing campaign deliver a home run user group. That user group was coupled with some one-time improvements in monetization, especially in Q3, and more favorable exchange rates than today. This year, we feel good about our user growth and monetization, but we don't expect to see the same one-off acceleration tailwind.

Speaker Change: A meaningful part of that acceleration came from an extraordinary set of tailwinds. Our signature ding was featured in the Barbie movie, providing an incredible brand boost, and in many ways that was indicative of our commanding presence in the zeitgeist last year.

Speaker Change: It also helped our summer marketing campaign deliver home-run user growth. That user growth was coupled with some one-time improvements in monetization, especially in Q3, and more favorable exchange rates than today.

Speaker Change: This year we feel good about our user growth and monetization, but we don't expect to see the same one-off accelerating tailwinds. Lapping last year's extraordinary growth is why we expect DAU growth to decelerate to about 50% in the second half, and why we expect bookings and revenue to decelerate as well.

Matt Skaruppa: Lapping last year's extraordinary growth is why we expect DAU growth to decelerate to about 50% in the second half and why we expect bookings and revenue to decelerate as well. Moving down the income statement, we expect gross margin to go down slightly in the back half of the year as our amortization and AI costs increase with the rollout of MAX. We continue to feel confident about our ability to drive increasing profitability and are raising our 2024 adjusted EBITDA margin guidance to 24.5% at the midpoint, which is a full seven points higher than 2023 and is an incremental margin of 42%.

Speaker Change: Moving down the income statement, we expect gross margin will go down slightly in the back half of the year as our amortization and AI costs increase with the rollout of MAX.

Speaker Change: We continue to feel confident about our ability to drive increasing profitability and are raising our 2024 adjusted EBITDA margin guidance to 24.5% at the midpoint, which is a full 7 points higher than 2023 and is an incremental margin of 42%.

Matt Skaruppa: For Q3, our Adjusted EBITDA guide is about $41 million, or roughly 80% higher than the same quarter last year. As a reminder, our profitability typically varies a bit from quarter to quarter throughout the year. For Q3, we expect to see about five points of quarterly over quarter deleverage in the margin and are guiding to 22.0% at the midpoint. This is mainly driven by increased hiring and R&D as we add a significant portion of our new engineering product and design hires in Q3.

Speaker Change: For Q3, our adjusted EBITDA guide is about $41 million, or roughly 80% higher than the same quarter last year.

Speaker Change: As a reminder, our profitability typically varies a bit from quarter to quarter throughout the year.

Speaker Change: for q three we expect to see about five points of quarter over a quarter de leverage in the margin and our guiding to twenty-two point zero percent at the midpoint this is mainly driven by increased hiring in rnd as we add a significant portion of our new engineering product and design hires in q three

Matt Skaruppa: We'll also see seasonally higher sales and marketing expenses this quarter, although GNA should remain relatively flat as a percentage of revenue. For Q4, we expect to see slight leverage across all OPEX categories, resulting in about one point of quarterly over quarterly margin expansion compared to Q3. Note that overall, we shifted about $3 million of expense from Q2 into the second half of the year. Finally, we ended the quarter with approximately 49.4 million fully diluted shares outstanding, using the quarter end closing price.

Speaker Change: We'll also see seasonally higher sales and marketing spent this quarter.

Speaker Change: GNA should remain relatively flat as a percentage of revenue.

Speaker Change: For Q4, we expect to see slight leverage across all OPEX categories, resulting in about one point of quarter-over-quarter margin expansion compared to Q3. Note that overall, we shifted about $3 million of expense from Q2 into the second half of the year.

Matt Skaruppa: And in 2024, we expect to end the year with about 1 to 1.5% net dilution from equity issued to employees, which is similar to the dilution we had last year. And with that, I'll turn it back to Luis.

Speaker Change: Finally, we ended the quarter with approximately 49.4 million fully diluted shares outstanding using the quarter-end closing price, and in 2024, we expect to end the year with about 1 to 1.5% net dilution from equity issued to employees, which is similar to the dilution we had last year.

Luis Fanon: Thank you, Matt. As you can tell, I'm excited about the road ahead and confident in our ability to achieve our long-term goals. Now, we would be happy to take your questions. I'll turn it back to Debbie to manage the queue.

Speaker Change: And with that, I'll turn it back to Luis.

Luis Vaughnan: thank you matti you can tell i'm excitedabout the road ahead and confident in our ability to achieve our long-term goals and now we would be happy to take your questions i'll turn it back to devie to manage the q

Debbie Belevan: Okay, thanks, Luis. And as I mentioned earlier, if you have a question, just use the raise your hand feature. And our first question comes from Andrew Boone at JMP Securities.

Devie: Okay, thanks Luis. And as I mentioned earlier, if you have a question just use the raise hand feature. And our first question comes from Andrew Boone at JMP Securities.

Andrew Boone: Thanks so much for taking my questions. Luis, you just defined the top of the funnel as being healthy for new and returning users. Some third-party data sources suggest that downloads have slowed. Maybe this is exactly what the competition that Matt's talking about, but is there anything you guys can help us understand as we think about new user growth and the opportunity to bring more users into the Duolingo ecosystem?

Andrew Boone: Thanks so much for taking my questions.

Speaker Change: Luis, you just defined the top of funnel as being healthy for new and returning users.

Andrew Boone: Some third-party data sources suggest that downloads have slowed. Maybe this is exactly what the comp that Matt's talking about, but is there anything you guys can help us understand as we think about new user growth and the opportunity to bring more users into the Duolingo ecosystem?

Luis Fanon: Yeah, thanks for the question, Andrew. So, first of all, we don't comment on third-party data. If you want to watch it or see it, you do it.

Speaker Change: Yeah, thanks for the question, Andrew. So, first of all, we don't comment on third-party data. If you want to watch it or see it, you do you.

Luis Fanon: But, you know, in general, what we'd like to say is that we have users in every single country in the world. Some countries are more mature than others because we've been there for much longer. So the way we think about it internally is more top of the funnel, which is brand new users, which are usually downloads, and they're brand new users. But we also look at returning users, people who haven't been around the app for a while, typically longer than 30 days.

Speaker Change: but in in general what what we'd like to say we have we have us in every single in the world

Speaker Change: some countries are more mature than others because we've been in there for much longer

Speaker Change: So, the way we think about it internally is more top of funnel, which is brand new users, which are usually downloads, and they're brand new users, but we also look at returning users, people who haven't been around the app for a while, typically longer than 30 days. In countries that are more...

Luis Fanon: In countries that are more penetrated, more mature, the number of people that are coming back after a long period of inactivity is much higher than the number of brand, brand new users, just because, you know, we've touched a good fraction of the country. So generally, this is what we're looking at, and we feel pretty good about top of funnel because of that. Just people, you know, it's very rare to see people completely stop using Duolingo. What they do is they stop, and then they come back six months later, or they come back a year later. And so that, you know, the top of the funnel feels pretty good.

Speaker Change: penetrated more mature the number of people that are coming back after a long period of inactivity is much higher than the brand brand new users just because you know we've touched that a good fraction of the country

Speaker Change: So generally, this is what we're looking at. And we feel pretty good about Top of Funnel because of that, that just people, you know, it's very rare to see people.

Speaker Change: completely stop using Duolingo. What they do is they stop and then they come back six months later or they come back a year later and so that, you know, top of funnel feels pretty good.

Andrew Boone: To follow up on that question, is there a way to think about cumulative users for Duolingo? Right? If we think about the 2 billion people that are actively learning the language, how do we think about the number of learners that you guys have touched through that opportunity? Thanks a lot.

Speaker Change: To follow up on that question, is there a way to think about cumulative users for Duolingo, right? If we think about the 2 billion people that are actively learning the language, how do we think about the number of learners that you guys have touched within that opportunity?

Luis Fanon: Thanks much. It's a good question. That's not something we really track. So I, you know, I don't really know it off the top of my head. Yeah, it's not something we really track.

Luis Fanon: It's a good question, but that's not something we really track.

Speaker Change: Thanks much. It's a good question. That's not something we really tracked. So I, you know, I don't really know it off the top of my head. Yeah, it's not something we really tracked.

Debbie Belevan: Okay. Thanks, Andrew. And the next question comes from Bryan Smilek of J.P. Morgan.

Speaker Change: okay thanks andrew and the next question comes from brian smmk of jp morgan

Bryan Smilek: Great. Thanks for taking the questions. So results were quite strong across DAU growth acceleration, engagement at record highs, and social media impressions almost doubling year on year. So can you just talk about the health of the product refresh cycle for the back half and just overall social media strategies as you compare stuff like Barbie from last year? Yeah.

Speaker Change: they thanks for taking the questions so those were quite strong across gay you growth acceleration engagagement i record highe and social median presence almost doubling year on year so can you just talk about the health of the product no refresh cycle into the back half and just overall social media strategies as you stff like barbie from last year

Luis Fanon: Yeah, I mean, product-wise, we're very excited about a lot of the stuff that we're about to either already testing or putting out. There are a lot of new social features. I mean, we talked about in our shareholder letter the friend streak, which is basically a streak that you keep with your friends. So, our regular streak is just a streak with Duolingo. Now, you and a friend, it's up to five friends, but you and a friend can have a streak, and you both have to use the app every day. And if one of you doesn't do it, you lose your friend streak.

Speaker Change: Yeah, I mean product-wise we're very excited about a lot of the stuff that we're that we're about to either already testing or putting out There's a lot of new social features. I mean we talked about in our shareholder letter. We talked about the friend streak

Speaker Change: which is basically a streak that you keep with your friends. So our regular streak is just a streak with Duolingo. Now, you and a friend, it's up to five friends, but you and a friend can have a streak and you both have to use the app every day. And if one of you doesn't.

Bryan Smilek: So, it gives you a really good incentive to not disappoint your friends. So, that's an example of a feature. But there are a lot of great social features that are coming out. We have a lot of monetization features, too. We're also expanding a lot our teaching features. So, I feel pretty good about that. And because of that, we expect growth to continue being strong. As Matt said, we are lapping a very strong year.

Speaker Change: Do it. You lose your friend streak. So it gives you a really good incentive to not disappoint your friends.

Speaker Change: And so that's an example of a feature, but there's a lot of...

Speaker Change: We have a lot of great social features that are coming out. We have a lot of monetization features. We're also expanding a lot our teaching features. So I feel pretty good about that. And because of that, we expect the growth to continue being strong. As Matt said, we are lapping a very strong year.

Bryan Smilek: So, we're expecting that for a while, our user growth is going to be about 50%. And that's kind of what we're looking at. Now, in terms of social media impressions, we measure our social media impressions in billions. And this, by the way, to remind you, this is organic. We're not paying for these impressions. So, we're getting billions of social impressions, and we expect that to continue

Speaker Change: So, you know, we're expecting that for a while, our user growth is going to be about 50%, and that's kind of what we're looking at. Now, in terms of social media impressions, you know, we measure our social media impressions in billions. And this, by the way, to remind you, this is organic. We're not paying for these impressions.

Speaker Change: So we're getting billions of social impressions and we expect that to continue.

Luis Fanon: And then I guess, just to follow up on Max, which is available to 15% of DAUs right now, could you just share some signals around monetization? You know, when should we expect Max to show up in the P&L, understanding it's a multi-year endeavor? Is there anything that could curb the pace of rollout as we enter the back half?

Speaker Change: Awesome. And then I guess just to follow up on Max, you know, available to 15% of DAUs right now, could you just share some signals around monetization? You know, when should we expect Max to show up in the P&L, understanding it's a multi-year endeavor? Is there anything that could curb the pace of rollout as we enter the back half?

Luis Fanon: Yeah, so, as you said, we've rolled out MAX. It's now in 27 countries, five courses, and that's available. That's about 15% of our DAUs.

Speaker Change: Yeah, so, as you said, you know, we've rolled out MAX. It's now in 27 countries, 5 courses, and that's available, that's about 15% of our DAUs.

Luis Fanon: Our expectation is that we're going to continue rolling it out over the rest of the year, and by the end of the year, more than the majority of our users will have access to it. And the reason for that is that we feel good about it.

Speaker Change: Our expectation is that we're going to continue rolling it out over, you know, through the rest of the year. And by the end of the year, more than, you know, the majority of our users will have access to it at least.

Luis Fanon: We're giving it to more and more users because we feel good about it. We're also not only rolling it out, but we're going to be adding new features to it. The one that I'm most excited about is actual conversation practice with one of our characters, Lily. If you don't know which one that is, that's the purple-haired girl that is not impressed at all by anything you do.

Speaker Change: And the reason for that is because we feel good about it. We're giving it to more and more users because we feel good about it. We're also not only rolling it out, we're going to be adding new features to it. The one that I'm most excited about is actual conversational practice with one of our characters, Lily. If you don't know which one that is, that's the purple-haired girl that is...

Luis Fanon: So you're going to be able to talk to her, and it's a really awesome experience. So our sense is that, you know, our users are going to love it. Of course, it's hard to know exactly without a feature that we haven't really put out yet, but we're very excited about it. And to reiterate what you said also, we are still iterating on Super Duolingo, which is something that we put out probably seven years ago. So we're going to be iterating on Macs for many years. It's just that by the end of the year, they'll be at least mostly rolled out.

Speaker Change: We are very excited about it, and to reiterate what you said also, it's a really great experience. It's hard to know exactly without a feature that we haven't really put out, but we're very excited about it. And to reiterate what you said also, it's a really great experience.

Speaker Change: You know, we are still iterating on Super Duolingo, which is something that we put out probably seven years ago. So we're going to be iterating on Macs for many years. It's just by the end of the year, it'll be at least mostly rolled out.

Bryan Smilek: Awesome. Thank you for the color.

Debbie Belevan: Thanks, Brian. The next question comes from Ralph Schackart at William Blair.

Speaker Change: Awesome, thank you for the color.

Speaker Change: Thanks Bryan. Next question comes from Ralph Schackart at William Blair.

Ralph Schackart: Good afternoon. Thanks for taking the time to answer the question. Luis, just curious about the Max product, you know, as you think about that opportunity there as sort of an innovation platform, is that sort of an opportunity for you to develop and test new products and, eventually, sort of, I guess, see if those could roll out to some of the lower tiers over time? So the first question. The second question: I know you get this question from time to time, so I guess I'll ask it.

Ralph Schackart: Good afternoon. Thanks for taking the question.

Ralph Schackart: Luis, just curious on the Max product, you know, as you think about that opportunity there as sort of an innovation platform, is that sort of an opportunity for you to develop and test new products and eventually sort of, I guess, see if those could roll out to some of the lower tiers over time? So the first question.

Ralph Schackart: But often you're asked, you know, what percent of your paying subs do you see as sort of an opportunity? I think maybe the last time you were asked that, maybe I'm wrong, was pre-Max or maybe before Max was scaled. But now that you have Max sort of in the fold, just kind of curious if you sort of give us an update on that as well. Thank you.

Speaker Change: The second question, I know you get this question from time to time, so I guess I'll ask it. But often you're asked, you know, what percent of your paying subs do you see as sort of an opportunity? I think maybe last time you were asked that, maybe I'm wrong, is pre-max or maybe before max was scaled. But now that you have max sort of in the fold, just kind of curious if you sort of give us an update on that as well. Thank you.

Luis Fanon: Okay, so, you know, your first question is about if MAX is a testing ground for features that maybe we can then put in different tiers. That's for sure true.

Speaker Change: Okay, so, you know, your first question is about if Max is a testing ground for features that maybe we can then put in different tiers. That's for sure true. You know, basically, the way we're seeing it is.

Luis Fanon: You know, basically, the way we're seeing it is that we are committed to the three-tier strategy. We have free, we have super, and we have MAX. And we're going to see where the features belong. Right now, a lot of the AI-based features are in MAX because it costs us money to serve those, so they're in the highest tier. Over time, we expect that the price of some of those AI features will come down, at least for the cost of them for us. Because, you know, we're expecting that the price of LLMs is going down.

Speaker Change: We are committed to the three-tier strategy. We have free. We have super.

Speaker Change: and we're gonna see where the features belong. Right now, a lot of the AI-based features are in Macs.

Speaker Change: Because it costs us money to serve those, so they're in the highest tier. Over time, we expect that the price of some of those AI features will come down, at least for the cost of them for us will come down, because we're expecting that the cost of LLMs is going down. At that time, we may make a decision that some of those features belong in Super or even the free tier.

Luis Fanon: At that time, we may make a decision that some of those features belong in the super or even the free tier. But it's hard to say exactly what will happen. My sense is that, over time, what's going to be happening is that the heaviest features on AI, the ones that use the most calls to a large language model, will probably remain in MAX. And then anything that we can either cache or just doesn't require that many calls, we'll put in lower tiers. That's probably what's going to happen.

Speaker Change: My sense is that if you look at it over time, what's going to be happening is that the heaviest features on AI, the ones that use most calls to a large language model, will probably remain in Macs.

Speaker Change: And then anything that we can either cache or just doesn't require that many calls, we'll put in lower tiers.

Ralph Schackart: In terms of penetration, I think your question is just how high can penetration get either for MAX or for paying subscribers, you know, either for MAX or any paying subscriber, like either super or MAX. We don't know. I mean, we, in terms of penetration, you know, we're overall paying subscribers, we're, you know, the latest number, we're, you know, above 8%. We seem to be increasing about one percentage point every year. That's what happened historically.

Speaker Change: That's probably what's going to happen. Now, in terms of penetration, I think your question is just how high can penetration get, either for max or for paying?

Speaker Change: You know, either for Max or kind of any paying subscriber, like either Super or Max.

Speaker Change: We don't know. I mean, we, in terms of penetration, you know, we're...

Speaker Change: Overall paying subscribers were, you know, the latest number were, you know, above 8%. We seem to be increasing about one percentage point every year. That's what's happened historically.

Ralph Schackart: We expect that to continue happening, but I don't know the exact numbers. I mean, and it's not clear to us where it'll end. I mean, I think it'll be higher than what it is now. But, you know, I don't know if some people will ask, is it 15%, is it 30%? We just don't know.

Speaker Change: We expect that to continue happening, but I don't know the exact numbers, and it's not clear to us where it'll end. I mean, I think it'll be higher than what it is now, but, you know, I don't know. Some people ask, is it 15 percent? Is it 30 percent? We just don't know. Okay, great. Thanks, Luis.

Debbie Belevan: Okay, next up, we have Kurt Nagel from B of A.

Curtis Nagle: Great, thanks for taking the question. Yeah, first maybe on the family plan, right, progressing nicely up a bit since I think last time we spoke. You have a number of initiatives, you know, in the works to increase adoption. I guess just how comprehensive are they now in terms of the actual product and, you know, where do you think we could see rates of total subs go by year?

Speaker Change: Okay, next up we have Kurt Nagel from BofA.

Kurt Nagel: Great, thanks for taking the question.

Kurt Nagel: Yeah, first maybe on the family plan, right, progressing nicely, um, up a bit since I think last time we spoke.

Kurt Nagel: You have a number of initiatives in the works to increase adoption. I guess just, you know, how fulsome are they now in terms of, you know, in the actual product and where do you think we could see rates of total subs go by year end?

Luis Fanon: Yeah, we're just going to remind people of Family Plan. So Family Plan was something that we built a few years ago and didn't touch it. We just built it, left it there, and it grew by itself, which was awesome. Once we realized it was growing so much by itself, we put a team behind it. That team hasn't been there for that long. It's been a few months.

Speaker Change: Yeah, um...

Speaker Change: Just to remind people of Family Plan, so the Family Plan was something that we built a few years ago and didn't touch. We just built it, left it there, and it grew by itself, which was awesome. Once we realized it was growing so much by itself, we put a team behind it. That team has been there not that long. It's a few months, so they're kind of really getting their stride. But already, they've made a number of changes, and we've started seeing more and more penetration of the Family Plan. At this point, about 20% of our paying subscribers are paying for the Family Plan.

Luis Fanon: So they're kind of really getting their stride. But already, they've made a number of changes, and we've started seeing more and more penetration of the Family Plan. At this point, about 20% of our paying subscribers are paying for the Family Plan, and we expect that number to continue growing. Some people are going to ask us a similar question to the previous question, which is, "How high can that get?" Again, the same answer.

Speaker Change: and we expect that number to continue growing

Speaker Change: You know, some people are going to ask us a similar question the previous question, which is how high can that get again? Same answer. I don't know how high it can get, but we do expect it to get higher than 20%.

Luis Fanon: I don't know how high it can get, but we do expect it to get higher than 20%. And it's because we're just adding a lot more features, for example, things where families can engage with each other a lot more. And not only are we adding features, but we're also making the Family Plan a lot more well known among our subscribers. Many of them don't even know that there's a Family Plan, so we're just putting it in front of the right people more often.

Speaker Change: And it's because we're just adding a lot more features, you know, for example, things where families can engage with each other a lot more.

Speaker Change: And not only are we adding features, we're also making the family plan a lot more well-known among our subscribers. Many of them don't even know that there's a family plan. So we're just putting it in front of the right people more often, you know. And so what I can say is that by the end of the year, we expect the number, the fraction of subscribers to be on the family plan to be higher than what it is now. But I just don't know how much higher.

Luis Fanon: What I can say is that by the end of the year, we expect the fraction of subscribers to be on the Family Plan to be higher than what it is now, but I just don't know how much higher.

Curtis Nagle: Alright, makes sense. And then just going back to some of the points on the top of the funnel, in terms of existing or, you know, last, you know, however you want to define it, users coming back, what do conversion rates look like in terms of paying users for those users? Is it higher?

Speaker Change: All right, makes sense. And then just going back to some of the points on top of funnel in terms of, you know,

Speaker Change: Existing or, you know, lapsed, you know, however you want to define it. Users coming back. What do conversion rates look like in terms of, you know, paying users for those users? Is it higher than average?

Curtis Nagle: Yeah, so when it comes to the actual kind of free trial conversion rates, they convert relatively similarly. The new users and the returning users start free trials slightly differently, at slightly different rates. And so we actually see a nice opportunity to continue to drive those rates higher for both, both types of users over time. So there's good opportunity there for both. Got it. Yes, sir. Mike.

Speaker Change: Yeah, so when it comes to the actual kind of free trial

Speaker Change: Conversion rates, they convert relatively similarly.

Speaker Change: The new users and the returning users.

Speaker Change: They start free trials at slightly different rates, and so we actually see a nice opportunity to continue to drive those rates higher for both types of users over time. So there's good opportunity there for both.

Matt Skaruppa: Just one last color, historically, we spent a lot more time optimizing new users than resurrected users, but we're starting to work more on resurrected users because it just makes sense to do that.

Speaker Change: get your mic

Speaker Change: It's just one last color. Historically, we've spent...

Speaker Change: A lot more time optimizing new users than resurrected users, but we're starting to work more on resurrected users because it just makes sense to do that.

Debbie Belevan: Okay, the next question comes from Alex Sklar of Raymond James.

Speaker Change: Next up

Alexander Sklar: Great, thank you. Luis or Matt, just following up on Bryan's earlier question on that new max availability disclosure, can you talk about how that availability looks as a percentage of your existing paid subscriber base? And I'm curious if you're seeing any notable difference in terms of max adoption from free users versus max adoption from your super base today.

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

Alex Sklar: Great, thank you. Luis or Matt, just following up on Bryan's earlier question on that new max availability disclosure, can you talk about how that availability looks as a percentage of your existing paid subscriber base?

Alex Sklar: And I'm curious if you're seeing any notable difference in terms of max adoption from free users versus max adoption from your super base today.

Luis Fanon: Matthew, you know, I think it's pretty similar to paying subscribers. I think it's pretty similar to DAS, but it's probably 15% in terms of availability.

Alex Sklar: Matthew, you know, I think it's pretty similar to paying subscribers. I think it's pretty similar to DAUs. It's probably 15% in terms of availability. Yeah, I think it, you know, definitely it will, over the next little bit, it will converge. So they'll be close over, you know, the next couple quarters for sure.

Matt Skaruppa: Yeah, I think it, you know, definitely will, over the next little bit, converge. So they'll, they'll be close over the next couple of quarters, for sure.

Matt Skaruppa: And now, in terms of, you know, there's appetite from both free users and also from current paying subscribers. So we're working on both, you know, putting offers out for the free users but also cross-grading from the paying subscribers, and we're seeing uptake from both.

Speaker Change: And now in terms of, you know, there's appetite for Macs from both free users and also from current paying subscribers.

Speaker Change: So we're working on both, you know, putting the offers out for the free users, but also cross-grading from the paying subscribers, and we're seeing uptake from both.

Alexander Sklar: Okay, I appreciate that, Culler. And then, Matt, maybe just one follow-up for you on the subscription bookings continuing to trend really nicely and now making up a bigger piece of total bookings. I was just curious about the non-subscription bookings, so those other three buckets. Can you just comment on what you see in the bookings there and anything to flag for the outlook? Yeah.

Speaker Change: ok iappreciate that color and then m maybe just one follow for you on the subscription bookokings continue to trend really nicely and now making a bigger piece of total bookings so i' just curious some the non subscription bookings so that that other three buckets can use commentments on what you saw trens in the bookings there and anything to ply for the outlook

Matt Skaruppa: Yeah, no, you're absolutely right to start with the fact that we are a subscription business, and you're going to continue to see our subscription business grow faster than the other lines. And so over time, what you just identified will continue. And that's by design, you know; we think that the subscription product is a better user experience and it's a better economic vehicle for us.

Speaker Change: Yeah, no, you're absolutely right to start with the fact that we are a subscription business and you're going to continue to see our subscription business grow faster than the other lines. And so over time, what you just, the trend you just identified will continue.

Speaker Change: And that's by design, you know, we think that the subscription product is a better user experience and it's a better economic vehicle for us.

Matt Skaruppa: So I think you'll expect those trends to continue. You know, each of the other lines of business makes up less than 10% of revenue. So, you know, ads are 8%, IAP is 6%, DET is 6%, something like this. So they have trends in them.

Speaker Change: So I think you'll expect those trends to continue. You know, each of the other lines of business makes up less than 10% of revenue. So, you know, ads is 8%, IAP is 6%, DET is 6%, something like this. So they have trends in them.

Matt Skaruppa: You know, ads, for example, have grown a little slower so far this year, and so has IEP. Both of those have been because we don't have a ton of resources working to grow those. I think in the back half of the year we'll probably devote a little bit more resources to both ads and IEP, so they might grow a little bit faster, but still slower than subscriptions. DET, as you know, is our testing product.

Speaker Change: You know, ads, for example, has grown a little slower so far this year, so has IP. Both of those have been, we don't have a ton of resources working to

Speaker Change: I think in the back half of the year, we'll probably devote a little bit more resources to both as an IEP, so they might grow a little bit faster, but still slower than subscriptions. DET, as you know, is our testing product. That business...

Matt Skaruppa: That business has been growing nicely. I think in the back half of the year, we expect it to grow a little bit slower than it did last year because there's kind of an industry-wide visa issue going on, which has slowed down some of the test-taking growth. But again, all of these movements are pretty small and on the margin. We're going to be focused on driving subscription growth higher. And like you said, it's been growing really nicely. Perfect. Thank you both. Okay, the next question comes from Shweta Khajuria at Wolf Research. Hello, thanks for taking my question.

Speaker Change: has been growing nicely. I think in the back half of the year we expect it to grow a little bit slower than it did last year because there's kind of an industry-wide visa.

Speaker Change: issue going on, which has slowed down some of the test taking growth. But again, all of these movements are pretty small and on the margin. Again, we're going to be focused on driving subscription growth higher. And like you said, it's been growing really nicely. Thank you both.

Shweta Khajuria: The next question comes from Shweta Khajuria at Wolf Research.

Speaker Change: Okay, next question comes from Shweta Kajaria at Wolf Research.

Shweta Kajaria: Hello, thanks for taking my question.

Shweta Kajaria: Just wanted to ask about the resilience in softening macro environment. You have the subscription piece, you have the advertising piece, but just remind us what you've seen in the past as perhaps maybe there's increasing concern on consumer spend and just the macro environment right now. Thank you.

Luis Fanon: Thank you. Yeah, that's a good question. I mean, you know, we're seeing what you're seeing in terms of the external world. There's a lot of uncertainty in the external world. But when we look at our numbers, we're not seeing anything. I mean, our consumers don't seem to be reacting to anything. There's nothing worrying.

Speaker Change: Yeah, that's a good question. I mean, you know, we're seeing what you're seeing in terms of the external world. There's a lot of uncertainty in the external world. When we look at our numbers, we're not seeing anything. I mean, our consumers don't seem to be reacting to anything. There's nothing worrying.

Luis Fanon: In the past, we've had similar situations where, you know, there's this uncertainty in the world. And when we look at our consumers, we just can't see anything. And we don't really know why that is. You know, I'm not going to say that we are recession proof. We just don't know because we've never really gone through a recession. But what I will say is that because we have such a good free

Speaker Change: In the past, we've had similar situations where, you know, there's uncertainty in the world, and when we look at our consumers, we just can't see anything. And we don't really know why that is. You know, I'm not going to say that we are recession-proof. We just don't know because we've never really gone through a recession. But what I will say is that...

Luis Fanon: What's happening is that, you know, people who, for whom, you know, six bucks a month is a lot of money, they're just not paying, um because they're just using the free tier so you know whenever there's like recession and you know the consumer is maybe cutting down etc we just don't see it very much because the people who are paying us for them six bucks a month is usually just not a lot, So we just haven't seen anything like that.

Speaker Change: Because we have such a good free tier.

Speaker Change: What's happening is that, you know, people who, for whom, you know, six bucks a month is a lot of money.

Speaker Change: They're just not paying us because they're just using the free tier. So, you know, whenever there's like recession and, you know, the consumer is maybe cutting down, et cetera, we just don't see it very much because the people who are paying us, for them, six bucks a month is usually just not a lot. So we just haven't seen anything like that.

Speaker Change: Okay, thanks a lot.

Debbie Belevan: Okay, the next question comes from Ryan MacDonald at Needham.

Ryan Macdonald: Thanks for taking my questions and congrats on a nice quarter. Lelise, I wanted to talk about in the shareholder letter the international efforts. You mentioned the marketing efforts you've made in Japan and the impressive returns you've been generating from those investments, and that it is a playbook for international expansion. Can you just, for example, remind us when you started investing in Japan to give a sense of the payback period on those returns? Two, how quickly do you expect to start replicating that playbook in Japan into the other, I think it was about 20 targeted countries or languages for that advanced English learner? Thanks.

Speaker Change: Okay, the next question comes from Ryan MacDonald at Needham.

Ryan Macdonald: Thanks for taking my questions, and congrats on the nice quarter. Lelise, I wanted to talk about in the shareholder letter the international efforts. You mentioned the marketing efforts you've made in Japan and the impressive returns you've been generating from those investments, and that being a playbook for international expansion. Can you just, one, remind us when you started investing in Japan, to sort of give a sense of what the...

Speaker Change: How quickly do you expect to start replicating that playbook in Japan into the other, I think it was about 20 targeted countries or languages for that advanced English learner? Thanks.

Luis Fanon: Yeah, so.. you know, what we mentioned in the shareholder letter is that we now have a playbook for international marketing that we feel pretty good about in terms of penetrating new markets, and Japan was an example.

Speaker Change: Yeah, so...

Speaker Change: You know what we mentioned in the in the shareholder letter is that we now have an

Speaker Change: A playbook for international market that we feel pretty good about in terms of penetrating new markets and Japan was an example. We've actually done that playbook in a number of other markets and it's worked very well. I mean, these are markets like Germany and France.

Luis Fanon: We've actually done that playbook in a number of other markets, and it's worked very well. I mean, these are markets like Germany and France where the idea, and it's a pretty similar playbook, is you start at the beginning with a little bit of performance marketing to kickstart a little more growth than what was there before.

Luis Fanon: Then you usually hire one or maybe more than one country marketing manager that starts making our usual social content but adapted to that country. And then we start a TikTok account and an Instagram account, et cetera, adapted to that country. And it has worked every single time. Basically, if you look at our TikTok accounts across all the different countries, they're all very popular. The Japan one's popular, the France one is popular, the Germany one is popular, all the different ones, the Brazil one is popular. So, and this works pretty well.

Speaker Change: where the idea, and it's a pretty similar playbook, the idea is you start at the beginning with a little bit of performance marketing to kickstart a little more growth than what was there before. Then you usually hire one or maybe more than one country marketing manager that starts making...

Speaker Change: our usual social content but adapted to that countrytr that country and thenwe started a picto account and an instagram accounts that are adapted to a country and it has worked every single time basically if you look at our kicktock accounts across all the different countries they're all very popular

Speaker Change: The Japan one's popular, the France one is popular, the Germany one is popular, you know, all the different ones. The Brazil one is popular. So, and this works pretty well. It takes, you know, to give you context, it takes...

Ryan Macdonald: It takes, to give you context, it takes about a year to get our act together in a country. Japan, we probably started investing more heavily probably about two and a half years ago, give or take. But we've been seeing returns in Japan for a little while now. So my sense is that for a given country, it takes us about a year to get our act together.

Speaker Change: It takes about a year to get our act together in a country. You know, Japan, we probably started investing more heavily probably about two and a half years ago, give or take.

Speaker Change: But, you know, we've been seeing returns in Japan for a little while now. So my sense is for a given country, it takes us about a year to get our act together.

Luis Fanon: That's helpful. And then as you think, maybe as a follow-up to that, as you think about sort of the targeted sort of 20 countries and languages for the advanced English learner content and trying to get those, bring those learners onto the platform, maybe how many of those countries today do you feel like you have started to get your act together, so to speak, and just to give us a sense of where you are on that progression of that investment? Thanks.

Speaker Change: That's helpful. And then as you think, maybe as a follow-up to that, as you think about sort of the targeted sort of 20 countries and languages for the advanced...

Speaker Change: How many of those countries today do you feel like you've started to get your act together, so to speak, and just to give us a sense of where you are on that progression of that investment? Thanks. Oh, yeah. So just to clarify something. So we have 20 English courses.

Ryan Macdonald: Yes, so just to clarify something. We have 20 English courses. What that means is that we have 20 different base languages from which you can learn English. So a base language could be Spanish, but it's Spanish speakers learning English, and other ones, you know, Chinese; Chinese speakers are learning English, etc. So they are not exactly countries because, for example, Spanish covers Spain and all of Latin America, except for Brazil. So these courses are based on the language that people are speaking when we have 20 of those. And in addition to those 20, we have another course which is monolingual. That means learning English from English.

Speaker Change: What that means is that we have 20 different base languages from which you can learn English. So a base language could be Spanish, but it's Spanish speakers learning English. And other ones, you know, Chinese, Chinese speakers are learning English, etc. So it's not exactly countries because, for example, Spanish covers Spain and all of Latin America, except for Brazil.

Speaker Change: So these courses are based on the language that people are speaking, and we have 20 of those. And in addition to those 20, we have another course, which is monolingual, that means learning English from English. That's to cover all other countries.

Speaker Change: or, you know, the ones that don't speak these 20 languages.

Speaker Change: And so, you know, basically we'll be able with this, I think we'll be able to cover pretty much the whole world and we'll be able to penetrate them. And now in terms of, you know, the different geographies.

Luis Fanon: That's to cover all other countries, or, you know, the ones that don't speak these 20 languages. And so, basically, we'll be able, with this, I think we'll be able to cover pretty much the whole world, and we'll be able to penetrate it. Now, in terms of, you know, the different geographies, there's a number of them that we're just much less penetrated in than we are currently. I mean, typically, we're pretty highly penetrated in the U.S., maybe even Western Europe. But then outside of that, we're just at the beginning stages in countries in Asia, even Japan; we're just not all that penetrated in Japan, Korea, etc.

Ryan Macdonald: Excellent. I appreciate the clarification. Thanks.

Speaker Change: theres 'sanumber of them that we're just much less penetrated and that then were currently i mean typically 're pretty highly penetrated in the u us maybe even western europe but then outside of that

Speaker Change: We're just at the beginning stages, you know, this includes countries in Asia, even Japan. We're just not all that penetrated in Japan, Korea, etc.

Speaker Change: Excellent. Appreciate the clarification. Thanks.

Debbie Belevan: Okay, the next question comes from Arvind Ramnani at Piper Sandler.

Speaker Change: Okay next question comes from Arvind Ramnani at Piper Sandler.

Arvind Ramnani: Thanks for taking my question. Yeah, I guess just a couple of quick questions. In terms of the stats that you shared, 20% of your users have been using it for a 365-day streak. Or longer.

Arvind Ramnani: Thanks for taking my question.

Arvind Ramnani: Yeah, I guess just a couple of quick questions, you know, in terms of the stats that you shared, you know, 20% of your users have been using, you know, there was a 365-day streak.

Luis Fanon: Look at it and provide some historical context. How has it moved up? Or what should we look at that? And what do we make out of that number? I mean, it's a nice, interesting stat. You chose to put it on page one. Can you just share what excites you from a historical perspective?

Speaker Change: Can you provide some historical context? How has it moved up? What should we look at that? What did we make out of that number? It's a nice, interesting stat. You chose to put it on page one. Can you just share what gets the excitement from a historical perspective?

Luis Fanon: Yeah, it's a very exciting stat for us because, just to put it in perspective, that means 20%, you know, that's about 7 million daily active users have a streak longer than 365, meaning they have used Duolingo every single day for a year or longer. We find that that's pretty impressive; I mean, there are 7 million of these people that have kind of not missed a year, a day, for at least a year or longer.

Speaker Change: Yeah, it's a very exciting stat for us because, just to put it in perspective, that means 20%, you know, that's like about 7 million daily active users have a streak longer than 365, meaning they have used Duolingo every single day for a year or longer.

Arvind Ramnani: We find that that's pretty impressive. I mean, there's 7 million of these people that have kind of not missed a day for at least a year or longer. That number keeps growing, and it's growing pretty fast. I mean, I think we put out a similar number, the same stat.

Luis Fanon: That number keeps growing, and it's growing pretty fast. I mean, I think we put out a similar number, the same staff, maybe a year and a half ago or so, and it was like 3 million back then. So that number just keeps going up pretty fast. And it gives you an idea of how sticky the product is.

Speaker Change: So that number just keeps going up pretty fast, and it's because that just gives you an idea of how sticky the product is. Yeah, and I guess, can you share, I don't know if you need a specific number, but like

Luis Fanon: Yeah, and I guess, like, can you share, you know? I don't know if you need a specific number here, but these people are sticky. Do they end up having a disproportionate number of paid users or unpaid users compared to the other 80%?

Speaker Change: These people are sticky. Do they end up having a disproportionate number of paid users or unpaid users when compared to the other 80%?

Luis Fanon: Yeah, I mean, in general, the more you use Duolingo, the more likely you are to subscribe. That's, of course, not true for everybody. But in general, if you have a long streak, it is more likely that you're a subscriber. And that makes sense. It's just, you know, you get more use out of it, and at some point, you want to either support us or turn off the ads or something like that.

Speaker Change: Yeah, I mean, in general.

Speaker Change: The more you're used to Duolingo, the more likely you are to subscribe.

Speaker Change: That's, of course, not true for everybody, but in general, if you have a long streak, it is more likely that you're a subscriber. And that makes sense. It's just, you know, you get more use out of it, and at some point you want to either support us or turn off the ads or something like that.

Arvind Ramnani: Okay, perfect. And then there's just one last question.

Speaker Change: Okay, perfect. And then just one last question. I mean, you know, it's certainly very impressive metrics through the print, and you know, you raised guidance for the year, I get it, but it feels like a lot of the guide was.

Luis Fanon: I mean, you know, it's certainly a very impressive metric through the print, and you raised guidance for the year. I get it, but it feels like a lot of the guidance was raised in line with the Tokyo performance. So, I mean, you know, just given the momentum, like, should we look at this kind of raised guidance as like a little bit conservative, or how should we look at it? Because it feels like there's really good momentum in the business.

Speaker Change: raised in line with the Tokyo performance.

Speaker Change: So, I mean, you know, just given the momentum, like, you know, should we look at this this kind of kind of real guidance as like a little bit conservative or how should we look at it? Because it feels like there's there's really good momentum in the business.

Luis Fanon: There is good momentum in the business. We feel good about it, but I just have to remind you in terms of what good momentum looks like. We're guiding this year to more than 30% growth in bookings, but we're lapping a year that had 45% growth in bookings, which in turn was lapping another year that had 45% growth in bookings. So it's just growing really fast. So that's that. We feel pretty strong about it. Because we're lapping such a strong year, and in particular H2 of last year was quite strong, so we put out the guidance that we saw, and we slightly exceeded it, but we feel good about it.

Speaker Change: There is good momentum in the business and we feel good about it, but I just have to remind you in terms of what good momentum looks like.

Speaker Change: We're guiding this year to, you know, more than 30% growth in bookings, but we're lapping a year that had 45% growth on bookings, which in turn was lapping another year that had 45% growth on bookings.

Arvind Ramnani: So we're just, it's just growing really fast and so that's that. We feel pretty strong about that.

Arvind Ramnani: Because we're lapping such a strong year, and in particular H2 of last year was quite strong. So, you know, we put out the guidance that we saw and we're, you know, slightly raced it, but we feel good about it.

Arvind Ramnani: Yeah, then this last question, I mean, it feels like your DAU growth is again, you know, back to sort of defying gravity, right? Like, it's just back to this, like, kind of acceleration. And like, I know that in the past couple of quarters, late last year, you were talking a little bit conservatively, but you're back to this, like, acceleration and DAU growth. And like, I mean, how sustainable is this, right? Is this like 5560 like a number we should get comfortable with over the next couple of years? I mean, it just feels like it's constantly defying gravity. We feel good about our DAU growth.

Speaker Change: Yeah, just last question. I mean, it feels like your growth is again, you know, back to sort of defying gravity, right? Like, it's just back to this, like, kind of acceleration. And like, I know that in the past couple of quarters, you've been working...

Speaker Change: Late last year, you were talking a little bit conservatively, but you're back to this like acceleration and DAU growth and like, I mean, how sustainable is this, right? Like, is this like 55, 60 is like a number we should get kind of comfortable with over the next couple of years? I mean, it just feels like it's constantly defying gravity.

Luis Fanon: We feel good about our DAU growth. I will say, you know, in Matt's prepared remarks, our belief is that this is going to, for a while, stay at around 50%, uh, not quite 60 percent, but it's for a while, so that's our belief. And which, you know, it's exponential growth 50% year over year. And that's kind of how we think it's going to be.

Speaker Change: We feel good about our DAU growth. I will say, in Matt's prepared remarks, our belief is that this is going to, for a while, stay at around 50%.

Speaker Change: not quite 60%, but it's for a while. So that's our belief. And which, you know, it's exponential growth 50% year over year. And I that's kind of how I think it's going to be.

Debbie Belevan: Thanks, Arvind. The next question comes from Aaron Kessler at Seaport.

Speaker Change: Perfect. Thank you.

Speaker Change: Thanks Arvind. Next question comes from Aaron Kessler at Seaport.

Aaron Kessler: Great. Can you hear me?

Aaron Kessler: Great. Can you hear me? Yeah. Great. Maybe just on other verticals adoption, I don't think you talked much about that. Anything to highlight on some of the other verticals, math, etc.? And then I think there's still probably a little bit of concern in the market just around potentially AI replacing maybe the necessity to learn a foreign language.

Arvind Ramnani: It'd be good to get your thoughts on that, Luis, just maybe your thoughts on potential AI replacement need for foreign language learning longer term.

Debbie Belevan: Yep. Great. Maybe just on other verticals adoption. I don't think you talked much about that. Anything to highlight on some of the other verticals, math, etc.

Luis Vaughnan: Sure. Okay, so first question was about other verticals, in particular, you know, you can now learn math and music on Duolingo. We feel very good about the growth. They're still small compared to languages.

Speaker Change: And, you know, they're going to be small for a little while. They're only on iOS.

Speaker Change: We're about to put them on Android. In the next couple of months, you're going to see them on Android, and that'll make them grow more. But we feel pretty good about the growth in terms of what we're working on, each one of them. In both cases, really, we're working on adding a lot more content.

Arvind Ramnani: You know, with math, we probably have an order of magnitude less content than we would have for like French or Spanish. So we just need to add more content. And same with music. And so we're working on adding more content and also on making them more engaging. And I feel pretty good about the results of that.

Aaron Kessler: And then I think there's still probably a little bit of concern in the market just around potentially AI replacing maybe the necessity to learn a foreign language. It would be good to get your thoughts on that, Luis, just maybe your thoughts on potential AI replacing the need for a foreign language learning in the longer term. Sure. Okay.

Arvind Ramnani: In terms of AI, this is not, you know, people say this, but this is not something we're particularly worried about for a number of reasons. For one, you know, language translation and also automatic, immediate...

Luis Fanon: Sure. Okay, so the first question was about other verticals, in particular, you can now learn math and music on Duolingo. We feel very good about the growth. But they're still small compared to languages. And, you know, they're going to be small for a little while.

Luis Fanon: They're only on iOS. We're about to put them on Android in the next couple of months. You'll see them on Android, and that'll make them grow more. But we feel pretty good about the growth in terms of what we're working on for each one of them. In both cases, really, we're working on adding a lot more content. You know, with math, we probably have an order of magnitude less content than we would have for, say, French or Spanish. So we just need to add more content. And same with music. And so we're working on adding more content and also on making it more engaging. And I feel pretty good about the results of that.

Luis Fanon: In terms of AI, this is not, you know, people say this, but this is not something we're particularly worried about for a number of reasons. For one, language translation and also automatic immediate voice to voice language translation have been really good for like 10 years. I mean, Google Translate is on my phone, and it's been really good for a while. The main use for that, and it works really well, is if you kind of don't really care about learning any French and you go to France and you find somebody who doesn't speak English, you can use the app, and you can communicate really well. But that has been true for like 10 years.

Arvind Ramnani: Voice-to-voice language translation has been really good for like 10 years. I mean, Google Translate, the app is on my phone, has been there for a while, and it's been really good.

Arvind Ramnani: The main use for that, and it works really well, is if you kind of don't really care about learning any French, and you go to France, and you find somebody who doesn't speak English, you can use the app, and you can communicate really well, but that has been true for like 10 years.

Luis Fanon: Turns out, most of our users are not that user. Most of our users are either people who are hobbyists because they just find that you know, they're interested in Swedish or whatever. And we just don't think that AI is going to replace that. Similarly, people are learning chess, and AI has been good at chess for 20 years.

Luis Fanon: So hobbyists are one big group, and then the other big group is people who actually want to learn the language for either work purposes. These are particularly English learners. That's also not a, you know, you're not going to go work at a company in English and have to carry your phone or have to use a, you know, some sort of headphone device. So it's just not something we're particularly worried about, and we just haven't seen it be any kind of problem for our users.

Speaker Change: It turns out most of our users are not that user. Most of our users are either people who are hobbyists.

Arvind Ramnani: because they're like just they find that you know they're interested in Swedish or whatever and we just don't think that AI is going to replace that similarly to you know people are learning chess and AI has been good at chess for 20 years

Arvind Ramnani: So, hobbyists is one big group. And then the other big group is people who actually want to learn the language for either work purposes or studies. These are particularly English learners.

Speaker Change: That's also not a, you know, you're not going to go work at a company in English and have to carry your phone or have to use a, you know, some sort of headphone device. So, it's just not something we're particularly worried about and we just haven't seen that be any kind of problem for our users.

Debbie Belevan: Okay, the next question comes from Eric Sheridan at Goldman Sachs.

Speaker Change: Great, thank you.

Arvind Ramnani: Okay next question comes from Eric Sheridan at Goldman Sachs.

Eric Sheridan: Thanks for taking the question. Maybe I can follow up on that point. I would love to go a little bit deeper on how you're thinking about an incremental dollar invested in content and how the return on that content investment can continue to drive longer and longer engagement sessions with folks and continue to extend some of the streak dynamics that you've called out, and sort of maybe just tease out a little bit of how you think about return on that spend or duration of potential for that spend in the broader portfolio.

Eric Sheridan: Thanks for taking the question. Maybe I can follow up on that point. I would love to go a little bit deeper on how you're thinking about an incremental dollar invested in content and how the return on that content investment can continue to drive

Speaker Change: Longer and longer engagement sessions with folks and continue to extend some of the street dynamics.

Matt Skaruppa: that you've called out and sort of maybe just tease out a little bit of how you think about return on that spend or duration of potential for that spend in the broader portfolio. That'd be number one. And then number two, I know I always ask Matt this, but just incremental margins, updated view, you know, continues to be an area where you're surprising more of the upside as the business continues to grow and mature, but just updated views on incremental margins

Eric Sheridan: That'd be number one. And then number two, I know I always ask Matt this, but just incremental margins, an updated view, you know, continues to be an area where you surprise more of the upside as the business continues to grow and mature, but just updated views on incremental margins and investing back in the business versus letting some of that incremental margin fall to the bottom line. Thank you.

Speaker Change: Investing back in the business versus letting some of that incremental margin fall to the bottom line. Thanks so much

Luis Fanon: I can take the first part, Matt, on content. I mean, generally, we've been adding content to the app for ever since we launched the app 12 years ago, or, or whatever. Um, over the last year and a half, we've seen an amazing acceleration in terms of the speed of content that we can add. A lot of it has to do with AI, not entirely. Some of it is just better processes from ourselves. But a lot of it has to do with AI.

Speaker Change: I can take the first part, Matt, with the content. I mean, generally,

Luis Fanon: And we're really excited about that. And it's not just that it's cheaper to add the content. That's interesting. And that's good. It helps our margins. And I'm sure Matt loves that.

Matt Skaruppa: We've been adding content to the app ever since we launched the app, 12 years ago or whatever.

Arvind Ramnani: Over the last...

Arvind Ramnani: year and a half, we've seen an amazing acceleration in terms of the speed of content that we can add. A lot of it has to do with AI.

Arvind Ramnani: Not entirely. Some of it is just better processes from ourselves, but a lot of it has to do with AI, and we're really excited about that. And it's not just that it's cheaper to add the content. That's interesting, and that's good. It helps our margins, and I'm sure Matt loves that.

Luis Fanon: But what I'm more excited about is that nowadays, we can create certain pieces of content so fast that these are things that we just couldn't do before. A good example is, you know, a few years ago, a feature was proposed to me that, you know, it was a feature where you could like listen to these kind of podcast-type episodes inside the app. And I was told that it was going to take five years to create the content for this. So I immediately shut down that feature. I said, no, no, no, we're not, we're not going to make that.

Matt Skaruppa: But what I'm what I'm more excited about is that nowadays we can create certain pieces of content so fast.

Speaker Change: These are things that we couldn't do before. A good example is, a few years ago, a feature was proposed to me, it was a feature where you could listen to these podcast-type episodes inside the app, and I was told that it was going to take five years to create the content for this.

Luis Fanon: I don't want to spend five years creating content for anything. Today, we ended up building a pretty similar feature. And it turns out we can create all of that content in a matter of months. And because we can create all that content in a matter of months, I greenlit that feature because I'm like, yeah, sure, why not spend a couple of months creating the content and doing that. So, I'm very excited about the fact that this just allows us to create a lot more engaging content and things that before, it wasn't that they were impossible to create, but they were prohibitive to the point where I was just not allowing it. So, that's, you know, that's one of the main things that we're excited about with content. Yeah. And then on the increment.

Arvind Ramnani: and I immediately shut down that feature. I said, no, no, no, we're not going to make that. I don't want to spend five years creating content for anything. Today, we ended up building a pretty similar feature, and it turns out we can create all of that content in a matter of months.

Arvind Ramnani: And because we didn't create all that content in a matter of months.

Speaker Change: I greenlit that feature because I'm like, yeah, sure, why not? I spend a couple of months doing the content and do that. So I'm very excited about the fact that this just allows us to create a lot more engaging content and things that before, it's not that they were impossible to create, but they were prohibitive to the point where I was just not allowing it.

Matt Skaruppa: And then on the incremental margin point, Eric, again, we are definitely proud of the fact that, you know, when we Yeah, in 2022, our adjusted EBITDA margin was four points, and now we're guiding for the full year to 24.5.

Arvind Ramnani: So that's, you know, that's one of the main things that we're excited about with content. Yeah. And then on the incremental margin point, Eric, again, I, we are definitely proud of the fact that, you know, when we

Matt Skaruppa: So, you know, 20 extra points in two years of margin is great and then requires higher incremental margins. A minor point on Q2, we had about a 52% incremental margin; if you were to adjust for the time shift that I mentioned in my prepared remarks, it's probably 45% incremental margin, so it's lower, still higher than our long-term target. If you look at the full-year guide, obviously, we're projecting the incremental margins to trend down a little bit in the back half of the year. But your point notwithstanding, we think that we can do both.

Eric Sheridan: In 2022, our EBITDA margin was 4 points, and now we're guiding it the full year to 24.5.

Eric: A minor point on Q2, we had about a 52% incremental margin. If you were to adjust for the time shift that I mentioned in my prepared remarks,

Eric: It's probably 45% incremental margin, so lower, still higher than our long-term target.

Speaker Change: If you look at the full year guide, obviously we're projecting the incremental margins to trend down a little bit in the back half of the year. But your point notwithstanding, we think that we can do both. The business has scaled really nicely. It's got high gross margins, so we can

Matt Skaruppa: The business has scaled really nicely. It's got high gross margins. So we can achieve our capital allocation strategy, which is first and foremost investing in R&D in the business to drive organic growth in that flywheel and drop a good portion down to the bottom line. So I don't see it changing in the near term or any updating of that long-term target, but we're happy.

Speaker Change: Achieve our capital allocation strategy, which is first and foremost investing in R&D in the business to drive organic growth in that flywheel.

Arvind Ramnani: and drop a good portion down to the bottom line.

Arvind Ramnani: I don't see it changing in the near term or any updating of that long-term target, but we're happy with it.

Eric Sheridan: Thanks, Eric. Our next caller, our next questioner, is Chris Kuntarich from UBS. He cannot get on Zoom right now, so he asked me to read his question. A two-part question. First, housekeeping on the 50% DAU growth comment; was that previously low to mid-50s? And his second question is, can you talk a bit about what you've accomplished over the last 12 months from a product monetization perspective as it relates to the English learning opportunity and how we should think about your focus areas for the English learning opportunity over the next 12 months?

Eric Sheridan: Thanks, Eric.

Speaker Change: Our next caller, our next questioner is Chris Kuntarich from UBS. He cannot get on Zoom right now, so he asked me to read his question.

Speaker Change: Two-part question, first housekeeping on the 50% DAU growth comment, was that previously low to mid-50s?

Speaker Change: And his second question is, can you talk a bit about what you've accomplished over the last 12 months from a product monetization perspective as it relates to English learning opportunity and how we should think about your focus areas on the English learning opportunity over the next 12 months?

Christopher Kuntarich: Okay, the first clarification. I mean, I think it's just, you know, what we're saying is that this quarter, Q2, we saw 59% DAU growth year over year. What we're saying is that we expect that to be around 50% for a good period of time. That's what we're saying. That's the clarification.

Speaker Change: Okay, the first is a clarification. I mean, I think it's just, you know, what we are saying is this quarter, Q2, we saw 59% DAU growth year over year. What we're saying is that we expect that to be around 50% for a good period of time.

Luis Fanon: In terms of what we've done for English learners, a number of things. I mean, the first thing is we've added more advanced content. You know, that content, it took us a while to add it, but at this point, the content is there. And so that's great.

Speaker Change: That's what we're saying, that's the clarification.

Speaker Change: In terms of what we've done for English learners,

Arvind Ramnani: Some number of things. I mean, the first thing is we've added more advanced content.

Arvind Ramnani: You know, that content, it took us a while to add it, but at this point, the content is there. And so that's great. We have intermediate to advanced content for English learners. That was something that was needed in order to attack the English learners.

Luis Fanon: We have intermediate to advanced content for English learners. That was something that was needed in order to attack the English learners. We've also worked on placing the English learners into the appropriate place in the course. So these are people who have prior proficiency. The thing about English learners is that most of them have some amount of prior proficiency, and so we've worked on placing them in the right place. And then, you know, the next step is, once we're really happy with this, we're gonna start marketing to let the world know that Duolingo is good for advanced English because, you know, most people just don't know that.

Arvind Ramnani: We've also worked on placing the English learners into the appropriate place in the course. So these are people who have prior proficiency. The thing about English learners is that most of them have some amount of prior proficiency. And so we've worked on placing them to the right place.

Arvind Ramnani: And then, you know, the next step is, once we're really happy with this,

Arvind Ramnani: We're going to start marketing to let the world know that Duolingo is good for advanced English because, you know, most people just don't know that. And once that's there, my sense is that we're going to be able to, you know, do a lot of things to monetize these users. But the first thing is to get these users to come in, which they're not there yet.

Luis Fanon: And once that's there, my sense is that we're gonna be able to, you know, do a lot of things to monetize these users. But the first thing is to get these users to come in, which they're not there yet.

Debbie Belevan: Okay, the next question comes from Ross Sandler at Barclays.

Arvind Ramnani: Okay, next question comes from Ross Sandler at Barclays.

Ross Sandler: I had a question to follow up on the topic of AI, how you guys are using it in the app. So Luis, the foundation models are getting much more performant, faster, and more multimodal. So how's that informing your product roadmap? And how do you see the interaction layer of your consumers engaging with either Lilly or whatever you guys come up with down the road in a more multimodal context using these AI models? Yeah, we're very excited about AI in general. I mean, the two

Ross Sandler: Great. I had a question to follow up on the topic of AI, how you guys are using it in the app.

Arvind Ramnani: So Luis, the foundation models are getting much more performant, faster, and more multimodal, so how's that informing your product roadmap?

Speaker Change: And how do you see, you know, the interaction layer?

Speaker Change: of your consumers engaging with either, you know, Lilly or whatever you guys come up with down the road.

Luis Fanon: Yeah, we're very excited about AI in general. I mean, the two big uses are creating content that is kind of pre-made, and then it's served to the users. That's kind of what I was talking about in the previous question, where we're able to create experiences like listening to a two-minute mini-podcast in the language that you're learning.

Luis Vaughnan: in a more multimodal context using these AI models.

Luis Vaughnan: Yeah, we're very excited about AI in general. I mean, the two big uses are...

Speaker Change: Creating content that is kind of pre-made and then it's served to the users, that's kind of what I was talking about in the previous question where we're able to create experiences like listening to a two-minute mini podcast in the language that you're learning. All of that is, a lot of it is created with AI and we're very excited with that.

Luis Fanon: All of that is, a lot of it is created with AI, and we're very excited about that. And then the other big part is kind of live interaction, where you're going to be talking to a character, et cetera. We're going to be putting a lot into that. Certainly, the multimodal models are helping, like GPT-4.0, because we're going to be doing voice-to-voice. And so that helps. That helps a lot. And so we're really happy.

Luis Vaughnan: And then the other big part is...

Luis Vaughnan: The kind of live interaction where you're going to be talking to a character, etc. We're going to be putting a lot into that. Certainly, the multi-modal models are helping, like GPT-4-0, because we're going to be doing voice-to-voice.

Luis Fanon: I mean, if you play around with this feature of practicing conversation with Lily, it's pretty magical. Actually, the other amazing thing about it is that she has a memory she remembers. So whenever she calls you, or you call her, she tells you, oh, it's you again, you know, and then she may ask you about whatever it is that you were talking about last time. And she'll make fun of you for, you know, having forgotten something. So it's pretty magical, actually.

Luis Vaughnan: And so that helps, that helps a lot. And so we're really happy. I mean, if you play around with this feature of practicing conversation with Lily, it's pretty magical, actually. The other amazing thing about it is she has a memory she remembers. So whenever she calls you or you call her, she tells you, oh, it's you again.

Luis Vaughnan: And then she may ask you about whatever it is that you were talking about last time. She'll make fun of you for having forgotten something. So it's pretty magical, actually.

Debbie Belevan: Okay, great. The next question comes from Mark Mahaney at Evercore.

Luis Vaughnan: Okay, great. Next question comes from Mark Mahaney at Evercore.

Mark Mahaney: Two questions. One, I love the Japan data point. And I want to try to figure out is, I think in the US, you have kind of a high single-digit percent penetration of people who are learning languages and interested in learning languages. That's their own work.

Mark Mahaney: Two questions. One, I love the Japan data point, and what I want to try to figure out is, I think in the U.S. you have kind of high single-digit percent penetration of people who are learning languages and interested in learning languages. That's their own work. Are there any international markets, and maybe it's Japan, that come anywhere close to that, where you think that you've got penetration that's kind of high single digits or even double digits of the potential language learners in that market?

Luis Fanon: Are there any international markets, maybe it's Japan, that come anywhere close to that where you think that you've got no penetration that's kind of high single digits or even double digits of the potential language learners in that market?

Mark Mahaney: There, the US is the US is a relatively highly penetrated country for us. There are others that are probably similar to the U.S., my sense is Western Europe, close to the U.S. Actually, the U.K. is about the same as the U.S., but Western Europe's close to the U.S. Japan is not there yet. Japan is much less penetrated than the U.S. And if you look at other Asian countries, I mean, for example, China is about a tenth of the penetration of the U.S. So, you know, generally, the U.S. and Western Europe are the more penetrated markets.

Speaker Change: The U.S. is a relatively highly penetrated country for us. There are others that are...

Speaker Change: Probably similar to the U.S. My sense is Western Europe .

Luis Vaughnan: is close to the U.S. Actually, the U.K. is about the same as the U.S., but Western Europe is close to the U.S. Japan is not there yet. Japan is much less penetrated than the U.S.

Speaker Change: And if you look at other Asian countries, I mean, for example, China is about a tenth of the penetration as the U.S. So, you know, generally, U.S. and Western Europe are the more penetrated markets.

Luis Fanon: Okay. And then I want to follow up one more time.

Luis Vaughnan: Okay.

Speaker Change: And then I want to follow up one more time, I know both Eric and Ross asked you this question. I'm really intrigued by the deployment of AI by content companies, by app companies, and investors in the street are so focused on

Mark Mahaney: I know both Eric and Ross asked you this question. I'm really intrigued by the deployment of AI by content companies and by app companies. And investors on the street are so focused on the derivatives in the chip sector and in the app sector. I mean, sorry, the chip sector and the infrastructure sector, but not in the app sector. And there are companies, I mean, people are so focused on how AI could disrupt Duolingo, and there's not enough focus on how you're using AI and how you could use it in the future to create just dramatically more engaging content. Like, it's not like you haven't been involved with AI for a long period of time.

Speaker Change: There are derivatives in the chip sector and in the infrastructure sector, but not in the app sector. And there are companies, I mean, people are so focused on how AI could disrupt Duolingo, and there's not enough focus on how you're using AI and how you could use it.

Mark Mahaney: So, you know, just talk about how Gen AI tools can really change Duolingo and make it just dramatically more engaging. Like, you know, as you peer through that looking glass, like, how much visibility do you think you have into how much more, how much better the product could be over the next couple of years? Do you think, like, you've got a quarter of visibility, and then there's a whole bunch of new hallways that could open up? So just riff on that a little bit. I'm

Arvind Ramnani: in the future to create just dramatically more engaging content. Like, it's not like you haven't been involved with AI for a long period of time. So, you know, just talk about, like, when you think about.

Arvind Ramnani: How GEN-AI tools can really change Duolingo and make it just dramatically more engaging.

Speaker Change: you peer through that looking glass like how much visibility to think you have to how much how much more how much better the product could be over the next couple of years you think like you've got a quarter visibility and there's awhole unch of new always that could open up so just rip on that a little bit ise

Luis Fanon: I'm generally extremely excited about, you know, what AI could do for us. Of course, the easiest to see is conversational practice, just because these are large language models. They're supposed to have the LS language there.

Speaker Change: I'm generally extremely excited about, you know, what AI could do for us.

Speaker Change: Of course, the easiest to see is conversational practice, just because these are large language models. They're supposed to have the L as language there. This is going to be really good for conversational practice. And I really think that's actually going to be a lot more...

Luis Fanon: This is going to be really good for conversation practice, and I really think that's going to be a lot more impactful than people think, because you really are going to be able to practice with somebody that gets down to your level of the language, and she has a memory. And the other really nice thing about that is it's much better than practicing with a human in that if you're practicing with a human, you're usually shy in the language that you're learning.

Luis Vaughnan: and bful than people think because you really are going to be able to practice with somebody that gets down to your level of the language and you can she has a memory and the other really nice thing about that is

Luis Vaughnan: It's much better than practicing with a human, in that, if you're practicing with a human, you...

Luis Fanon: I mean, if you've ever learned a language, it's pretty hard unless you're an extreme extrovert. It's pretty hard to get your few words out in front of another person. But in front of an AI, you have no problem because you kind of don't care.

Speaker Change: You're usually shy in the language that you're learning. I mean, if you ever learn a language, it's pretty hard, unless you're an extreme extrovert, it's pretty hard to get your few words out in front of another person. But in front of an AI, you have no problem because you kind of don't care.

Luis Fanon: So we're very excited about that, but I think there are going to be many other things. Another thing that I'm pretty excited about is being able to explain math concepts to you in a way with diagrams. Language models are not quite there yet, but I think it's going to, either with fine tuning or some sort of specific training. I think we'll be able to explain almost any math content concept to you with. Clever diagram. That's much better than reading two paragraphs of explanation. So I'm very excited about that. I think we'll be able to teach math significantly more effectively because of that.

Arvind Ramnani: So we're very excited about that, but I think there's going to be many other things. Another thing that I'm pretty excited about is being able to explain math concepts to you in a...

Arvind Ramnani: with diagrams. You know, language models are not quite there yet, but I think it's going to, you know, either with fine-tuning or some sort of specific training, I think we'll be able to explain almost any math concept to you with...

Luis Vaughnan: That's a clever diagram. That's much better than reading two paragraphs of explanation. So I'm very excited about that. I think we'll be able to teach math significantly more effectively because of that.

Mark Mahaney: Thanks, Mark. And our last question comes from Wyatt Wyatt Swanson at DA Davidson.

Tolis: okaythanks to tolis

Wyatt Swanson: Thanks, Mark. And our last question comes from Wyatt Swanson at D.A. Davidson.

Wyatt Swanson: Hey guys, thanks for the question. I had a question on resurrected users that you called out. Could you talk a bit about how your initiatives have changed on driving users back to the platform? And could you maybe give some color as to how much engagement these resurrected users are driving?

Wyatt Swanson: Hey guys, thanks for the question. I had a question on resurrected users that you called out. Could you talk a bit about how your initiatives have changed on driving users back to the platform? And could you maybe give some color as to how much engagement these resurrected users are driving?

Luis Fanon: Yeah, I mean, over time, we are shifting more and more work to people that we've seen before because there are just so many of them that, you know, lapse from Duolingo for six months and then come back. So we're putting an effort into that, and I think there's a lot of room because we have just not worked on them as much. So I think there's room for monetizing them better, and there's room for getting them to have better experiences coming back. I think that's what I can say. We're working on it, and it's getting better over time.

Speaker Change: Yeah, I mean...

Speaker Change: Over time, we are shifting more and more work to people that we've seen before because there's just so many of them that, you know, lapse from Duolingo for six months and then come back.

Arvind Ramnani: So we're spending effort on that. And I think there's a lot of room because we have just not worked on them as much. So I think there's room on monetizing them better. There's room on getting them to have better experiences coming back.

Speaker Change: i thinkthat's what i can say we're working on itandit's getting better over time

Wyatt Swanson: Okay, fair enough. And then I had one on the intermediate English course. I know it's really early, but just in terms of users enrolling, is it primarily new users that are coming onto the platform that find out that there's advanced English, or is it users that are already enrolled in basic English, they see the intermediate now, and they're moving up? Both.

Speaker Change: Okay, fair enough. And then I had one on the intermediate English course. I know it's really early, but just...

Speaker Change: In terms of users enrolling, is it primarily new users that are coming onto the platform that find out that there's advanced English, or is it users that are already enrolled in basic English, they see the intermediate now and they're moving up?

Luis Fanon: At the moment, I think it's more of the current users, but that's partly because we have done very little to tell people that there's more advanced content. We're going to be doing more over the next year and a half. So we're getting both, but it's more the current ones.

Speaker Change: It's both. At the moment, I think it's more of the current users.

Speaker Change: But that's partly because we have done very little to tell people that there's more advanced content. We're going to be doing more over the next, you call it, year and a half. So we're getting both, but it's more the current ones.

Debbie Belevan: Okay, we have no more questions, so I'll just turn it back to Luis.

Speaker Change: Got it. Okay. Thank you.

Luis Fanon: Well, thank you, Debbie. I'd just like to thank everyone for joining us.

Speaker Change: Okay, we have no more questions, so I'll just turn it back to Luis.