Q3 2024 Duolingo Inc Earnings Call
Yeah.
Speaker Change: [music] you have joined the meeting as an attendee and will be.
Speaker Change: Muted throughout the meeting.
Speaker Change: [music].
Speaker Change: Good evening, everyone and welcome to Julian goes third quarter 2024 earnings webcast today after market close we released this quarter's shareholder letter a copy of which you can find on our IR website at investors Dot Duolingo dotcom.
On today, we have on today's call we have Luis mine on our co founder and CEO and not screw up our CFO will begin with some brief remarks before taking questions.
Please note that this evening evening event is being recorded and all attendees are in listen only mode.
Speaker Change: A quick reminder, that will make some forward looking statements regarding future events and financial performance, which are subject to material risks and uncertainties. Some of these are outlined in the risk factors of our filings with the SEC. These.
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. Additionally, we will present, both GAAP and non-GAAP 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.
Lilly: You to consider all measures when analyzing our performance and now I will turn it over to Lilly.
Lilly: Thanks, Debbie I guess.
Speaker Change: Everyone. So Luis you asked me to cover for him Lucky Me anyway, let's just get this over with how do we do this quarter pretty good I'd say, we did way better than expected and all the important metrics.
Speaker Change: Since we did so well and we feel good about next quarter, we're raising our full year guidance, Matt is going to get into the details in a minute. He is into that kind of thing.
Speaker Change: And yeah, we're hitting our goals daily active users up 54% year over year, which okay is pretty neat, especially since users accelerated last year family plan has grown to 21% of subs compared to the 18% we had at the end of last year.
Speaker Change: Oh, and our new Duolingo Max feature a video call lets learners chat with me Lucky them don't worry I won't judge much maybe just an eyeroll here and there how did we pull this off you know the usual stuff product improvements and social marketing it just works and the Grand finale.
Speaker Change: Generative AI and automation yeah, that's the future I guess I mean look at me and animated character running this call AI is going to help us be more efficient and launch products faster pretty cool right. So we're investing in that stuff anyway, I'm done over to Matt he'll probably try to sound more excited.
Matt: Thanks Ali I'll do my best.
Matt: Now you may be wondering why we had lilly step in for Louise well, we wanted to give an example of how generative AI is positively impacting more and more aspects of our business.
Speaker Change: We are using it to make our product more fun engaging and effective through features like video call with Lilly.
Speaker Change: And we're using it to automate internal processes like content creation.
Speaker Change: By the way that video only took about seven minutes to create because of the tools and the infrastructure that we've put in place.
Speaker Change: Now onto the numbers as Louis highlighted Q3 was a strong quarter <unk> grew by 54% year over year, which is impressive considering we were lapping last year's 60% plus growth.
Speaker Change: Bookings and revenue grew 38% and 40% year over year, respectively, which came even as we lap lap tougher comps.
Speaker Change: And we posted an adjusted EBITDA margin of 24, 7%.
Speaker Change: This quarter's outperformance was driven in part by the strength, we're seeing in dwelling or Max as.
Speaker Change: As a reminder, max's are highest subscription tier and now includes our new AI powered.
Speaker Change: A video call feature we executed well and rollout Max faster than we expected.
Speaker Change: <unk> is now available to roughly half of our <unk> and we expect this will increase by about 10 points or so as we scale it to more users primarily on Android by the end of the year.
Speaker Change: We also saw early signs of strong demand for video call with Lilly, we find that when we introduce new features we some we see a onetime bookings game that eventually settled down into a more predictable run rate.
Speaker Change: Some of the Max bookings increase this quarter was likely driven by this type of effect.
Speaker Change: Looking ahead, we're raising full year guidance.
Speaker Change: We're guiding to in bookings and revenue growth of about 36% and 40% respectively for the full year.
Speaker Change: In our Q4 guide takes into account video calls estimated impact and our experiments around our new year's promotion.
Speaker Change: Our Q4 guide has about 100 basis points of sequential quarter over quarter decline in gross margin, which is due to higher jet AI and amortization costs related to scaling the accident the video call feature.
Speaker Change: As a reminder, our dueling go Max tier yields more gross profit dollars, but a lower gross margin percentage than our super tier.
Speaker Change: We're also raising our 2024 adjusted EBITDA margin guidance to 25, 5% at the midpoint, which is roughly eight points higher than 2023.
Speaker Change: As we continue to make progress towards our long term target range of 30% to 35% adjusted EBITDA.
Speaker Change: For Q4, our adjusted EBITDA Guide of 24, 4% at the midpoint reflects quarter over quarter operating leverage of about 70 basis points for R&D.
Speaker Change: 90 basis points for <unk> and.
Speaker Change: And that's offset by some slight deleverage and G&A.
Speaker Change: We ended Q3 with approximately $49 6 million fully diluted shares outstanding during the quarter and closed price.
Speaker Change: We expect net dilution of little more than 1% similar to last year.
Speaker Change: And good timing and it looks like where we sit back.
Speaker Change: Thanks, Matt.
Speaker Change: I'm glad to Lilly was able to cover for me now, let's take some questions and Debbie will manage the queue.
Speaker Change: Alright, it sounds good.
Debbie: You have a question you can use the range raise hand feature. So your first question comes from Justin Patterson at Keybanc.
Justin Patterson: Alright, thank you.
Speaker Change: Louis Cincinnati sub debt with Lilly I will stop there and with baby Luca here.
Watkins: For us in Watkins Nap right now nothing puts them to sleep better faster than earnings calls, but you know.
Watkins: If I project from your current trends and think about how next year or even 2026 goes you're probably crossing 10 million subs within about an eight to nine year period. Since he started monetizing. So as you think ahead what does it really take for you to add the next.
Debbie: 10 million and reached 20 million subs is that just expanding price tiers is that more marketing new apps monetizing well loved to hear about how youre thinking about that philosophically. Thank you.
Speaker Change: Yes, it's a great question I mean generally we're going to continue doing what we've been doing because it's working really well.
Speaker Change: And in terms of monetization.
Speaker Change: A few things that we're doing.
Speaker Change: We're growing the number of users just this is paying and nonpaying users as we grow that we grow number of subs because a certain fraction of them subscribed.
Speaker Change: We're going to be doing everything that we do for that but it's making the product more engaging also doing our social marketing so that should increase number of users unless you saw do you use by growing.
Speaker Change: <unk> been growing between 50, and 60% are really for the last two years.
Speaker Change: So there's that and then we're just going to get better.
Speaker Change: Converting these users and Theres a number of things that we can do or one we're gonna have a bread and butter stuff that just basically make improvements to our purchase page or when we give the offered to the users to.
Speaker Change: To subscribe, but also the new platinum Max we think that there's a lot of geographies, where Max is going to be more interesting than super.
Speaker Change: And in particular for English learners.
Speaker Change: We're very interested in practicing conversation, which is what we offer with Max the video call feature with Lilly. So we think theres going to be a lot of subscribers coming from that.
Speaker Change: But generally that's kind of the philosophy for it.
Speaker Change: Alright, Justin Thank you and when you go to the next question, which is Ryan from Needham and co.
Ryan: Hi, Congrats on a great quarter, thanks for taking the question.
Ryan: Maybe just on the.
Speaker Change: In the shareholder letter Luis you talked about sort of 2 million da use now.
Speaker Change: That our learnings on the Internet.
Speaker Change: Using the platform for intermediate English learning or higher.
Speaker Change: Obviously, you talked about sort of this initiative driving more English learners to the platform I think it was about six months ago. Now can you just give us a sense of on that $2 million now sort of what sort of progress has been made within that last six months since you've been focused on it.
Speaker Change: And maybe what regions, you're seeing sort of a.
Speaker Change: Our languages Youre seeing sort of the most attractive pickup our most near term pickup on unused yes.
Speaker Change: Yes. Thank you for that question Ryan.
Speaker Change: So as we have been saying English learners are a pretty major opportunity for us. The reason for that is because if you look at the broader language learning market outside of Duolingo. The majority of the spend about 80% of it yes.
Speaker Change: From people, who are learning English.
Speaker Change: But if you look at duolingo.
Speaker Change: The the amount of revenue that we make from people who are learning English is significantly less than 50%. So it's a major opportunity there and the reason that we are under represented within the English learners is because we haven't historically had intermediate or advanced content in English we started working.
Speaker Change: On that a few years ago and by now all of that content is there. So we were very happy with the content. We're obviously going to continue improving it because we're always improving everything but the content if at least there.
Speaker Change: The other thing that we've done is we've worked a lot on placing users' English as the unique language in that.
Speaker Change: Because it is the lingua franca for the whole world because in most countries people learn some amount of English in schools.
Speaker Change: Mostly when they come to the App they have some previous knowledge. Unlike most other languages, we are usually when they come to the app the beginners.
Speaker Change: The gas so we have to really do a good job of placing users in the right in the right place.
Speaker Change: And we've been working on that quite a bit and at this point, we feel pretty good on the product in terms of the content and then also the placing so that feels pretty good and.
Speaker Change: We're going to we're going to continue seeing growth like we said in the letter we have we have over 2 million daily active users in English in advanced or intermediate content, we think that that's growing pretty fast and now one thing too.
Speaker Change: <unk>.
Speaker Change: Call out here is that most of our growth comes from word of mouth. I mean, we're going to be doing some marketing to get the word out et cetera, but most of our growth comes from word of mouth now word of mouth growth is excellent in that it's very cheap we don't have to pay for it people just tell their friends, but it's also not super fast. So we expect that because historically there just how.
Speaker Change: People haven't really thought that duolingo have intermediate or advanced English, we expect that it's going to take a couple of years for the really the work to get around that are English courses are good for intermediate advanced speakers.
Speaker Change: So so that's that's kind of what's going to happen, but we're very excited and that's a pretty major opportunity.
Speaker Change: Maybe as a follow up it seems like as you continue to rollout new functionality that you may be starting our expanding to the Android user base, maybe a little bit more quickly than you have in the past just curious how the uptake on Android users has been for the new functionality and if youre seeing any.
Speaker Change: Differences in terms of how those users are converting relative to maybe in the past couple of years. Thanks, Yeah. I mean, we do the way we develop usually we put features first on iphones and then on Android phones, where we usually call. It three to six months behind on Android.
Speaker Change: And we're getting we're getting better at that it gets getting faster and faster.
Speaker Change: Right now we are.
Speaker Change: Working on for example, adding all the Max features to Android stuff, that's something that we're adding.
Speaker Change: One of the things to mention is that we expect.
Speaker Change: Usually by the way Android users, just don't monetize as well as iPhone users.
Speaker Change: That's industry wide. This is not just dwelling what usually is the case that they probably have a lower purchasing power.
Speaker Change: One thing that is interesting is we are seeing in our Max features and in particular the key Max feature a video call were seeing that English learners are using at about twice as much as people who are learning other languages. So we expect because.
Speaker Change: Android in particular has more English learners on iPhone, we expect that theres going to be a really good uptake there.
Justin Patterson: Thanks for taking my questions.
Speaker Change: Thank you.
Speaker Change: Next question comes from Aaron Kessler at Seaport Research.
Aaron Kessler: Great. Thanks, guys a couple of questions. If I may as a follow up on the intermediate English learning can you just go through kind of maybe the marketing strategy to engage new users to make them aware of that.
Speaker Change: Second I think last quarter, you mentioned pretty strong international growth, including Japan with benefiting from kind of more of our country managers any updates on some of the international growth this quarter as well. Thank you.
Speaker Change: Yes. Thank you.
Speaker Change: So you know.
Speaker Change: We do we do a very specific type of marketing.
Speaker Change: You've seen our social media, it's pretty unhinged.
Speaker Change: That type of marketing, our bread and butter marketing is not particularly applicable to convincing people that we have intermediate English content right I mean, the our breaking things and doing dance. This is not it's not really applicable what we do think is applicable if having influencers. We do have we used influences.
Speaker Change: And a lot of countries.
Speaker Change: And so we're going to be doing that it actually works pretty well and not just us doing the marketing for example video that people do.
Speaker Change: Without us even paying that.
Speaker Change: That that do this very well for example, there was a video recently that got a lot of these like many many millions of views of a guy who just just use duolingo to learn for a few months and then just went to Russia and he just recorded himself trying to do stuff and it turned out that he was able to do at that type of stuff is really good for efficacy because it's.
Speaker Change: Oh Wow, you can go to Russia, and actually get around so that's the type of stuff, we're going to be leaning in on our marketing.
Speaker Change: And in terms of Oh, Okay. So one last thing I'll say about the marketing, which is I'll reiterate what I said in the previous answer and that's what we're going to do for the marketing, but once again the main way in which we expect that the work to get around that we have.
Speaker Change: Intermediate at a bounce content is through word of mouth, because that has worked so well for us. So that's probably going to be the main way. So there's that then for your second question in terms of international growth.
Speaker Change: We're very happy with the results so far for international growth. If you ask about R. R. D of your growth right now this quarter, we reported a 54% it's broad range, though every single countries growing well, if where some countries are growing a little more than others, but it's basically every region is growing.
Speaker Change: We have country marketing managers on a number of countries we're about to add.
Speaker Change: New new ones, we're about to add Italy and Turkey.
Speaker Change:
Speaker Change: And we have we have one thing in Korea, and Japan, and China, and Brazil et cetera, we have a lot of them and that works really well.
Speaker Change: Typically what it is is we hire one or two individuals there in country and then they help with our basically localizing our humour on our kind of tick dock and Youtube accounts and so far every single country, where we've applied it has worked.
Speaker Change: Great. Thank you.
Speaker Change: Okay. Next question comes from Ralph Shakur, It at William Blair.
Ralph Shakur: Hi, good afternoon. Thanks for taking the question, maybe just give an update on the macro you know some investors might see this business model is sort of fairly discretionary and theyre growing 50 plus percent of dollars. So maybe just sort of with a little bit. If you can on why you think the models hold up so well and why you think you can continue to grow at these growth rates in osmatic questions and see kind of quiet out there.
Speaker Change: Okay.
Speaker Change:
Speaker Change: In general.
Speaker Change: We see a lot of opportunity still to grow.
Speaker Change: And most the number of people who are learning a language in the world. It's about $2 billion. We have about 100 million monthly active users. So there's a lot of runway in there.
Speaker Change: And so we're just going to continue drawing a growing I mean by the way we felt like we said last time, we expect our da <unk> growth for the rest of the year suddenly due to be around 50%. So we're going to continue strong growth and like I said for the last two years, it's been 50% to 60% year on year. So we just expect that to continue happening.
Speaker Change: And over the longer term, we expect August subject to start helping too. So this is language learning, but we expect that math and music are going to start contributing more and more over the next few years.
Speaker Change: So we just we just we feel pretty good about macro in that respect.
Speaker Change: Yeah, and Ralph before you ask the question.
Speaker Change: Additionally, I would add to Luis suggest that R. R.
Speaker Change: Entry level price renewal NGO is free.
Speaker Change: So that helps and then the actual subscription is just not very expensive.
Speaker Change: On a monthly basis, even super or Max so.
Speaker Change: Great and then just maybe Matt on margins, just kind of remind us of your framework for letting the business scale versus reinvestment opportunities obviously the.
Speaker Change: Model scaling pretty significantly thrown off a lot of cash and margin, but how do you think about incremental margins going forward.
Speaker Change: No. It's a great question and it gives me a chance just to kind of highlight the fact that we have scaled.
Speaker Change: Incredibly well.
Speaker Change: The top line bookings CAGR over the last three years.
Speaker Change: <unk>, 42%, including our most recent guidance.
Speaker Change: While we've done that eight quarters ago, we had $2 million in Q4.
Speaker Change: Adjusted EBITDA and we just guided to $49 seven at the midpoint.
Speaker Change: 25 X on adjusted EBITDA. So it feels like we're scaling both growth and profitability really nicely and we're doing that with your point around incremental margins above our long term target of 30% to 35% and we think that that's reasonable.
Speaker Change: But first and foremost we feel like there's a ton of opportunity. The first question was how do you get to 20 million subscribers we've had.
Speaker Change: A question about macro you got questions about <unk> growth there is lots of opportunities in lots of ways to win so we're going to continue to invest first back into R&D because.
Speaker Change: That is our primary.
Speaker Change: A way to grow through word of mouth. So.
Speaker Change: I think it's a yes and Ralph we're going to continue to try to invest for growth, but we're going to continue to scale profitably as well.
Ralph Shakur: Awesome. Thanks, Louise Thanks, Bob.
Speaker Change: So our next question comes from Brian <unk> of J P. Morgan.
Brian: Great. Thanks for taking the questions I guess just to start on Max available to 50% a few years.
Speaker Change: Up from 15% last quarter can you just help us understand the conversion cycle.
Speaker Change: Max subscriber up from when it becomes available when they go down the funnel and I guess like how does that differ versus super.
Speaker Change: So there's a couple of things to say.
Speaker Change: We've yes, we've been we've been increasing Max the way, we've been increasing Max by the way is by adding into more countries and in more courses at this point, we're at around 50% of our daily active users have access to it now that doesn't mean, they bought it but they have access to buy it by the end of the year it'll be somewhere between 60 and 70%.
Speaker Change: One important thing to say about that by the way is that we're adding countries, but the countries at this point, it's mainly long tail. That's left all the kind of wealthy countries. We've added.
Speaker Change: Now in terms of how the funnel is we're seeing a lot of people who are.
Speaker Change: Buying Max the first time base subscribed to anything so theyre not theyre free user and just they go directly to Max and we're also seeing a bunch of people who worst of Super subscribers, who were able to upgrade to Max. So we're seeing both of these and it's a bit early to know exactly where this is going to settle because some of the features and Max are very new.
Speaker Change: Particularly the feature of late that is really.
Speaker Change: One locked a lot of purchases and map the kind of the key features a video call with Lilly.
Speaker Change: And that figure has only been around for two months. So I don't really know exactly what's going to happen, but I get a sense.
Speaker Change: This is going to vary geographically, so there will be some countries.
Speaker Change: The U S. I'm guessing that we're super it's going to be the main package because it's a package for convenience, whereas there will be some countries, particularly the English learning ones that where it could be that Max is the main package. Because this is not usually in the poor countries people don't pay for convenience, but they do pay for things like.
Speaker Change: Learning how to convert better and so there may be some cases, some countries, where actually will have more max packages than super packages. We just don't know exactly how it's going to be yet, but that's kind of what I think will happen.
Speaker Change: Awesome. Thank you and I guess, one more if I could just on <unk> growth.
Speaker Change: As we go into 2025 can you just walk us through the building blocks.
Speaker Change: <unk> growth I mean, you know coming off strong growth in the 50% I mean, where do you think realistically.
Speaker Change: The Tam expansion is going to come from looking more English in 'twenty five or are we still talking more not just learning.
Speaker Change: I think we're going to see growth from all regions I mean, the nice thing about our growth. So far is that really there is no country, where we're growing very slowly. It's just they're all they're all kind of growing pretty fast the work.
Speaker Change: Where we're going to see next year I think we're going to continue seeing growth in our more penetrated markets like the U S and I think we're gonna be layering a lot more English growth. So it's kind of it's going to be both and and again. The reason that we believe that we can continue growing fast is that.
Speaker Change: We are just scratching the market for language learning I mean, Theres 2 billion people learning and that.
Speaker Change: And in addition to that not only have the 2 billion people learning in some countries. We are completely growing the market I mean for example in the United States are about 80% of our users are people who are not in the market before they weren't learning a language. So we just we just don't see that anything is there's nothing that we see that it's pointing us to some like cap or anything like that.
Speaker Change: Thank you both.
Speaker Change: Okay. Thank you Brian next question comes from Ross Sandler at Barclays.
Ross Sandler: Great. So I guess, it's kind of a.
Ross Sandler: Question for both of you guys, but Louie.
Speaker Change: Luis you are on the decoder podcast recently nice job by the way and I think you'd said that at the subscriber level that Max is accretive to margin and Matt you. Just mentioned that Cogs is going to go up because of the video call future, which makes sense, but could you guys just make sure.
Speaker Change: We got those right just unit economics versus overall cost and then I guess more importantly, Luis influence costs are down like 90% NII right now and so as that gets cheaper and cheaper in subsequent years, how does that potentially change either the the maxx rollout or future rollout.
Speaker Change: More things like the video call with Lilly et cetera, how are you thinking about that broadly yeah. Let me answer your second question first and then I'll, let Matt answer. The first question. So yes cost will continue going down that is our expectation and not only cost going to continue going down because large language models are going to be cheaper to query it off.
Speaker Change: So the case that we ourselves have not spent a lot of time optimizing costs I mean, the the.
Speaker Change: The director of that all our teams have if don't worry too much about cost at the moment for a large languished models, because that's going to naturally go down.
Speaker Change: So just develop the best features you can and over time.
Speaker Change: We're gonna.
Speaker Change: If we see that that maybe they are not going down in cost all that much or something we're going to start.
Speaker Change: Optimizing ourselves. So we really do believe that cost will go down what that'll do if it'll allow us to offer things.
Speaker Change: Things like video call with Lilly in.
Speaker Change: At more reasonable prices for certain countries, we think that the price is good for a country like the United States. We don't think that the price at the moment I mean, we don't even have it in India, but at some point, we're going to have in India, we probably at the moment cannot offer it for that.
Speaker Change: <unk> price, but I think sometime next year, the price will be pretty attractive. So it will just allow us to two two to offer it to.
Speaker Change: People in poor countries now the thing about people in poor countries. Those are exactly the ones that want to learn English and the people who want to learn English are exactly the ones who want to opt in.
Speaker Change: More so practice their conversation. So we think this is just going to be a pretty major unlock the decrease in price.
Speaker Change: Yeah, and just to follow up on the first part Ross.
Speaker Change: We launched Max because we had a belief that there was demand for dwelling or at a higher price and gen. AI enabled us to add features to that tier that allowed us to charge that price and for example, like we said in the U S. It's roughly <unk> the price of Super.
Speaker Change: So when you have that two extra price you have plenty of gross profit dollars.
Speaker Change: To play with and so that's when the leases on the podcast, we definitely make more gross profit dollars per subscriber for Max.
Speaker Change: And then Super <unk>.
Speaker Change: The margin the gross margin percentage is lower because in addition to the App store fees. There is a set of LLM calls but.
Speaker Change: For free cash flow and adjusted EBITDA dollars were making more and so we still feel good about it.
Speaker Change: The point that Luis is making on cost also applies to price. We have charged the team with just making wonderful product and you saw an example of that on the or something like that on the beginning of this call.
Speaker Change: We still have an optimized all the way pricing and costs and so we'll do that over time.
Speaker Change: That will help margins as well.
Speaker Change: Okay. Next question comes from Andrew Boone at JMP.
Andrew Boone: Thanks, So much guys for taking the question.
Andrew Boone: I wanted to go back to kind of product testing and Curt alright. So if I think about tests was the main driver of winners for tension on the platform you guys have basically doubled the user base over the last few years, but that's also with two years more product testing. That's now behind you can you talk about what is the pace of testing and whether thats faster.
Speaker Change: And whether you guys are seeing more gains given that larger base of users and faster testing or how do I think about those offsetting features.
Speaker Change: Yeah.
Speaker Change: The good news is we are running the number of tests that we're running per quarter is increasing so we are running more tests per quarter.
Speaker Change: The success rate for the test is about the same.
Speaker Change: It's a funny thing, it's almost exactly 50%. So every test that we run at about a 50% chance of succeeding in by succeeding.
Speaker Change: It did what we wanted it to do with like increased whatever metric we wanted it to do.
Speaker Change: To increase.
Speaker Change: So the pace of that is increasing and we.
Speaker Change: We feel pretty good about the.
Speaker Change: The number of things that we have coming up over the next.
Speaker Change: Visibility I have visibility about for about six months.
Speaker Change: We feel pretty good about the the things that we have for the next six months in terms of the number of deaths.
Speaker Change: Yeah, and Andrew the other thing I would add is just that the teams do run experiments like from time to time to try to enable that themselves to speed up their own experimental frequency to get data faster.
Speaker Change: To analyze the experiments more rapidly and so we're going to we're always running or trying to run those and we're gonna runs on this quarter for example, so.
Speaker Change: We think things can speed up.
Speaker Change: That's helpful and then.
Speaker Change: A similar question within the framework of what has recently launched products. If I think about adventures and video calls can you guys, maybe benchmark that it's a surface area for testing versus what is streaks remaining a leader board in terms of.
Speaker Change: Past products that have been successful in terms of driving again occur. Thanks, so much guys.
Speaker Change:
Speaker Change: I guess, maybe it's taking a step back a little bit.
Speaker Change: The way we operate for the dual and go App. If we have a number of different areas that that cover basically the main things we want to improve and there's three main things we want to improve we want to monetize better we want to make it more engaging and we want to teach better and depending on what the feature is really.
Speaker Change: <unk> to that area is going to be working on so for example, the streak is something that makes the app more engaging and we are running and we have run I don't know how many experiments on the street hundreds, possibly thousands and we have way more that are coming up and then in the next several months.
Speaker Change: Features like adventure and video call.
Speaker Change: These are usually the main goal of those is to teach better. So they are being run from the areas that have to do with teaching better.
Speaker Change: They're going to continue running a bunch of experiments and the last thing that I'll say the number of people that we have working on each one of these kind of engagement teaching better and monetization is roughly the same so we have about equal number of people working on each one of them.
Speaker Change: Okay. Next question comes from Chris Nagel at Bofa.
Chris Nagel: Great. Thanks, very much for taking the question I guess first one maybe just focusing on the family plan. It ticked up a little bit I think you said 20, 21%.
Speaker Change: Subs.
Speaker Change: I guess in terms of the contribution of some of the new product features you've added.
Speaker Change: [noise] versus or maybe an addition, too.
Speaker Change: Try to increase visibility of the product.
Speaker Change: What's been the contribution of those two and where do you think this up.
Speaker Change: Sure can evolve in terms of.
Speaker Change: Total mix, let's just say over the next 12 months.
Speaker Change: So then we've.
Speaker Change: Two things for the family plan and Youre right. One is we've made the primarily got better I think we've added features to it or fix some things that weren't exactly bugs or things like that.
Speaker Change: Kids under 13, the pants couldn't see their name now they can so we've done stuff like that and then we've also made it more visible the majority of the contribution is actually making it more visible.
Speaker Change: The features are good and that probably helped over the long term in terms of the retention of the family plan.
Speaker Change: But just generally making it more visible as what has had the most contribution.
Speaker Change: In terms of what.
Speaker Change: What exactly the penetration will be over the next year, it's very hard to say I mean, I I honestly, just don't know the answer to that.
Speaker Change: Okay.
Speaker Change: But I expect it to continue going up but I, just don't know at what speed.
Speaker Change: Got it.
Speaker Change: And then just the follow up.
Speaker Change: I don't think we touched maybe it was in the.
Speaker Change: Third a letter I missed it but the resurrected user.
Speaker Change: Which was the focus for the last quarter, which is the progress on your focusing there so in terms of.
Speaker Change: However, you want to measure it whether its subsidiary of years of contribution.
Speaker Change: <unk> relative to tier two how does that look.
Speaker Change: Yeah.
Speaker Change: Restricted to users are a pretty big opportunity for us what what's happening as time goes on.
Speaker Change: Well the way we look at the top of funnel is basically either uses that are coming in brand new to the app or uses that are coming back after a long hiatus.
Speaker Change: That's top of funnel. So one is new users the other ones resurrected users obviously when you're just lunch on apps all of your users are new users.
Speaker Change: Your brand new as time goes on.
Speaker Change: Higher and higher fraction of your users that are from the top of the funnel a retroactive users at this point, we have gotten to the point to the point where more than half of the top of funnel is resurrected users. So there.
Speaker Change: Given day, a larger number of users are coming back to the app after a long hiatus that new users.
Speaker Change: And that's just natural for a product of course. This also varies per geography, depending on how penetrated is this the case I mean in the United States, where we've been operating for longer.
Speaker Change: The higher fraction of restricted users versus in a country like maybe India, where we just havent been operating for that long.
Speaker Change: This is a this is a pretty major opportunity for us because we just haven't worked too much on the experience of when people come back.
Speaker Change: So we feel pretty good about that and that's going to be a good area of growth.
Speaker Change: Other thing that I should mention about retroactive users.
Speaker Change: I think that it's important for people to understand a lot of times when people think about these subscription models. They think well after I used to have left they will never come back.
Speaker Change: It's just not the case with duolingo I mean with duolingo. It is rare to see that I, usually leave and never comes back usually when they stop using duolingo. They usually come back you know I don't know exactly how long it will take them. We ended at three months later two years later et cetera, that's a pretty common thing and.
Speaker Change: Interestingly. This is just an interesting tidbit the most common answer when you ask users why they stopped using dual ingo if I haven't stopped.
Speaker Change: Which is a funny thing they they they they still see themselves as duolingo users, even though they may not have been around for 35 days or 40 days.
Speaker Change: I appreciate the comments.
Speaker Change: Okay.
Speaker Change: Our next question comes from Wyatt Swanson at D. A Davidson.
Wyatt Swanson: Hey, guys.
Speaker Change: Thank you for the question could you discuss maybe what youre seeing in terms of overall subscriber retention just like any changes and retention trends as you rollout additional features.
Speaker Change: And then are you seeing any differences in subscriber retention for Super plan versus Max.
Speaker Change: Yes.
Speaker Change: No I appreciate the question the overall retention Hasnt changed since we last talked about it last quarter or the quarter before.
Speaker Change: The retention on the platform is pretty stable at this point.
Speaker Change: That could change over time, we don't actually have enough data yet on Max.
Speaker Change: At scale to really know how that's going to retain we have enough data that makes us feel like comfortable that the LTV will be superior to super.
Speaker Change: We don't know exactly where that's going to stabilize just like we don't know where the top line run rate will stabilize.
Speaker Change: We're watching and we'll let you all know how its trending but so far there's been no major changes on our platform and retention.
Speaker Change: Okay. Thank you.
Speaker Change: And our next question comes from Arvin Romani at Piper Sandler.
Arvin Romani: Thanks for taking my question, but I recall got animation.
Arvin Romani: Yes.
Speaker Change: I really like listening to you about this.
Speaker Change: Lily.
Speaker Change: Hey driver.
Speaker Change: Know what she's doing part of my job now over time, she is going to do more and more of our job and I can just retire.
Speaker Change: Yeah.
Speaker Change: The core core part of that Jonathan I think you know.
Speaker Change: Set up that way.
Speaker Change: The driver of that.
Speaker Change: Probably one of the most enjoyable earnings cause it had in several quarters.
Speaker Change: Yeah, just a quick question on deer years, right I mean, I think it's a big focus for investors and I think we have to.
Speaker Change: Talked about in the past.
Speaker Change: Long term should we be comfortable as long as the U S.
Speaker Change: As you know.
Speaker Change: At some point higher than revenue growth that circa.
Speaker Change: More normalized way to think about it because the last two years.
Speaker Change: Talking about extensively there was a lot of it.
Speaker Change: Unusual factors that got it to like really really kind of a kind of a compressor levels by Blake I'll, let them like how should we think about the relationship between revenue growth and Dave's.
Speaker Change: I can I don't know exactly how to answer that question I mean, my sense is for the last it really has been a little over two years, where every single quarter. Our <unk> growth is somewhere between $50 to 60% now. This obviously wont last forever I mean, we're saying for the rest of the year at least it'll it'll be 50%.
Speaker Change: Last forever, but my sense is that we're going to continue seeing strong <unk> growth for a while.
Speaker Change: Just because.
Speaker Change: The main way in which we grow is word of mouth and also adding more features to the or improving our features and we just have.
Speaker Change: A really good set of improvements planned so I think that'll be that'll be the case for a while.
Speaker Change: I don't know what steady state will be and I don't even know what that steady state means but I don't I don't know if you have any anything about that I'm not sure how to answer that question, Yes, I don't have the perfect ratio Arvin, but I do think I'd, just give me a chance to remind everyone that we have.
Speaker Change: Not just several ways that we can grow.
Speaker Change: Users. So we have already talked about new to the platform.
Speaker Change: Resurrected users or users have been away from the platform per month coming back. There's many levers we have to grow users and.
Speaker Change: Then theres many experiments hundreds of experiments every quarter, where we grow conversion from free to paid.
Speaker Change: And then Theres experiments.
Speaker Change: <unk> vectors that we have to retain subscribers better and then there's mix shifts between plans and then theres pricing.
Speaker Change: Don't bore you, but I would just say that there is a lot of vectors throughout the.
Speaker Change: The funnel from free user to retained paid subscriber that give me confidence that we can sustain really nice revenue growth.
Speaker Change: Above 25% say.
Speaker Change: And a lot of different environments and I agree with Luis we of note. We have a bunch of belief that we will be able to grow users nicely for some time, but I think there's a ton of levers so.
Speaker Change: Yes, that's why we feel comfortable that our revenue growth rate.
Speaker Change: Should stay strong for a long time.
Speaker Change: Terrific.
Speaker Change: I have one more follow up question.
Speaker Change: Yeah.
Speaker Change: Neocon.
Speaker Change: My name is.
Speaker Change: Really the driver but.
Speaker Change: We really don't get.
Speaker Change: Frankly, we really don't have any insight of like how does one campath or the other right I mean, we're looking at from a product and then.
Speaker Change: Are there any kind of metrics or anecdotes you can share.
Speaker Change: From.
Speaker Change: Is like.
Speaker Change: <unk>.
Speaker Change: Neocon this year versus last year.
Speaker Change: Any incrementally from a metrics anecdotes.
Speaker Change: For dual con.
Speaker Change: Yeah, the number of live views on dual Kahn with three times the number of live views from last year.
Speaker Change: So there's all kinds of ways to measure them because by the way <unk> is one thing, but we also get to see a lot of us over the next week over the next month et cetera, but it's generally.
Speaker Change: Really every single year, we're just getting a significantly higher number of both live views and also historical views for each duo con.
Speaker Change: It just has to do with the fact that our brand is more well known.
Speaker Change: Yes.
Speaker Change: If I can slip one last one here I think I'm doing the math and so far.
Speaker Change: And I think what are the things as they like the.
Speaker Change: Product or feature is going to one versus the other.
Speaker Change: Is it still like a very ambiguous line or do you have a bright line.
Speaker Change: What goes into each and then of course, you have Max which is another thing yeah, Yeah I mean.
Speaker Change: I can tell you where we're at at the moment I cannot guarantee that we will be there three months from now because things change your fast.
Speaker Change: At the moment, where we're at.
Speaker Change: Super Duolingo pass the features that basically where you pay.
Speaker Change: For convenience for example, turning off ads or.
Speaker Change: Or unlimited lives like unlimited hearts that paying for convenience.
Speaker Change: Max the more time passes the more in my head and in our product teams headed if basically video call with Lilly.
Speaker Change: We have other features in there but by by a wide margin at this moment video call with Lilly is the killer feature for Max So and.
Speaker Change: And what you if you think about that what that is is just practice conversation. So.
Speaker Change: At the moment the way I'm thinking of Super versus Max's Super you pay for convenience maxi pay for getting better conversation.
Speaker Change: And that's it.
Speaker Change: At the moment again, maybe when we talk in three months I'll tell you something completely different.
Speaker Change: Thank you so much.
Speaker Change: Alright next question comes from outside of Raymond James.
Speaker Change: Alright, Thank you Luisa I kind of wanted to follow up on that video call.
Speaker Change: Conversation what is the early data told you so far and you had a trial period and how the limited launch in terms of usage and I'm curious if there's been any notable uptick in terms of like growing time per session or better streak retention that that might translate to higher max retention or greater adoption longer term. Thanks.
Speaker Change: Yeah, the usage metrics for video call are very good and deep.
Speaker Change: What I really like is that the match our expectations and by that I mean, English learners to use it more than non English learners, because theyre more interested in conversations also for any language more advanced users use it more than less advanced users. So it's and it's exactly what we want.
Speaker Change: And we're seeing.
Speaker Change: We're making changes to the experience we're trying to make it more engaging for example, you saw the video that we played at the beginning of this call Lilly has a lot of different kind of facial expressions et cetera, where we're adding more and more of those to make it more and more realistic on every time, we do that.
Speaker Change: It becomes more engaging and we are seeing that so we do see increases in the number of calls that we will have.
Speaker Change: Or the amount of time that they're spending with it whenever we make it more realistic or or the conversation topics are better. The other thing is we're going to be getting a lot better with that.
Speaker Change: The actual conversation topics for example, right now literally lived in a world that where for some news doesn't really happen today, what should have happened today is it really should have talked about if you call. Her she talked about the election.
Speaker Change: But that's not something that is currently happening, but in a few months that that's how it's going to be.
Speaker Change: So we're feeling pretty good about that.
Speaker Change: Hopefully I think that answers your question.
Speaker Change: No great color there.
Speaker Change: Maybe just a follow up for you, but you referenced in the prepared remarks still a little over a month away any changes to how you are planning on approaching holiday kind of new year season from a promotional standpoint. This year, given you'll have a wider maxx rollout any different kind of timing assumptions that are embedded in your outlook.
Speaker Change: No the outlook there is always a bit uncertain around the fact that we.
Speaker Change: Launch our one promo of the year and that has four days in December and then obviously the month of January So thats. The same as it's been in years past, we do run experiments every year to service things differently.
Speaker Change: To promote it in different ways, and we will start running those.
Speaker Change: Earlier on the mineral late December and then launch them those are a bit tougher to predict so that's but that's that's all incorporated into the guidance.
Speaker Change: Alright, Thank you both.
Speaker Change: And next question comes from Sean Atkins urea at Wolfe Research.
Sean Atkins: Thanks, Debbie Thanks for taking my questions I guess I'll try two please one is on international markets. If you talked about France, and Korea last quarter, you had mentioned those two and adding marketing managers post your success in Japan. So how is that tracking and have you added more international countries with marketing managers.
Sean Atkins: That's question one and then the second question.
Speaker Change: Marketing strategy, if you will.
Speaker Change: Seeing anything.
Speaker Change: You could comment on the pricing that youre seeing on social media platforms.
Speaker Change: Our life's trended for you anything in particular that youre seeing over the past quarter and in this quarter to date. Thank you.
Speaker Change: Okay, great So international markets, yes.
Speaker Change: We very recently added marketing managers for France and Korea.
Speaker Change: France is a little longer maybe a few months in Korea, it's really like weeks. So it's too early to say in Korea, France is looking very good. It's just again every time that we follow the playbook. It ends up working it may take a little longer in some countries than others, but it ends up working after a few months and we are already seeing it working in <unk>.
Speaker Change: Hence.
Speaker Change: We are about to add.
Speaker Change: <unk> also.
Speaker Change: Also like I mentioned, Italy and Turkey.
Speaker Change: So we're going to be doing that and we have a few others that we're considering adding for next year.
Speaker Change: In terms of marketing strategy, you said things like social media prices et cetera, we don't pay for the vast majority of our social media stuff I mean, we do a little bit of performance marketing, but the social media that we're known for we're getting like a tick tock videos or our Youtube shorts et cetera that it's all organic we don't pay for that so the cost of each one of those videos as the cost to make it on the <unk>.
Speaker Change: Jewelry of them.
Speaker Change: A couple of hundred dollars to make it and that's it.
Speaker Change: We do a little bit of performance marketing, but it's so it's kind of small enough that that's not affecting us or whether it doesn't really affect too much whether the prices are going up or down.
Speaker Change: I'm sure, there's an effect, but its just not something that I personally tracked.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Okay. Your next question comes from Mark Mahaney at Evercore.
Mark Mahaney: Okay. Thank you can I run a couple of questions by the growth of the U S market, it's kind of as your oldest most mature market in terms of bookings or revenue or user da use is that still pretty consistent with that of the global growth rate. That's question. One secondly, I'm sorry, if you covered it early on.
Mark Mahaney: Have you said anything about what kind of traction you're actually seeing for Max I know you talked about what percentage of the user base has access to it now, but but did you provide any disclosure at all on what kind of traction you're seeing for it and then third I just want to ask about on <unk> question and Matt.
Mark Mahaney: I know theres a lot of moving pieces in that that kind of average bookings per average sub.
Speaker Change: But one of those factors is this greater adoption of Super and Max are those big enough now that the kind of sustainably cause <unk> to grow going forwards. Thanks a lot.
Speaker Change: Let me take the first two and then Matt will take my answer if anything with acronyms.
Speaker Change: Okay. So the the U S market, yes growth in the U S market is good.
Speaker Change: It is it is growing similar to most countries again, it's not the case that Oh.
Speaker Change: The U S is the fastest growing country, but it's also not the slowest country and it's also not the case that we have huge.
Speaker Change: Disparity between countries. Most countries are kind of growing at similar rates and it's a similar rate to our overall average so the U S is somewhere I don't know exactly where it's roughly average.
Speaker Change: So we feel pretty good about the the U S growth in terms of Max traction, yes, we feel very good about our.
Speaker Change: <unk> construction and in particular the reason we feel very good about it is because over the last couple of months. We added this extra feature which is video call with Lilly and that is really allowing us to.
Speaker Change: Advertising Max in a much better way because what happens with vehicle with really the previous Max features that we had explained my answer enroll play where a little hard to understand for users. But this one is so easy to understand within two seconds people get the ideas like you can get to talk to Lilly.
Speaker Change: Can you just say that I'm like Oh, well, yes, I want that and so we're seeing really good traction.
Speaker Change: Traction in terms of people actually buying Max I don't think we released the precise numbers just yet, but we feel good about it.
Speaker Change: Yes.
Speaker Change: And then Matt and then our poop, yes, Mark so I'm talking about <unk> and not.
Speaker Change: It's actually revenue not not bookings on this part of the conversation, but as you can see in the numbers are <unk> trended towards zero percent year over year, which we've talked about for the past couple of quarters about getting it to flattish I think was the word I used and is now I guess technically flattish at zero percent year over year, and we do think it can go.
Speaker Change: A bit higher.
Speaker Change: Things that impact <unk> for US are basically what you said theyre planned mix. So is it super family Historically has changed the pricing with with family family plan, obviously being higher.
Speaker Change: And then going forward Maxwell will definitely impact that given its two exit price right now Max is not of the scale that is really showing up.
Speaker Change: Materially in the in the <unk> mix right now.
Speaker Change: Again, because revenue is amortized over.
Speaker Change: <unk> months, and so we've only really seen a material impact in the past quarter. So I expect that to come through.
Speaker Change: Then the other things that change <unk>.
Speaker Change: Foreign currencies regional country mix.
Speaker Change: So I think going forward from that we'll update you all on how family.
Speaker Change: Planned Super and Max are trending on or two but right now we feel good about the trend it's gone from negative year over year growth to zero percent this quarter.
Speaker Change: Probably can can stay there to go a little bit higher.
Speaker Change: Okay. Thank you Matt Thank you Louise.
Speaker Change: Hey, Mark Hey, we have two more questions to get through in eight minutes, we've got Chris <unk> from UBS.
Chris Nagel: Great. Thanks for taking my question, maybe just another one here on Max I think you talked about seeing more engagement with conversations with Lilly from English speakers versus not like I guess distinguish versus not which puts us that kind of a 50 50 dynamic where kind of be thinking about.
Speaker Change: Who's actually adopting the Max out at this point should we be thinking about it is roughly evenly split at this point are we talking about English being more closer to two to one three to one sort of adoption of Max at this point or.
Speaker Change: Any sort of color you can provide to help frame that would be helpful. Yeah, I'll give it puts and takes on this.
Speaker Change: Max is significantly more expensive than in the U S. For example is twice the price.
Speaker Change: So you would expect that wealthier countries are adopting Max more and that is that there's some push there.
Speaker Change: On the other hand, the main feature for Max is video call with Lilly, which we are seeing that English learners, which predominantly are in poor countries.
Speaker Change: Use that twice as much when they have access to it so that would give a push towards English learners flashboard countries adopting Max.
Speaker Change: So that's there.
Speaker Change: Paul push and pull on either side I don't know, where it's going to settle because for example, right now Max is not available in some very large English learning countries. It's not available in India for example.
Speaker Change: So we're going to put it there and work that that'll happen over time, so I don't know, where it's going to settle at the moment.
Speaker Change: There are more Max users in wealthy countries. So they are usually the ones that are not learning English.
Speaker Change: But that that I think it.
Speaker Change: He is going to change I don't know I don't know if its going to be I, just nowhere don't know where it will settle but that's going to change some.
Speaker Change: Got it and maybe just I noticed the callout there there was a meaningful contribution from Max to total bookings in <unk>.
Speaker Change: I don't believe that was in the <unk>.
Speaker Change: Press release here I guess.
Speaker Change: Any sort of kind of framework to be thinking about there like should we be thinking about that now has over a low single digit sort of growth contribution within the quarter.
Speaker Change: Yeah, I mean, I think that that's why we called it out with Q3 was really the.
Speaker Change: A change in terms of Max's materiality and then as I called out in the Q4 guide. The Q4 guide does incorporate what we believe will happen with Max and.
Speaker Change: In vehicle in Q4.
Speaker Change: So it is it is now a meaningful part of the guide and our performance.
Speaker Change: Again, I think that we're still in the initial stages of this especially with video call. So in Q3 I referenced the fact that that led to like some one time.
Speaker Change: Bumps as we rolled it out more broadly.
Speaker Change: I think we'll probably see some of that in Q4 as well, but yeah.
Speaker Change: Yes, I think that's all incorporated in the guide.
Speaker Change: Got it and just a clarification from earlier did you say, whether or not we should be expecting in with the new years.
Speaker Change: Discount offering.
Speaker Change: So we're gonna racks would be included yes, we're going to run experiments on it so.
Speaker Change: But we are you will just have to show up in the last four days of the year and figure it out.
Speaker Change: Thanks, guys.
Speaker Change: Okay and our final question comes from Krista Lee at CMS.
Krista Lee: Okay. Thank you management for taking my questions and very honored to be their phone Hawaii asking questions. So I'm just wondering how you view the paying ratio Chantal do you think of Maxim.
Krista Lee: And that time do you think it will exceed that of Mr. Pectolytic upon.
Krista Lee: More on the competition landscape.
Krista Lee: AI video playback. Thank you.
Krista Lee: Yes.
Krista Lee: We don't really know where.
Krista Lee: It'll settle.
Krista Lee: Whether it'll be higher fraction of people doing Max versus.
Krista Lee: Super Thank it'll depend on the country.
Krista Lee: And on our route the prices to them. So it's very hard to say, where this will end.
Krista Lee: Now in terms of competition.
Krista Lee: Generally.
Krista Lee: What gets.
Krista Lee: <unk> gets us to standout what gets us to be the category leader in language learning is a number of things I mean first of all we we have understood that the hardest thing about learning something by herself for learning a language by yourself staying motivated so everything we do try to keep you engaged I mean, the app is very game of five.
Krista Lee: For example, also our conversation feature you don't talk to a random character you talked to Lilly.
Krista Lee: And Lilly starts becoming your friend et cetera. So we really try to make everything we do engaging and that's something that really makes us stand out the other big thing that makes us stand out if our freemium model.
Krista Lee: Really the vast majority of our users use duolingo for free because our free tier is very good now that there's a lot of things for one it gives us a very large scale.
Krista Lee: And having such a large scale allows us to collect data to teach better and also to make it a more engaging so we just have a lot more data than anybody in history about how people learn languages and the other thing that the free tier does is that it acts as our marketing engine.
Krista Lee: The reason, we can be so efficient with marketing I mean, we really spend very very little on marketing compared to most apps of any kind.
Krista Lee: And the reason that we can do that is because or are free users basically because our marketing engine they tell their friends.
Krista Lee: And so that's.
Krista Lee: That's what we think differentiates us from competition.
Speaker Change: Thank you.
Speaker Change: Okay. Thank you that's helpful.
Speaker Change: Okay, well that's it for questions I will turn it back to Luis to wrap it up thank.
Luis Mine: Thank you Debbie I, just like to thank everyone for joining us.
Luis Mine: Until next time enjoy video, calling with Lilly in whatever language you are learning.
Luis Mine: Goodbye.