Q4 2024 Duolingo Inc Earnings Call
And welcome to dual Ngos fourth quarter and full year 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 Dot com on today's call. We have Louis spun on our co founder and CEO and Matt <unk>, our CFO. They will begin with some brief remarks before opening the call to questions.
Operator: On today's call, we have Luis Bonon, our co founder and CEO, and Matt Skarupa, our CFO. They'll begin with some brief remarks before opening the call to questions. Analysts can ask a question by using the raise hand feature. And please note that this event is being recorded and all attendees are in listen only mode.
Thank you very much.
Enter your participant ID followed by pound. The meeting has not started. Please wait or try again later.
Speaker Change: Analysts can ask a question by using the Raytheon feature and please note that this event is being recorded and all attendees are in listen only mode.
Operator: Just a reminder that we'll make forward-looking statements regarding future events and financial performance, which are subject to material risks and uncertainties. Some of these risks have been set forth in the risk factors in our filings with the SEC. The 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.
You have joined the meeting as an attendee and will be muted throughout the meeting.
Speaker Change: Just a reminder, that we will make forward looking statements regarding future events and financial performance, which are subject to material risks and uncertainties.
Speaker Change: Some of these risks have been set forth in the risk factors in our filings with the SEC. The 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 financial measures on today's call. These GAAP measures are not intended to be considered in.
Operator: Additionally, we'll present both GAAP and non-GAAP financial measures on today's call. These 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.
© 2016 Holly Wood, LLC.
Speaker Change: <unk> from a substitute for or superior to our GAAP results and we encourage you to consider all measures when analyzing our performance and now I'll turn it over to Luis.
Luis Bonon: And now I'll turn it over to Luis. Thank you, Debbie, and welcome, everyone. Look, we had a wonderful 2024 and our results show it.
Speaker Change: Nathan Price, Shonda Rhimes, Scott Patton appear on U.S. opening night and it will air
Luis: Thank you Debbie and welcome everyone.
Luis: Look we had a wonderful 2024 and our results show it.
Luis Bonon: But before I get to the details, I wanted to remind you all of the broader... Since our IPO, which was three and a half years ago, we've added 30 million daily active users and over 80 million monthly active users. We've nearly tripled bookings, and we've gone from breakeven to a 25.7% adjusted EBITDA margin in 2024. All of this shows the power of our approach. We experiment relentlessly to improve user experience and monetization. Through gamification, social features, and our social-first marketing, we've scaled our reach, converted more free users into subscribers, improved learning outcomes, and maintained strong profitability.
Luis: But before I get to the details I wanted to remind you of the broader context since our IPO, which was $3 five years ago. We've added 30 million daily active users and over 80 million monthly active users.
Luis: We've nearly tripled bookings.
Luis: And we've gone from breakeven to a 25, 7% adjusted EBITDA margin in 2024.
Speaker Change: TWO NEW GENERATIONS A VEGETATIONARY TV SERIES THEY'VE BROUGHT US HERE AND THEIR FUTURE A VEGETATIONARY TV SERIES
Luis: All of this shows the power of our approach, we experiment relentlessly to improve user experience and monetization.
Luis: Through gamification, social features and our social first marketing, we scaled our reach converted more free users into subscribers improved learning outcomes and maintained strong profitability.
Luis Bonon: And in 2024, we ended the year with an outstanding record quarter. Daily active users hit 40 million, growing 51% year-over-year. We added more new subscribers than ever before and delivered our highest quarterly bookings, revenue, and adjusted EPS. Our Q4L performance was largely driven by stronger-than-expected Duolingo Max subscriptions, including upgrades from current super-subscribers and by continued momentum in our family plan, particularly during the first few days of our New Year's.
Luis: And in 2024, we ended the year with an outstanding record quarter.
Luis: Daily active users hit 40 million growing 51% year over year.
Thank you for watching!
Luis: We added more new subscribers than ever before and delivered our highest quarterly bookings revenue and adjusted EBITDA.
Thank you for tuning in.
Luis: Our Q4 outperformance was largely driven by stronger than expected duolingo, Max subscriptions, including upgrades from current Super subscribers and by continued momentum in our family plan, particularly during the first few days of for new year's promotion.
Luis Bonon: I'm especially excited about the traction we're seeing with Duolingo Mexico. Since launching Video Call, our Gen AI powered conversation feature, user engagement has grown meaningfully. Max is now available to the majority of our DAUs and represents about 5% of total subscribers. We're still very early in driving max monetization and believe there's a lot of room to grow.
Luis: I am, especially excited about the traction we're seeing with duolingo mix.
Luis: Since launching video call our Gen AI powered conversation feature user engagement has grown meaningfully.
Speaker Change: I'm reporting live from Duolingo's funeral. He's got a new turn into a murder mystery. And you killed him.
Luis: Max is now available to the majority of our <unk> and represents about 5% of total subscribers.
Luis: We're still very early in driving Max monetization and believe there is a lot of room to grow.
Luis Bonon: And like I said, our family plan is also delivering strong results. It now makes up 23% of total subscribers and continues to show higher retention and LTV than individual.
Luis: And like I said, our family plan is also delivering strong results.
Luis: Now makes up 23% of total subscribers and continues to show higher retention and LTV than individual plants.
Luis Bonon: This year, we have three priorities. First, we'll continue to drive subscription bookings by growing users, improving subscriber conversion, and promoting Duolingo Max to more learners around the world. We'll do this by running hundreds of experiments each quarter, and I feel very good about how quickly we are moving. Second, we will leverage generative AI to improve the video call experience, which I'll describe it more in a moment. We'll also use Gen-AI to scale content across our language, math, and music courses even faster.
Luis: This year, we have three priorities.
Luis: First we will continue to drive subscription bookings by growing users improving subscriber conversion and promoting duolingo Max to more learners around the world.
Speaker Change: Many people would jump at the opportunity to be the cause of my death, even using my death to hit your quarterly KPIs. Now I know the death video looked incredibly realistic.
Luis: We will do this by running hundreds of experiments each quarter and I feel very good about how quickly we are moving.
Speaker Change: But it was all edited. The Cybertruck was mainly there for dramatic effect, and perhaps some social commentary. I realized my friends were being asked too many questions, and they were too nice to lie. So it was apparent I had to make them fake their deaths too. Once again, not enough of you were doing your lessons. So I had to go to extreme measures.
Luis: Second we will leverage generative AI to improve the video call experience, which I'll describe it more in a moment. We'll also use gen AI to scale content across our language math and music courses even faster.
Luis Bonon: Finally, we'll remain disciplined with our investments, balancing strong top-line growth with measured progress toward our long-term profitability target. I want to go into a little more detail on AI and scaling our content. Duolingo Max is a key priority for us. Users are engaging more with video call and will work to make it an even better conversation experience. We believe Videocall will help us teach better, especially for our more advanced. Most of our AI costs are tied to video call and they scale based on max subscriber We're prioritizing using the latest AI models to deliver high quality.
Luis: Finally, we will remain.
Speaker Change: Don't you ever learn your lesson? I wanted to see how many of you would bother to bring me back to life. I quickly found out who the real ones were. Thank you, Zachary Lumsden, for commenting on every single social post for the past five years, and for always doing your lesson. But most importantly, Dua finally noticed me. She still hasn't said anything about my ashes I sent her. So yeah, was there some drama? Sure. Did some people get falsely arrested along the way? Maybe. Did I sell custom coffins? I had to pay off the Cybertruck rental somehow. I guess you could say, I put the fun in funerals. So yeah, please, just do your lesson.
And disciplined with our investments balancing strong topline growth with measured progress toward our long term profitability targets.
Luis: I want to go into a little more detail on AI and scaling our content.
Luis: Dwelling go Max is a key priority for US users are engaging more with video call and we will work to make it an even better conversation experience.
Luis: We believe video call will help us teach better, especially for our more advanced learners.
Luis: Most of our costs are tied to video call and they scale based on Max describe our growth we're prioritizing using the latest AI models to deliver a high quality experience.
Because next time, it won't be a fake death.
Luis Bonon: What that means is that we're not concentrating on cost optimization right now, even though we're confident these costs will come down over time. AI and automation tools are also allowing us to expand content and courses faster than ever before. We believe this will help us reach more learners globally. This includes also scaling our courses for math and music, which are showing strong early adoption. Today, these subjects have a combined 3 million DAUs, and we see a lot of room to grow.
Thank you for watching!
Luis: That means is that we're not concentrating on cost optimization right now even though we're confident these costs will come down over time.
Speaker Change: Good evening, everyone, and welcome to Duolingo's fourth quarter and full year 2024 earnings webcast.
Luis: AI and automation tools are also allowing us to expand content and courses faster than ever before we believe this will help us to reach more learners globally.
Speaker Change: 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 von Ahn, our co-founder and CEO, and Matt Skaruppa, our CFO. They'll begin with some brief remarks before opening the call to questions.
Luis: This includes also scaling our courses for math and music, which are showing strong early adoption.
Luis: Today. These subjects had a combined 3 million via use and we see a lot of room to grow though as I said before this will take time.
Luis Bonon: Though, as I said before, this will take time. The market opportunity in both language learning and other subjects remains substantial, and we're making strategic investments now in order to fuel growth for years to come. While this means a more moderate pace of profit growth compared to the exceptional levels of the past two years, we're still delivering margin expansion just with an eye on building something even bigger.
Speaker Change: Analysts can ask a question by using the raise hand feature and please note that this event is being recorded and all attendees are in listen-only mode.
Luis: The market opportunity in both language learning on other subjects remains substantial and we're making strategic investments now in order to fuel growth for years to come.
Speaker Change: Just a reminder that we'll make forward-looking statements regarding future events and financial performance, which are subject to material risks and uncertainties.
Luis: While this means a more moderate pace of profit growth compared to the exceptional levels of the past two years, we're still delivering margin expansion just with an eye on building something even bigger.
Speaker Change: Some of these risks have been set forth in the risk factors in our filings with the SEC.
Matt Skarupa: And with that, I will turn it over to Mr. Matt Chalupa to walk through the financials of our outlook for 2025. Thanks, Luis. And good evening, everyone. As Luis mentioned, we closed out 2024 with a record quarter, capping off another exceptional year for Duolingo. In Q4, we grew total bookings by 42% year over year. Revenue increased 39% year over year. And we expanded our full year adjusted EBITDA margin by about a These results reflect the strength of our business model and our execution, fueled by strong Duolingo Max adoption and demand for our family. We feel great about our momentum going into 2020.
Speaker Change: The 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.
Luis: And with that I will turn it over to Mr. Matt <unk> to walk through the financials of our outlook for 2025.
Speaker Change: Additionally, we'll present both GAAP and non-GAAP financial measures on today's call. These GAAP measures are not intended to be considered in isolation from, a substitute for, or superior to our GAAP results, and we encourage you to consider all measures when analyzing our performance. And now I'll turn it over to Luis.
Matt: Thanks Luis.
Matt: Hey, good evening, everyone as Luis mentioned, we closed out 2024 with a record quarter capping off another exceptional year for duolingo.
Matt: In Q4, we grew total bookings by 42% year over year revenue increased 39% year over year due we expanded our full year adjusted EBITDA margin by about eight points.
Thank you, Debbie, and welcome, everyone.
Luis: Look, we had a wonderful 2024 and our results show it.
Luis: But before I get to the details, I wanted to remind you all of the broader context.
Matt: These results reflect the strength of our business model and our execution fueled by strong drilling and Max adoption and manage for our family plan.
Luis: Since our IPO, which was three and a half years ago, we've added 30 million daily active users and over 80 million monthly active users.
Matt: We feel great about our momentum going into 2025.
Matt Skarupa: Now to our guidance. Our four-year guidance has bookings growing 25% year-over-year at the midpoint or 27% on a constant currency basis. This growth will be driven primarily by subscription bookings, which we expect to grow around 31%. Our book, our guidance puts us on track to surpass $1 billion in book uses. For Q1, we expect bookings to grow approximately 28% year-over-year, or 32% in constant currency, primarily due to continued strength in subscription bookings that are projected to grow about 35% year-over-year. This bookings guide is supported by Continued Strength and our DAU growth, which we expect to be in the mid-40s for Q1.
Luis: We've nearly tripled bookings, and we've gone from breakeven to a 25.7% adjusted EBITDA margin in 2024.
Matt: Now to our guidance our full year guidance has bookings growing 25% year over year at the midpoint for 27% on a constant currency basis.
Luis: All of this shows the power of our approach. We experiment relentlessly to improve user experience and monetization.
Matt: This growth will be driven primarily by subscription bookings, which we expect to grow around 31%.
Luis: Through gamification, social features, and our social-first marketing, we've scaled our reach, converted more free users into subscribers, improved learning outcomes, and maintained strong profitability.
Matt: Our bookings guidance puts us on track to surpass $1 billion in bookings this year.
Matt: For Q1, we expect bookings to grow approximately 28% year over year.
Luis: And in 2024, we ended the year with an outstanding record quarter.
Matt: Or 32% in constant currency, primarily due to continued strength in subscription bookings that are projected to grow about 35% year over year.
Luis: Daily active users hit 40 million, growing 51% year-over-year. We added more new subscribers than ever before and delivered our highest quarterly bookings, revenue, and adjusted EBITDA.
Matt: This bookings guide is supported by continued strength in our <unk> growth, which we expect to be in the mid Forty's for Q1.
Matt Skarupa: Our guidance assumes prevailing foreign exchange rates and as a reminder, over half of our bookings come from outside the US. So every 2% increase or decrease in the value of the dollar versus our basket of currencies has about a $10 million headwind or tailwind respectively on four-year total bookings. Our bookings guide includes max bookings and I want to remind you all of max's impact on gross Max incurs marginal AI costs to drive its features like video call. And it's higher pricing more than offsets these costs driving increased lifetime value and gross profit adjusted EBITDA and free cash flow dollars, but a lower margin percentage compared to super In 2025, we expect a temporary 170 basis point year over year impact on gross margin primarily due to In the first half of the year, there'll be roughly a 300 basis point year over year impact as we prioritize rapid product innovation to drive max adoption.
Matt: Our guidance assumes prevailing foreign exchange rates and as a reminder, over half of our bookings come from outside the U S. So every 2% increase or decrease in the value of the dollar versus our basket of currencies has about a $10 million headwind or tailwind respectively on for your total bookings.
Luis: Our Q4L performance was largely driven by stronger-than-expected Duolingo Max subscriptions, including upgrades from current super-subscribers, and by continued momentum in our family plan, particularly during the first few days of our New Year's promotion.
Luis: I'm especially excited about the traction we're seeing with Duolingo Max.
Matt: Our bookings guide includes Max bookings and I want to remind you all of Max's impact on gross margin.
Luis: Since launching Video Call, our Gen AI powered conversation feature, user engagement has grown meaningfully. Max is now available to the majority of our DAUs and represents about 5% of total subscribers.
Matt: Max incurs marginal cost to drive its features like video call and as higher pricing more than offset these costs driving increased lifetime value and gross profit adjusted EBITDA and free cash flow dollars, but a lower margin percentage compared to super.
Luis: We're still very early in driving max monetization and believe there is a lot of room to grow.
Luis: And like I said, our family plan is also delivering strong results. It now makes up 23% of total subscribers and continues to show higher retention and LTV than individual plans.
Matt: In 2025, we expect a temporary 170 basis point year over year impact on gross margin primarily due to moves in.
Matt: In the first half of the year there'll be roughly a 300 basis point year over year impact as we prioritize rapid product innovation to drive <unk> adoption, we expect margins to improve in the second half of the year as we worked to improving our costs.
This year, we have three priorities.
Matt Skarupa: We expect margins to improve in the second half of the year as we work to improve AI. As we scale, we remain committed to delivering both growth and profitability. And as we've discussed, this year will reflect a more moderate pace of margin expansion following two years of exceptional gains. For 2025, we expect to expand our adjusted EBITDA margin by nearly 200 basis points to 27.5% as we continue to gain leverage across all categories of OPEC. And we expect our incremental margin to be between 30% and 35% for the year. There are a few items we want to call out that are baked into their full year adjusted EBITDA margin outlook.
Luis: First, we'll continue to drive subscription bookings by growing users, improving subscriber conversion, and promoting Duolingo Max to more learners around the world.
Matt: As we scale, we remain committed to delivering both growth and profitability.
Luis: We'll do this by running hundreds of experiments each quarter, and I feel very good about how quickly we are moving.
And as we've discussed this year will reflect a more moderate pace of margin expansion. Following two years of exceptional gains for.
Luis: Second, we will leverage generative AI to improve the video call experience, which I'll describe more in a moment. We'll also use GenAI to scale content across our language, math, and music courses even faster.
Matt: For 2025, we expect to expand our adjusted EBITA margin by nearly 200 basis points to 27, 5% as we continue to gain leverage across all categories of Opex and.
Matt: And we expect our incremental margin to be between 30 and 35% for the year.
Go to Beadaholique.com for all of your beading supplies needs!
Luis: Finally, we'll remain disciplined with our investments, balancing strong top-line growth with measured progress toward our long-term profitability targets.
Matt: There are a few items, we want to call out that are baked into the full year adjusted EBITDA margin outlook, but first is our investment in AI and automation that Luis and I had mentioned, which we expect to become more efficient throughout the year.
Matt Skarupa: The first is our investment in AI and automation that Luis and I had mentioned, which we expect to become more efficient throughout the year. Second, even though we plan to hire at about the same level as last year, we expect to hire faster and earlier in the year, allowing new hires to ramp up and contribute sooner. And finally, we're capitalizing a bit less R&D spend than a year ago now that we've launched MAX and several internal tools that enable us to create content significantly more efficiently.
Thank you.
Luis: I want to go into a little more detail on AI and scaling our content.
Luis: Duolingo Max is a key priority for us. Users are engaging more with VideoCall and will work to make it an even better conversation experience. We believe VideoCall will help us teach better especially for our more advanced learners.
Matt: Second even though we plan to hire at about the same level as last year, and we expect to hire faster and earlier in the year, allowing new hires to ramp up and contribute sooner and finally, we're capitalizing bit less R&D spend on a year ago now that we've launched Max and several internal tools that enable us to create content significantly more efficiently.
Luis: Most of our AI costs are tied to video call and they scale based on max subscriber growth.
Matt Skarupa: Thank you. The impact of these investments on quarterly adjusted EBITDA margin will be the most pronounced in the first half of 2025. So for Q1, we are guiding to an adjusted EBITDA margin of 25%. In addition to the items I mentioned before, Q1 also includes a time shift to marketing expense, which will be more front-loaded than last year based on planned marketing campaigns.
Matt: The impact of these investments on quarterly adjusted EBITDA margin will be the most pronounced in the first half of 2025.
Luis: We're prioritizing using the latest AI models to deliver a high-quality experience.
Luis: What that means is that we're not concentrating on cost optimization right now, even though we're confident these costs will come down over time.
Matt: So for Q1, we are guiding to an adjusted EBITDA margin of 25%.
Matt: In addition to the items I mentioned before Q1 also includes a time shift in marketing expense, which will be more frontloaded than last year based on planned marketing campaigns.
Thank you.
Luis: AI and automation tools are also allowing us to expand content and courses faster than ever before. We believe this will help us reach more learners globally.
Matt Skarupa: Now I'll discuss how bookings and profitability will trend throughout the year. We expect our Q2 bookings growth rate to step down from Q1 by about 3.5 points. Year-over-year bookings growth in Q3 should be about the same as in Q2 before stepping down in Q4, which will again be our biggest quarter in terms of dollar bookings. and we expect our revenue growth rate to set down throughout the year.
Luis: This includes also scaling our courses for math and music, which are showing strong early adoption.
Matt: Now I will discuss how bookings and profitability will trend throughout the year.
Matt: We expect our Q2 bookings growth rate to step down from Q1 by about three five points year over year bookings growth in Q3 should be about the same as in Q2 before stepping down in Q4, which will again be our biggest quarter in terms of dollar bookings and.
Luis: Today, these subjects have a combined 3 million DAUs, and we see a lot of room to grow, though as I've said before, this will take time.
Luis: The market opportunity in both language learning and other subjects remains substantial, and we're making strategic investments now in order to fuel growth for years to come.
Matt: And we expect our revenue growth rate to set down throughout the year.
Matt Skarupa: As a reminder, we manage to an annual profitability target and we may see quarterly variability based on timing of expenses, particularly AI costs. But we are currently expecting Q2 adjusted EBITDA margin to be approximately two points lower than Q1 with meaningful margin expansion in Q3 and Q4 as we realize AI cost efficiencies and as our marketing spend as a percent of revenue comes down.
Matt: As a reminder, we manage to an annual profitability target and we may see quarterly variability based on timing of expenses, particularly AI costs.
Speaker Change: While this means a more moderate pace of profit growth compared to the exceptional levels of the past two years, we're still delivering margin expansion, just with an eye on building something even bigger. And with that, I will turn it over to Mr. Matt Chalupa to walk through the financials of our outlook for 2025.
Matt: But we're currently expecting Q2, adjusted EBITDA margin to be approximately two points lower than Q1 with meaningful margin expansion in Q3, and Q4, and we realize AI cost efficiencies and as our marketing spend as a percentage of revenue comes down.
Matt Skarupa: We ended 2024 with a fully diluted share count of 49.5 million. And for 2025, we expect dilution of around 1%.
Thanks, Louise.
Matt: We ended 2024 with a fully diluted share count of $49 5 million and for 2025, we expect dilution of around 1%.
Speaker Change: And good evening everyone. As Luis mentioned, we closed out 2024 with a record quarter, capping off another exceptional year for Duolingo.
Luis Bonon: And with that, I'll turn it back over to Luis.
Luis: With that I'll turn it back over to Luis.
Speaker Change: In Q4, we grew total bookings by 42% year-over-year. Revenue increased 39% year-over-year. And we expanded our full-year adjusted EBITDA margin by about 8 points.
Luis Bonon: Thank you, Matt. Before we wrap up, I want to acknowledge something incredible. Our beloved mascot, Duo, has come back from faking his own death. Thanks to the dedication of our learners around the world who completed 50 billion XP just in time to bring him back. And he's back to doing what he does best, pestering everyone to keep up their lesson.
Luis: Thank you, Matt before we wrap up I want to acknowledge something incredible our beloved mascot dual has come back from faking its own depth. Thanks to the dedication of our learners around the world completed 50 billion XP just in time to bring them back.
Speaker Change: These results reflect the strength of our business model and our execution, fueled by strong Duolingo Max adoption and demand for our family plan.
Speaker Change: And he's back to doing what he does best pestering, everyone to keep up their lessons.
We feel great about our momentum going into 2025.
Operator: And now, we would be happy to take your questions.
Operator: I'll turn it back to Debbie to manage the queue. All right, thanks, Luis. As I mentioned earlier, if you have a question, you can use the raise hand feature. We do have a lot of questions to get through in 45 minutes. So I'm going to ask everyone to please limit your question to one, hop back in the queue. And if we have time, we can take follow up.
Debbie: And now we would be happy to take your questions I'll turn it back to Debbie to manage the queue.
Speaker Change: Now to our guidance. Our four-year guidance has bookings growing 25% year over year at the midpoint or 27% on a constant currency basis.
Debbie: Alright, Thanks, Louise as I am.
Speaker Change: Mentioned earlier, if you have a question you can use the Raytheon theater, we do have a lot of questions to get through and 45 minutes. So I'm going to ask everyone to please limit your question to one and hop back in the queue and if we have time, we can take follow ups.
Speaker Change: This growth will be driven primarily by subscription bookings, which we expect to grow around 31%.
Speaker Change: Our guidance puts us on track to surpass $1 billion in bookings this year.
Bryan Smilek: Your first question comes from Bryan Smilek at J.P. Morgan. Great, thanks for taking my questions and congrats on the quarter.
Speaker Change: For Q1, we expect bookings to grow approximately 28% year-over-year or 32% in constant currency, primarily due to continued strength in subscription bookings that are projected to grow about 35% year-over-year.
Speaker Change: Your first question comes from Brian <unk> at Jpmorgan.
Luis Bonon: You know, just thinking about max at 5% of paid subscribers, can you help us understand which cohorts are exhibiting the strongest, strongest growth by language or geo? And can you just help us understand how much of these are gross ads versus maybe shifting those subscribers from super? Thanks.
Brian: Great. Thanks for taking my questions and congrats on the quarter.
Brian: Just thinking about Max at 5% of paid subscribers can you help us understand which cohorts are exhibiting the strongest strongest growth by language or Dl and can you just help us understand how much of these are gross adds versus maybe shifting of subscribers from.
Speaker Change: This bookings guide is supported by Continued Strength and our DAU growth, which we expect to be in the mid-40s for Q1.
Speaker Change: Our guidance assumes prevailing foreign exchange rates, and as a reminder, over half of our bookings come from outside the U.S. So every 2% increase or decrease in the value of the dollar versus our basket of currencies has about a $10 million headwind or tailwind, respectively, on four-year total bookings.
Luis Bonon: Yeah, so I'll let Luis talk about some of the engagement we see, because it is different between English learners and others in Macs. But to your point around the 5% and where do they come from, the markets that they come from more or less look similar to supermarkets or super Duolingo markets, with a couple exceptions. For example, Japan has higher share of Mac subscribers than super subscribers, but it looks pretty consistent. And then in terms of the cohorts, we saw really nice adoption for brand new to subscription subscribers, and also upgrades from existing super subs.
Brian: Thank you.
Speaker Change: Yes, so the I'll, let Luis talk about some of the.
Luis: Engagement, we cease because it is different between English learners in others and Max but two.
Speaker Change: Our bookings guide includes max bookings and I want to remind you all of max's impact on gross margin
Luis: Your point around the 5% and where do they come from the markets that they come from.
Speaker Change: More or less look similar to supermarkets.
Speaker Change: Max incurs marginal AI costs to drive its features like video call, and its higher pricing more than offsets these costs, driving increased lifetime value and gross profit, adjusted EBITDA, and free cash flow dollars, but a lower margin percentage compared to super.
Our Super Duolingo markets with a couple of exceptions like for example, Japan as high as higher share of Mac subscribers and super subscribers, but it looks pretty consistent.
And then in terms of the cohorts we.
Speaker Change: We saw really nice adoption for brand new to subscription subscribers and also upgrades from existing Super subs.
Speaker Change: In 2025, we expect a temporary 170-basis-point year-over-year impact on gross margin, primarily due to minutes.
Luis Bonon: So we were excited that both of those played prominently in the growth of the subscribers up to 5%.
Speaker Change: In the first half of the year, there will be roughly a 300-basis point year-over-year impact as we prioritize rapid product innovation to drive max adoption. We expect margins to improve in the second half of the year as we work to improve AI costs.
Speaker Change: So.
Speaker Change: We're excited that both of those play prominently in the growth of the subscribers up 5%.
Luis Bonon: Yeah, the other thing that I'll add is that, as we mentioned in the last call, I believe, English learners in particular, really, really like this key feature for Macs, which is video call with Lily. This is the only feature we've ever put in the app that gets used twice as much by English learners versus non English learners. And that is actually translating it in a slightly higher propensity to buy for English learners than super. Brown. Thank you.
Speaker Change: Yeah. The other thing that I'll add is that as we mentioned in the last call I believe.
Speaker Change: <unk>.
Speaker Change: English learners in particular.
Speaker Change: As we scale, we remain committed to delivering both growth and profitability. And as we've discussed, this year will reflect a more moderate pace of margin expansion following two years of exceptional gains.
Speaker Change: We really like this key feature for Max which is video call with Lilly is the only feature we've ever put in the App that gets used twice as much by English learners versus non English learners and that is actually translating it.
Speaker Change: For 2025, we expect to expand our adjusted EBITDA margin by nearly 200 basis points to 27.5% as we continue to gain leverage across all categories of OPEX.
Speaker Change: Higher purpose.
Speaker Change: Anthony Dubai for English learners than.
Super.
Speaker Change: And we expect our incremental margin to be between 30% and 35% for the year.
Speaker Change: Thanks Brent.
Aaron Kessler: Okay, next question comes from Aaron Kessler at Seaport. Thanks so much. Maybe just a follow up to that question.
Thank you.
Speaker Change: There are a few items we want to call out that are baked into their full year adjusted EBITDA margin outlook.
Speaker Change: Okay. Next question comes from Aaron Kessler at Seaport.
Luis Bonon: Maybe on the AI investment, should we think about the AI investments this year as mainly Duo, Max, and voice calls, or is there some other areas within AI?
Aaron Kessler: Thanks, So much maybe just a follow up question maybe on the AI investments, we think about the investments this year is mainly <unk>.
Speaker Change: The first is our investment in AI and automation that Luis and I had mentioned, which we expect to become more efficient throughout the year.
Speaker Change: Second, even though we plan to hire at about the same level as last year, we expect to hire faster and earlier in the year, allowing new hires to ramp up and contribute sooner. And finally, we're capitalizing a bit less R&D spend than a year ago now that we've launched Max and several internal tools that enable us to create content significantly more efficiently.
Aaron Kessler: Max and voice calls or is there some other areas and then maybe just on the pricing strategy for English learners for Max should we expect higher pricing as well for some of these.
Luis Bonon: And then maybe just on the pricing strategy for English learners for Max, should we expect higher pricing as well for some of these maybe less developed regions?
Luis Bonon: And then just what is your, how are you thinking about, or is maybe just, are you expecting higher conversion rates versus trying to sell on Max there?
Aaron Kessler: Maybe less developed regions and then just what is your how are you thinking about.
Speaker Change: The impact of these investments on quarterly adjusted EBITDA margin will be the most pronounced in the first half of 2025.
Aaron Kessler: Maybe just.
Aaron Kessler: You're expecting it.
Aaron Kessler: Version rates versus trying to sell on Max there. Thank you.
Luis Bonon: Okay, so there's a bunch of things to say here. First of all, AI. The AI investments, they're basically coming in, and expenses, they're basically coming in two parts. We're definitely investing in AI to automate things inside the company. What that does is that actually decreases costs. That's good. And it also allows us to go way faster, particularly in content creation. So the amount of content we're able to generate compared to two years ago is way more. I mean, it's like 10x or more than that. So that's one thing. The other big part is in just feature experimentation or kind of live features, like, for example, the video call feature.
Speaker Change: So for Q1, we are guiding to an adjusted EBITDA margin of 25%.
Aaron Kessler: So there's a there's a bunch of things over here.
Speaker Change: In addition to the items I mentioned before, Q1 also includes the time shift of marketing expense, which will be more front-loaded than last year based on planned marketing campaigns.
Aaron Kessler: First of all AI.
Aaron Kessler: AI investments, where they're basically coming in.
Aaron Kessler: Expenses, they're basically coming in two parts.
Aaron Kessler: Definitely.
Speaker Change: Now I'll discuss how bookings and profitability will trend throughout the year.
Aaron Kessler: Investing in AI to automate things inside the company what that does is that actually decreases costs. That's good.
Speaker Change: We expect our Q2 bookings growth rate to step down from Q1 by about 3.5 points. Year-over-year bookings growth in Q3 should be about the same as in Q2 before stepping down in Q4, which will again be our biggest quarter in terms of dollar bookings.
Aaron Kessler: It also allows us to go way faster, particularly in content creation. So the amount of content, we're able to generate compared to two years ago is way more I mean, it's like.
Fedex or more than that.
Speaker Change: And we expect our revenue growth rate to set down throughout the year.
Aaron Kessler: So that's that's one thing the other big parties and just.
Aaron Kessler: Feature experimentation or kind of live features like for example, the video call feature that is.
Luis Bonon: That adds expenses, because we have to query the large language model kind of in real time. The way we're seeing it is, for now, we're not even trying to optimize those costs. We're just trying to go as fast as possible in generating the best possible features. We know that these costs can be optimized in a lot of ways. And even if we do nothing, the cost will be optimized, because the cost to query large language models is coming down kind of every month.
Speaker Change: but we are currently expecting Q2 adjusted EBITDA margin to be approximately two points lower than Q1 with meaningful margin expansion in Q3 and Q4 as we realize AI cost efficiencies and as our marketing spend as a percentage of revenue comes down.
Aaron Kessler: <unk> expenses.
Aaron Kessler: Because because we have to query the large language model kind of in real time.
Aaron Kessler: The way, we're seeing it if for now we're not even trying to optimize those costs, where we're just trying to go as fast as possible and generating the best possible features we know that these costs can be optimized and a lot of waste and even if we do nothing the cost will be optimized because the cost of credit last language models coming back.
Speaker Change: We ended 2024 with a fully diluted share count of 49.5 million, and for 2025 we expect dilution of around 1%.
And with that, I'll turn it back over to Luis.
Luis Bonon: So the way to think about it is there's going to be kind of an upfront cost for AI, which will happen probably throughout this whole year, but it's because we're in a unique opportunity, a unique time in history, where we really want to develop the best possible AI features over time. So that's with AI.
Luis: Thank you, Matt. Before we wrap up, I want to acknowledge something incredible. Our beloved mascot, Duo, has come back from faking his own death, thanks to the dedication of our learners around the world, who completed 50 billion XP just in time to bring him back.
Aaron Kessler: One kind of every month.
Aaron Kessler: So the way to think about it if theres going to be kind of an upfront cost for AI, which.
Aaron Kessler: Will happen probably throughout this whole year, but it's because we are in a unique opportunity.
Aaron Kessler: A unique time in history, where we really want to develop the best possible AI features overtime. So thats with AI now you asked about pricing, particularly for kind of probably the AI packages at the moment, we haven't really put duolingo Max in most every countries. There's a couple of countries where it's not at for example, it's not in China simply because we cannot.
Luis: And he's back to doing what he does best, pestering everyone to keep up their lessons.
Luis Bonon: Now, you asked about pricing, particularly for kind of probably the AI packages. At the moment, we have really put Duolingo Max in most every country. There's a couple of countries where it's not at. For example, it's not in China, simply because we cannot serve things from open AI in China. So we're going to have it there, but it's not there yet. But it's basically in every country. In some of the poorest countries, our price is too high, is the truth. But because what we're doing is we're pricing it so that we never lose money on Max.
Luis: And now, we would be happy to take your questions. I'll turn it back to Debbie to manage the queue.
Debbie: All right, thanks Luis. As I mentioned earlier, if you have a question you can use the raise hand feature. We do have a lot of questions to get through in 45 minutes, so I'm going to ask everyone to please limit your question to one, hop back in the queue, and if we have time we can take follow-ups.
Aaron Kessler: Serve offerings from open AI in China, So we're going to have it there, but it's not there yet.
Aaron Kessler: But it's basically in every country in some of the poorest countries.
Your first question comes from Brian Smilak at J.P. Morgan.
Aaron Kessler: Our prices too high if the truth, but because what we're doing is we're pricing. It so that we never lose money on on Max and so that's good and that for most countries that makes sense and it is a price that makes sense, but for example in India. The price I believe is $70 a year and half too expensive for India, and we know that but we expect that over time, we're going to be able to bring.
Luis Bonon: And so that's good. And for most countries, that makes sense, and it is a price that makes sense. But for example, in India, the price, I believe, is $70 a year, and that's too expensive for India. And we know that, but we expect that over time, we're going to be able to bring that down, always with the caveat that we're not going to lose money with that. Yeah.
Brian Smilak: Great. Thanks for taking my questions, and congrats on the quarter. You know, just thinking about max at 5% of paid subscribers, can you help us understand which cohorts are exhibiting the strongest growth by language or geo? And can you just help us understand how much of these are gross ads versus maybe shifting of subscribers from super? Thank you.
Aaron Kessler: That down always with the caveat that we're not going to lose money with it.
Ralph Schackart: Okay, next question comes from Ralph Schackart at William Blair. Good evening. Thanks for taking the question.
Aaron Kessler: Okay.
Yeah, so I'll let Luis talk about some of the...
Ralph Shakur: And your next question comes from Ralph Shakur at William Blair.
Luis: engagement we see, because it is different between English learners and others in Macs, but to your point around the 5% and where do they come from, you know, the markets that they come from more or less look similar to supermarkets.
Luis Bonon: Just can you give us a sense on Dow growth, just a sense on how broad based that was, you know, maybe how is international doing relative to the overall reported rate? And then just on gross margins, sounds like this is sort of temporary in nature, just to take advantage of that market opportunity. But Matt, longer term, is there anything structural here that you think you won't be able to get back to historic margins? Any sense on that would be great. Thank you.
Ralph Shakur: Good evening. Thanks for taking my question just can you give us a sense on DAU growth just yes.
Speaker Change: And how broad based that was you know maybe how is international doing relative to the overall reported rate and then just on gross margin. It sounds like this is sort of temporary in nature, just to take advantage of that market opportunity, but Matt longer term is there anything structural here that you think you won't be able to get back to historic margins and it's not something that would be great. Thank you.
Speaker Change: There are super duolingo markets with a couple exceptions like for example, Japan is higher share of Mac subscribers than super subscribers But it looks pretty consistent
Speaker Change: And then in terms of the cohorts, we saw really nice...
Luis Bonon: Yeah, let me let me talk about daily active user growth. So we're very happy with the daily active user growth. I mean, we ended the quarter with 51% daily active user growth year over year. It really every region is growing. Now, of course, it's not true that every region is growing equally. But every region is growing. One thing that is really interesting to say is that The growth rate per region is not really correlated with how mature each region is. So, for example, our probably our most mature region is Latin America, but it's also growing very fast.
Speaker Change: Yes, let me, let me talk about daily active user growth. So we're very happy with the daily active user growth I mean, we ended the quarter with 51% daily active user growth.
Speaker Change: adoption for brand new to subscription subscribers and also upgrades from existing super subs. So we we were excited that both of those played prominently in the growth of the subscribers up to 5%.
Speaker Change: Year over year.
Speaker Change: Really every region's growing now of course, it's not true that our region is growing equally but every region growing one thing that is really interesting to say is that.
Speaker Change: Yeah, the other thing that I'll add is that, as we mentioned in the last call, I believe,
Speaker Change: English learners in particular really really like this key feature for Macs which is video call with Lily. It's the only feature we've ever put in the app that gets used twice as much by English learners versus non-English learners and that is actually translating it in a slightly higher propensity to buy for English learners than super.
Speaker Change: The growth rate per region is not really correlated with how mature each region is so for example, our probably our most mature region is Latin America, but it's also growing very fast, it's that's actually growing that like 80% year over year.
Luis Bonon: That's actually growing at like 80 percent year over year. So we're you know, what that what that tells us is that we really are far from saturating any of our markets. We're just we're growing pretty fast in all of our markets.
Speaker Change: So where are you now.
Speaker Change: What that tells US is that we really are far from saturating any of our markets.
Thank you for watching!
Bye. Thank you.
Matt Skarupa: I'll let Matt talk about the. Profitability and Margin Expansion. So Ralph, you know, as I mentioned, my prepared remarks, it is temporary, as you said, it'll be more noticeable in the first half of the year, as Luis mentioned, because we're just going as fast as we can, and we'll optimize it in the back half. Because of that, by the back half of the year, I expect those margins to return, you know, back so that they're roughly comparable where they've been in the past. But I don't want to understate the fact that there is a structural difference, right?
Speaker Change: We're growing pretty fast and in all of our markets.
Okay, next question comes from Aaron Kessler at Seaport.
Speaker Change: I'll, let Matt talk about the.
The profitability and margin expansion.
Aaron Kessler: Thanks so much. Maybe as a follow-up to that question, maybe on the AI investment, should we think about the AI investment this year is mainly
Ralph Shakur: Yes, Ralph.
Ralph Shakur: As I mentioned in my prepared remarks, it is temporary as as you said it'll be more.
Aaron Kessler: Duo Max and voice calls or is there some other areas within AI and then maybe just on the
Ralph Shakur: Noticeable in the first half of the year as Luis mentioned, because we're just going as fast as we can and we'll optimize it in the back half.
Aaron Kessler: Pricing strategy for English learners for Macs. Should we expect higher pricing as well for some of these?
Ralph Shakur: Because of that by the back half of the year I expect gross margins to return.
Aaron Kessler: Maybe less developed regions, and then just, what is your, how are you thinking about, or is maybe just probably, are you expecting higher conversion rates versus trying to sell on max there? Thank you.
Ralph Shakur: Baxter, so that they're roughly comparable.
Where they've been in the past, but I don't want to understate. The fact that there is a structural difference right. There isn't marginal AI cost, it's just that our belief and we've seen this in the market already is that that cost will come down such that it won't be that different so.
Matt Skarupa: There's a marginal AI cost. It's just that our belief, and we've seen this in the market already, is that that cost will come down such that it won't be that different. So I feel very good about where our gross margins will end up as we optimize those costs. And we're still going to have margin expansion, it's just... lower at a lower rate than in previous. Yeah. Right.
Speaker Change: Okay, so there's a bunch of things to say here. First of all, AI. The AI investments, they're basically coming in two parts.
Ralph Shakur: I feel very good about where our gross margins will end up as we optimize those costs.
Speaker Change: We're definitely investing in AI to automate things inside the company.
Ralph Shakur: And we are still going to have and we're still gonna have market margin expansion is just.
What that does is that actually decreases costs. That's good
Ralph Shakur: Lower at lower rates than in previous years.
Speaker Change: and it also allows us to go way faster, particularly in content creation. So the amount of content we're able to generate compared to two years ago is way more. I mean, it's like 10x or more than that.
Operator: Thank you. Thanks, Ralph.
Ryan Macdonald: And next question comes from Ryan MacDonald at Needham. Thanks for taking my questions. Congrats on a great quarter. Luis, it was interesting to hear the updated disclosure on music and math in terms of 3 million daily active users. I'm curious, given the scale now, how should we think about one, maybe use of AI to further enhance the content in those two categories? And then second, how we think about math for monetization over time beyond sort of maybe family plan or another area. Thanks.
Ralph Shakur: Thank you.
Speaker Change: Thanks Al and next question comes from Ryan Macdonald at Needham.
Ralph Shakur: Okay.
Speaker Change: So that's one thing. The other big part is in just feature experimentation or kind of live features like, for example, the video call feature.
Ryan Macdonald: Alright, Thanks for taking my questions Congrats on a great quarter.
Speaker Change: Lisa it's interesting to hear the updated disclosure on our music in math in terms of three.
Speaker Change: 3 million daily active users I'm curious given the scale now how should we think about one maybe use of AI.
Speaker Change: It adds expenses, because we have to query the large language model in real time.
Speaker Change: The way we're seeing it is, for now, we're not even trying to optimize those costs. We're just trying to go as fast as possible in generating the best possible features.
Speaker Change: To further enhance the content in those two categories and then second how do we think about Matt for monetization over time beyond sort of maybe a.
Speaker Change: Family plan or or.
Luis Bonon: Thank you for the question. Okay, so we're very excited about math and music. Like we said, we now have about 3 million daily active users studying math and music. You know, for your question for AI, and by the way, I should also say those two are are those those courses are growing faster than our language learning courses. So we do expect that these will continue, you know, being a larger and larger fraction of our whole pie. Now, in terms of use for AI, for math in particular, AI is really going to be amazing. What happens with math is at the moment, we don't have a lot of content in our math course, we have the equivalent of probably third to the fifth grade, roughly of content.
Speaker Change: We know that these costs can be optimized in a lot of ways and even if we do nothing The cost will be optimized because the cost to query large language models is coming down kind of every month
Speaker Change: Another thanks.
Speaker Change: Thank you for the question. Okay. So we're very excited about <unk>.
We said, we now have about 3 million daily active users studying music.
Speaker Change: So, the way to think about it is there's going to be kind of an upfront cost for AI, which, you know, will happen probably throughout this whole year, but it's because we're in a unique opportunity.
Speaker Change: For your question for AI and by the way I should say also say those two are the staff.
Speaker Change: Those costs are growing faster than our language learning courses. So we do expect that these will continue being a larger and larger fraction of our whole pie.
Speaker Change: A unique time in history where we really want to develop the best possible AI features over time. So that's with AI. Now, you asked about pricing, particularly for kind of probably the AI packages. At the moment, we have really put Duolingo Max in most every country.
Speaker Change: Now in terms of use for AI for math in particular, AI is really going to be amazing what.
Speaker Change: What happens with math is at the moment, we don't have a lot of content in a matter of course, we have the equivalent of probably third to fifth grade roughly of content, but of course, there's a lot more we want to play we want to have all of K through 12, and maybe even some college mapping there.
Speaker Change: There's a couple of countries where it's not at. For example, it's not in China simply because we cannot serve things from OpenAI in China. So we're going to have it there, but it's not there yet.
Luis Bonon: But of course, there's a lot more we want to put we want to have all of K through 12, and maybe even some college math in there. Now, the generation of math content historically has been pretty slow, because you kind of have to make new exercises for every for every exercises that look really amazing for teaching you the coordinate system. But those kind of don't help all that much for teaching you probability, because they just look completely different. And they don't help all that much for teaching you logic, etc. So you kind of have to make very different types of exercises.
Speaker Change: But it's basically in every country. In some of the poorest countries, our price is too high. It's the truth. But because what we're doing is we're pricing it so that we never lose money.
Speaker Change: Now the generation of map content historically has been pretty slow because you kind of have to make new exercises for every for every topic. So for example, we make all these exercises that look really amazing for teasing you.
Speaker Change: on Max and so that's good and that for most countries that makes sense and it is a price that makes sense but for example in India the price I believe is $70 a year and that's too expensive for India and we know that but we expect that over time we're gonna be able to bring that down always with the caveat that we're not gonna lose money with it
Speaker Change: Coordinate system, but those kind of don't help all that much for teaching your probability because they just look completely different and they don't help all that much for teaching your logic et cetera. So you kind of have to make very different types of exercise if somebody hears that math is like the combination of 1000 subjects. So it's a bunch of different things and historically you know the first version of the large language models were.
Luis Bonon: Somebody here said, no math is like the combination of 1000 subjects. So it's a bunch of different things. And historically, you know, the first version of the large language models were not very good at math. But of late, we really, you know, the large language models have added reasoning. So they're actually pretty good at math now. And I think that's going to really accelerate how much content we put in there. So you'll see over the next year or so that the pace at which we are adding content to the math course is going to improve quite a bit.
Thank you.
The next question comes from Ralph Shackert at William Blair
Ralph Shackert: Good evening. Thanks for taking my question. Just can you give us a sense on Dow growth, just a sense on how broad-based that was, you know, maybe how is international doing relative to the overall reported rate?
Speaker Change: Very good at math.
Speaker Change: But.
Speaker Change: Of late.
Speaker Change: Really you know the large language models have added resetting so they're actually pretty good at math now and I think that's going to really accelerate how much content. We put in there. So you will see over the next year or so that the <unk>.
Speaker Change: And then just on gross margins, sounds like this is sort of temporary in nature just to take advantage of that market opportunity. But Matt, longer term, is there anything structural here that you think you won't be able to get back to historic margins? Any sense on that would be great. Thank you.
Speaker Change: Base at which we are adding content to the math of course is going to improve quite a bit.
Luis Bonon: And that, of course, will help us have a lot more users.
Luis Bonon: For music, we're also going to be adding a lot of content, but AI is probably not as transformative as it is for math. And now in terms of monetization for these, at the moment, they are being monetized. I mean, they're being monetized in the same way that we monetize our language courses. Basically, when you do a math lesson, at the end, you see an ad. And if you don't want to see ads, you can pay to subscribe. Also, you have, you know, every time you make a mistake, you lose a live. And if you want to get rid of that, you also can buy super for that.
Speaker Change: That of course will help us have a lot more users for music. We're also going to be adding a lot of a lot of content, but our AI is probably not as transformative as it is for Matt.
Matt: Yeah, let me let me talk about daily active user growth. So we're very happy with the daily active user growth I mean we ended the quarter with 51% daily active user growth year over year
Speaker Change: Now in terms of monetization for these at the moment they are being monetized I mean, they are being monetized in the same way that we monetize our language courses basically when you do a math lesson at the NBC and add and if you don't want to see ads you can pay to describe also you have every.
Speaker Change: It really every region is growing. Now, of course, it's not true that every region is growing equally But every region is growing. One thing that is really interesting to say is that
Speaker Change: The growth rate per region is not really correlated with how mature each region is.
Speaker Change: Every time, you make a mistake you lose alive and if you want to get rid of that you also can and.
Luis Bonon: So they're being monetized in the same way. I think for the time being, we expect the monetization to remain the same. So one way to think about how much money math and music are making is roughly the proportion of daily active users. It's not precise, but that is kind of one way of thinking about it. Sun.
Speaker Change: By Super for that so that you can monetize them the same way I think for the for the time being we expect the monetization to remain the same so one way to think about how much money math and music are making is roughly the proportion of daily active users. It's not precise but that is kind of one way of thinking about that.
Speaker Change: So for example, our probably our most mature region is Latin America, but it's also growing very fast That's actually growing at like 80% year-over-year
Speaker Change: So what that tells us is that we really are far from saturating any of our markets. We're growing pretty fast in all of our markets.
Luis Bonon: Thanks a lot.
Ross Sandler: And next question comes from Ross Sandler at Barclays. Great. Thanks, guys. Just two quick ones. Going back to the max penetration, the 5%, could you talk about, like, are all the English corridors, like, about the same in terms of their penetration? Or is there, like, a, you know, a high water mark within there? And are there non-English corridors that are working yet for Lilly and the video calls?
Speaker Change: Thanks, a lot Richard.
Speaker Change: And next question comes from Ross Sandler at Barclays.
I'll let Matt talk about the
Profitability and margin expansion.
Speaker Change: Great. Thanks, guys.
Speaker Change: So Ralph, you know, as I mentioned in my prepared remarks, it is temporary, as you said. It'll be more noticeable in the first half of the year, as Luis mentioned, because we're just going as fast as we can and we'll optimize it in the back half.
Speaker Change: Just two quick ones.
Speaker Change: Going back to the Max penetration of 5% could you talk about like are all the English quarters like about the same in terms of their penetration or is there like a.
Speaker Change: A high watermark within there and are there non English corridors that are that are working yet.
Speaker Change: Because of that, by the back half of the year, I expect those margins to return back so that they're roughly comparable.
Luis Bonon: And then the second question is, the new chart you put out on the course units published, that's pretty interesting, kind of shows the ramp of content you're talking about. How should we think about just, like, longer term, how that correlates with other KPIs in your business, like engagement or subs or, you know, that's a cool chart, but how should investors think about that, translating back to the business metrics? Thank you.
Lilly: For Lilly.
Lilly: And the video of the video calls and then the second question is the New chart you put out on the course units published that's pretty pretty interesting kind of shows the ramp of content. You are talking about how should we think about just like longer term.
Speaker Change: where they've been in the past, but I don't want to understate the fact that there is a structural difference, right? There's a marginal AI cost. It's just that
our belief.
Speaker Change: and we've seen this in the market already, is that that cost will come down such that it won't be that different. So, I feel very good about where our gross margins will end up as we optimize those costs.
Speaker Change: That correlates with other kpis in your business like engagement or subs are.
Lilly: That's a cool chart, but.
Lilly: Should investors think about that.
Luis Bonon: Great. Okay. So, in terms of max penetration, yes, it's the 5%. It is, of course, not even in every country. Like Matt said, it is pretty correlated. It's not precise, but it's pretty correlated with super penetration. So, generally, you see that wealthier countries are more penetrated than less wealthy countries. There's one difference, which is English learners are a little boosted up compared to super. So, for example, Japan is a prime country that is both wealthy and has English learners. So, that's pretty highly penetrated. I mean, and by pretty highly penetrated, we're still in the single digits there, but it is higher than the 5%.
Speaker Change: And we're still going to have margin expansion, it's just at a lower rate than in previous years.
Speaker Change: I think back to the business metrics. Thank you alright, great. Okay. So in terms of Max penetration, yes, it's a 5%. It is of course not even in every country like Matt said it is pretty correlated it's not precise but it's pretty correlated with super penetration. So generally you'll see that wealthier countries are more penetrated than less wells.
All right, thank you.
Speaker Change: Thanks all. And next question comes from Ryan McDonald at Needham.
Thank you.
Ryan McDonald: I thank you for taking my questions, congrats on a great quarter.
Lilly: Countries.
Lilly: There is one difference which is English learners are a little a little boosted up compared to Super. So for example, Japan is a prime country that is both wealthy and half English learners.
Speaker Change: Luis, it was interesting to hear the updated disclosure on music and math in terms of
Speaker Change: with 3 million daily active users. I'm curious, given the scale now, how should we think about one, maybe use of AI or, you know, to further enhance the content in those two categories? And then second, how we think about, Matt, for monetization over time beyond sort of maybe, you know, family plan or another area. Thanks.
Lilly: It's pretty highly penetrated I mean and by pretty highly penetrated we are still in the single digits there.
Luis Bonon: So, that's what we're seeing, but it's not just English learners. I mean, we really are seeing kind of learners of every language. It's just it turns out that English learners are a little higher than what you would see for super.
Lilly: But it is higher than the 5%. So that's what we're seeing but it's not just English learners. I mean, we really are seeing kind of learners of every language. It's just it turns out that English learners are a little little higher than what you would see for Super.
Luis Bonon: In terms of course units published, we're super excited about the fact that we can now just publish content way faster and it is because of AI. We've automated our content pipeline and we are just going way faster. How that translates to KPIs is basically we're gonna have, not only are we adding more courses, so what that graph shows is basically the amount of content we've been able to publish in each of the previous years. Some of that content goes to existing courses, that's usually to more advanced sections, and some of that content is to brand new courses.
Speaker Change: Thank you for the question. Okay, so we're very excited about math and music. Like we said, we now have about three million daily active users studying math and music.
Lilly: In terms of of course units published we're Super excited about the fact that we can now just published content way faster.
Lilly: And it is because of AI.
Speaker Change: You know, for your question for AI, and by the way, I should also say those two, those courses are growing faster than our language learning courses. So we do expect that these will continue, you know, being a larger and larger fraction of our whole pie.
Lilly: We've automated our content by pipeline and we are just going away faster how that translates to kpis is based.
Lilly: Basically we're going to have not only are we adding more courses. So what what that graph shows is basically the amount of content, we've been able to publish in each of the previous years. Some of that content goes to existing courses that's useful to more advanced sections and some of that content is two brand new courses brand new courses increase our our usage.
Speaker Change: Now, in terms of use for AI, for math in particular,
Speaker Change: AI is really going to be amazing. What happens with math is, at the moment, we don't have a lot of content in our math course. We have...
Luis Bonon: Brand new courses increase our usage, so for example, we may not have had, for Korean speakers, we may not have had a Spanish course, but now we have a Spanish course for Korean speakers, that's just an example. So now anybody who wants to learn Spanish from Korea, it used to be the case that they needed to learn through English, so they needed to kind of already know English in order to learn Spanish. Now they can learn it just from Korean, so that should increase our total users and then the more advanced sections should get, also should increase our total users because it should get the more advanced learners there.
Speaker Change: the equivalent of probably 3rd to the 5th grade, roughly, of content. But, of course, there's a lot more we want to put. We want to have all of K-12 and maybe even some college math in there.
Lilly: So for example, if we.
Lilly: We may not have had four Korean speakers, we may not have had a Spanish course, but now we have a Spanish courts for Korean speakers. So that's just an example, so now anybody who wants to learn Spanish from Korea. It used to be the case that they needed to learn through English. So they needed to kind of already know English in order to learn Spanish now they can learn adjust from Korea, so that should increase.
Speaker Change: Now, the generation of math content historically has been pretty slow because
Speaker Change: You kind of have to make new exercises for every topic. So, for example, we make all these exercises that look really amazing for teaching you the coordinate system.
Lilly: Our our total users and then the more advanced sections should get you also should increase I told users because.
Speaker Change: But those kind of don't help all that much for teaching you probability because they just look completely different And they don't help all that much for teaching you logic, etc. So you kind of have to make very different types of exercises. Somebody here said, you know, math is like the combination of a thousand subjects.
Luis Bonon: A large chunk of the content that we've been publishing is for more advanced English learners and that's something that we've talked about quite a bit, that we're very excited about the opportunity for more advanced English learners.
Lilly: It should get the more advanced learners there a large chunk of the content that we've been publishing isn't more advanced English for more advanced English learners.
Speaker Change: just a bunch of different things and Historically, you know the first version of the large language models were not very good at math
Lilly: And that's something that we've talked about quite a bit but we're very excited about the opportunity for more advanced English learners.
but
Speaker Change: of late, we really, you know, the large language models have added reasoning. So, they're actually pretty good at math now and I think that's going to really accelerate how much content we put in there. So, you'll see over the next year or so that the pace at which we are adding content to the math course, you know, is going to be a little bit slower. So, I think that's going to be a
Luis Bonon: Jones. Thanks Ross.
Edison Cai: Next question comes from Edison Cai at CITIC. Oh, hi.
Travis: Hey, Travis.
Speaker Change: Our next question comes from Edison, Cai Citic Bank.
Luis Bonon: Alois, congrats on such an excellent quarter. And I have a question related to the important past quarters you've mentioned about how the growth of new users and resurrected users in the past quarter. So what do you think of what we're doing at this quarter about the marketing campaign events you're having? So are they calling for more new users, or are we calling back those resurrected users? And for the markets you mentioned, like Japan and Latin America, we see the growth from, I guess, new users and resurrected users. So what do you think of the boost of these two user growth origins, and which one do you think will be more effective way to grow in the next few quarters?
Travis: Oh.
Travis: Hi.
Carlos Congrats on such a excellent quarter and I have question related to the <unk>.
is going to improve quite a bit.
Speaker Change: And that, of course, will help us have a lot more users. For music, we're also going to be adding a lot of content, but AI is probably not as transformative as it is for math.
Travis: Pack and hold as you've mentioned about how the.
Travis: The growth of new users and <unk> users in the past few quarters, but what do you think of what we're doing right.
Speaker Change: And now in terms of monetization for these, at the moment they are being monetized. I mean, they're being monetized in the same way that we monetize our language courses. Basically, when you do a math lesson, at the end you see an ad, and if you don't want to see ads, you can pay to subscribe. Also, every time you make a mistake, you lose a live. And if you want to get rid of that, you also can buy super for that. So they're being monetized in the same way. I think for the time being, we expect the monetization to remain the same.
Travis: This quarters about like marketing pain, the advantage of having.
Travis: So are they calling for more new users or.
Travis: I would call them back so super selective users and for the markets you mentioned like Japan, and Latin America, we see the growth from.
Travis: Yes.
Speaker Change: New users in recent rapid users. So what do you think of like the <unk>.
Speaker Change: Most of these to life to user growth regions, and which one do you think will be more.
Speaker Change: Roughly the proportion of daily active users. It's not precise, but that is kind of one way of thinking about that
Luis Bonon: Thank you.
Speaker Change: Effective way to grow in the next few quarters. Thank you.
Luis Bonon: Yeah, this is a really good question that's important in order to understand how our business works. Typically, when people stop using Duolingo, they, it is rare that they stop and never come back. Most of the people who stop using Duolingo stop for a few months or for a year, and then they come back. So we have a lot of people who are resurrecting that and resurrecting we mean they haven't been around for at least 30 days. Of course, as we get more mature, the fraction of kind of top of the funnel that is resurrected gets higher and higher, because, for example, when we had just launched Duolingo, there was no users to resurrect.
Thanks a lot.
Speaker Change: Yes. This is a really good question and that's important in order to understand how our business works.
Thank you for watching. For more information, visit www.fema.gov
And next question comes from Ross Sandler at Barclays.
Speaker Change: Typically when people stop using duolingo.
Great, thanks guys. Just two quick ones.
Speaker Change: It is rare that they stop and never come back most of the people, who studies and dwelling or stopped for a few months or for the year and then they come back. So we have a lot of people who are resurrecting and resurrecting we mean, they havent been around for at least 30 days.
Speaker Change: Going back to the max penetration, the 5%, could you talk about, like, are all the English corridors, like, about the same in terms of their penetration? Or is there like a, you know, a high water mark within there? And are there non-English corridors that are that are working?
Speaker Change: Of course, as we get more mature than the fraction of kind of top of the funnel that is retroactive gets higher and higher because for example, when we had just launched duolingo. There was no users to redirect. So all users were new and as we get more and more mature.
yet for for Lillie and
Speaker Change: and the video calls. And then the second question is, the new chart you put out on the course units published, that's pretty interesting, kind of shows the ramp of content you're talking about. How should we think about just like longer term?
Luis Bonon: So all users were new. And as we get more and more mature, you know, higher fraction of people are people that are coming back. And that is pretty consistent with how mature we are in each country. So in a country that we've been operating for a lot longer, like the US, you would see a higher fraction of resurrected users when compared to new users versus in a country where we've been operating much less time, for example, again, India, where, you know, we really didn't start spending effort in India up until, you know, a couple of years ago.
Speaker Change: A fraction of people or people that are coming back and that is pretty consistent with how mature we are in each country.
Speaker Change: how that correlates with other KPIs in your business like engagement or subs or you know that's a cool chart but how should investors think about that translating back to the business metrics. Thank you.
Speaker Change: So in a country that we've been operating for a lot longer like the U S. You would see a higher fraction of resurrected users when compared to new users versus in a country, where we are operating much less time for example, in India, where we really didn't start spending effort in India are up until a couple of years ago. So there, we're still seeing way more new use.
Speaker Change: Great. Okay, so in terms of max penetration, yes, it's the 5%. It is, of course, not even in every country. Like Matt said, it is...
Luis Bonon: So there, we're still seeing way more new users than we're seeing resurrected users. At the moment, we're, you know, if you look overall, we're seeing slightly more resurrected users than new users at the top of the funnel. But those numbers are pretty, pretty similar. It's just slightly more for resurrected users. And, you know, our marketing in general, most of our marketing goes into kind of these social media campaigns, like what you've seen kind of on TikTok or YouTube or Instagram, etc. And those are actually really good at both bringing new users and resurrecting users. And we know that because whenever somebody resurrects or whenever a new user comes in, we ask them kind of where they came from.
Speaker Change: Pretty correlated. It's not precise, but it's pretty correlated with super penetration So generally you see that wealthier countries are more penetrated than less wealthy countries
Speaker Change: Now, we're seeing restaurant users at the moment.
Speaker Change: Look overall, we're seeing slightly more restricted users the new users at the top of the funnel.
Matt: There's one difference, which is English learners are a little boosted up compared to super. So, for example, Japan is a prime country that is both wealthy and has English learners. So that's pretty highly penetrated. I mean, pretty highly penetrated. We're still in the single digits there, but it is higher than the 5%.
Speaker Change: But those numbers are pretty pretty similar it's just slightly more for restricted users and.
Speaker Change: You know our marketing in general most of our marketing goes into kind of the social media campaigns like what you've seen kind of tick tock or Youtube or Instagram et cetera, and dose actually really good of both bringing new users and resurrected users and we know that because whenever somebody rest of Rx or whenever a new user comes in we ask them kind of where the.
Matt: So that's what we're seeing, but it's not just English learners. I mean, we really are seeing learners of every language. It turns out that English learners are a little higher than what you would see for super.
Luis Bonon: And we know that our campaigns are good at doing both. So we're doing that now in terms of work for them. The one piece of work that we do still need to work on is we know that the retention of resurrected users is not as good as the retention for new users. And we need to improve that. So we're working on that. Part of the thing that happens is when somebody's been gone, a lot of times, if they've been gone for a very long time, what we should do is we should assume that they've forgotten everything.
Speaker Change: It came from and we know that our campaigns are good at doing both.
Matt: In terms of course units published, we're super excited about the fact that we can now just publish content way faster and it is because of
Speaker Change: So we're doing that now in terms of work for them. The one piece of work that we do still need to work on is we know that the retention of resurrected users is not as good as our retention for new users.
AI
Matt: We've automated our content pipeline and we are just going way faster.
Matt: How that translates to KPIs is basically we're going to have, not only are we adding more courses, so what that graph shows is basically the amount of content we've been able to publish in each of the previous years.
Speaker Change: And we need to improve that so we're working on that part of the thing that happens is when somebody has been gone.
Speaker Change: A lot of times that they've been gone for very long time, we should what we should do is we should assume that they've forgotten everything if they've been gone for two years, we should have somebody forgotten everything we're not and so that's something that we could just do better.
Luis Bonon: If they've been gone for two years, we should assume they've forgotten everything. We're not.
Luis Bonon: And so that's something that we could just do better.
Matt: Some of that content goes to existing courses, that's usually to more advanced sections, and some of that content is to brand new courses.
Luis Bonon: Okay, thanks, Luis. Thank you.
Matt: Brand new courses increase our usage. So for example, we may not have had, for Korean speakers, we may not have had a Spanish course.
Speaker Change: Okay excellent.
Andrew Boone: Okay, next up is Andrew Boone at JMPI. Thanks so much for taking the question. I'll go back to Ross's question. It's a derivation of it. Luis, in your first priority, you talked about growing users, improving subscriber conversion, and then promoting Macs through testing, right? And so like, the question is, okay, you guys are doing so much more content. How does that relate to testing in terms of generative AI? Are you guys seeing accelerated, like, communicating in terms of what you guys could put out there? Help us understand your testing velocity as it relates to 2025.
Speaker Change: Thank you.
Speaker Change: And the next step is Andrew Boone at JMP.
Andrew Boone: Thanks, so much for taking the question.
Matt: But now we have a Spanish course for Korean speakers. That's just an example. So now anybody who wants to learn Spanish from Korea, it used to be the case that they needed to learn through English.
Speaker Change: I'll go back to Ross's question.
Speaker Change: Derivation of it.
Speaker Change: And your first party you talked about going to users improved subscriber conversion and then promoting maxtor testing right and so the question is okay. You guys are doing some of more content, how does that relate to testing in terms of generative AI are you guys seeing accelerated comp cadence in terms of what you guys put out there help us understand your testing philosophy as it relates to.
Matt: So they needed to kind of already know English in order to learn Spanish now, they can learn it just from Korean so that should increase our our total users and then The more advanced sections should get it also should increase our total users because it should get the more advanced learners there
Luis Bonon: Thanks so much. Um, I think I understand your question. I'm not 100% sure. But basically, um, you know, if you're asking about that, the types of tests that we run, I mean, we usually run these A-B tests to try to improve our core metrics. And we have to concentrate on a number of core metrics. In this case, we are concentrating on getting more users to subscribe to Mac. The types of tests that we run are things like when do we advertise Max, who do we advertise it to, do we advertise it to subscribers, how often do we advertise it to subscribers, what do we say when we advertise to them, and we have found, you know, we have found some vectors that really allow us to experiment a lot.
Matt: A large chunk of the content that we've been publishing is for more advanced English learners. And that's something that we've talked about quite a bit, that we're very excited about the opportunity for more advanced English learners.
Speaker Change: 2025 excellent.
Speaker Change: I think I understand your question I'm, not 100% sure but basically.
Speaker Change: If you're asking about the types of tests that we run I mean, we usually run these tests to try to improve our core metrics and we have to concentrate on a number of metrics in the in this case, we are concentrating on getting more users to subscribe to Max.
Matt: Thanks Ross. Next question comes from Edison Cai at CITIC Bank.
Oh, hi.
Speaker Change: The types of tests that we run are things like when do we advertise Max who do we advertise it to do we advertise it to subscribers how often do we advertise it to describe it what do we say when we advertise to them and we have found we have found some vectors that really allow us to.
and others you've mentioned about how the
Matt: The growth of new users and resurrected users in the past few quarters. So what do you think of what we're doing right now, this quarter, about the marketing campaign events you're having?
Luis Bonon: So, for example, one of the main ways we're getting people to subscribe to Max is with an ad for video call. We show kind of what it looks like to do video call, and that is very effective at getting people to subscribe. And in terms of the velocity of these tests, I feel really good. We're this year, well, in 2024, we ran more tests than we've ever done before, and I believe that in 2025, we're going to run way more tests than in 2024. So our velocity is looking really good, and we have a really good roadmap for that.
Speaker Change: To experiment a lot. So for example, one of the main ways, we're getting people to subscribe to Max is with an AD for a video call. We show kind of what it looks like to do video call and that is very effective at getting people to subscribe.
Matt: So, are they calling for more new users or are we calling back those resurrected users? And for the markets you mentioned, like Japan and Latin America, we see the growth from, I guess,
Speaker Change: And in terms of the velocity of these tests I feel really good where we are this year. While in 2024, we ran more tests that than we've ever done before and I believe that in 2025, we're gonna runway more tests in 2024.
Matt: new users and resurrected users. So what do you think of the boost of these two user growth origins and which one do you think will be more effective way to grow in the next few quarters? Thank you.
Speaker Change: So our velocity is looking really good and we have a really good roadmap for that.
Luis Bonon: Yeah, hopefully that answers your question. Thank you.
Speaker Change: Yes.
Speaker Change: Hopefully that answers your question.
Justin Patterson: Great. Next question comes from Justin Patterson at KeyBank. All right, thank you.
Speaker Change: Thank you.
Matt: Yeah, this is a really good question. It's important in order to understand how our business works.
Speaker Change: Great next question comes from Justin Patterson at Keybanc.
Matt: Typically, when people stop using Duolingo, it is rare that they stop and never come back. Most of the people who stop using Duolingo stop for a few months or for a year and then they come back. So we have a lot of people who are resurrecting, and resurrecting we mean they haven't been around for at least 30 days.
Luis Bonon: It's fitting I get to ask bootleg Jack Antonoff a question wearing a bootleg Duolingo t-shirt, but maybe building on just Ross's and Andrew's question a little bit more. Luis, you have a mission to make education more affordable to the masses. You alluded to it earlier with Macs, you don't wanna be pricing at bad unit economics internationally. So as we get into this environment where inference costs continue dropping, how do you think about just the pace that you might provide some of those savings back to users? And then secondarily, just thinking about video calls, any additional learnings you can share about just the proficiency of people engaging there?
Speaker Change: Alright, Thank you sitting I'm going to ask a bootleg Jack answered off a question, where I can bootleg duolingo T shirt, but.
Speaker Change: Maybe building on just.
Speaker Change: Ross's and Andrew's question, a little bit more Luis Youre on a mission to make education more affordable to the masses, you alluded to it earlier with Max you don't want to be pricing at bad economics internationally. So as we get into this environment, where in French costs continue dropping how do you think about just the pace that you might provide some of those.
Thank you.
Of course.
Matt: As we get more mature, the fraction of kind of top of the funnel that is resurrected gets higher and higher. Because, for example, when we had just launched Duolingo, there was no users to resurrect. So all users were new. And as we get more and more mature, you know, higher fraction of people are people that that are coming back. And that is
Savings back to users.
Speaker Change: And then secondarily.
Speaker Change: We're always thinking about video calls any.
Matt: pretty consistent with how mature we are in each country. So, in a country that we've been operating for a lot longer, like the U.S.,
Speaker Change: Any additional learnings you can share about just the proficiency of people engaging there since you've already done the hard part you've got casual user set to jump into the category.
Luis Bonon: Since you've already done the hard part, you've gotten casual users to jump into the category. I'm curious how well you're doing converting them from say more casual usage to advanced proficiency. Thank you.
Matt: You would see a higher fraction of resurrected users when compared to new users versus in a country where we've been operating much less time, for example, like in India where, you know, we really didn't start spending effort in India up until, you know, a couple years ago. So there, we're still seeing way more new users than we're seeing resurrected users.
Speaker Change: Curious, how well you're doing converting converting them from say a more casual usage to advanced proficiency. Thank you.
Luis Bonon: Yeah, um, the sorry, what was your first question again, just running? First question was just as inference costs can to do that. Oh, yeah. How do you think about the value? Yeah, um, Yeah, generally, you know, we have we have these three tiers, we have the free tier, we have the super and we have the highest tier max. At the moment, because of inference costs, particularly for video call, we have to have video call in the highest That's not necessarily going to always be the case. It may be the case that at some point it gets cheap enough for us to put it in a lower tier.
Speaker Change: Yeah.
Speaker Change: The sorry, what was your first question if I can just run professionally.
Speaker Change: First question was just as inference costs continue that.
Speaker Change: How do you think about the value yes, yes.
Speaker Change: Yeah generally.
Speaker Change: We have we have these three tiers, we have a free tier we have the super and we have the highest your Max at the moment because of inference cost, particularly for video call. We have to have video calling the highest here.
You know
Matt: Our marketing, in general, most of our marketing goes into kind of these social media campaigns like what you've seen kind of on TikTok or YouTube or Instagram, etc. And those are actually really good at both bringing new users and resurrecting users. And we know that. Because whenever somebody resurrects or whenever a new user comes in, we ask them kind of where they came from.
Speaker Change: <unk>.
Speaker Change: That's not necessarily going to always be the case it may be the case that at some point it gets cheap enough for us to put in a lower tier we may even be able to give some of it for free.
Luis Bonon: We may even be able to give some of it for free. And in general, we'll be testing whatever is best for the long-term, you know, not just LTV, but the long-term health of our app. And we know that in many cases, giving things for free is actually the best thing for our app. So, we're just going to be testing a lot. At the moment, our hands are a bit tied because the costs are just high, you know, too high, but we'll definitely be testing where to have these features.
Speaker Change: And in general we'll be testing whatever's best for.
Speaker Change: The long term.
Matt: and we know that our campaigns are good at doing both. So we're doing that. Now in terms of work for them, the one piece of work that we do still need to work on is we know that the retention of resurrected users is not as good as the retention for new users.
Speaker Change: Not just not just LTV, but the long term health of our App and we know that in many cases, giving things for free is actually the best thing for our App. So we're just going to be testing a lot at the moment, our hands are a bit tighter because the costs are just high too high but you will definitely be tougher.
Matt: And we need to improve that. So we're working on that. Part of the thing that happens is when somebody's been gone...
Luis Bonon: Now, in terms of, you know, getting the user's proficiency, we're really happy with how much better we are teaching, particularly conversation, now with video call. We know that before this, we really didn't have a great way to practice conversation, and now we do. And that is working. I mean, it's really effective.
Speaker Change: Testing, where we're to have these features now in terms of getting the uses proficiency.
Matt: A lot of times, if they've been gone for a very long time, what we should do is we should assume that they've forgotten everything. If they've been gone for two years, we should assume they've forgotten everything. We're not. And so that's something that we could just do better.
Speaker Change: Where we're really happy with how much better we are teaching, particularly conversation now with video call.
Speaker Change: We know that before this we really didn't have a great way to practice conversation and now we do and that is it's working I mean, it's really effective.
Okay, thanks Luis.
Thank you.
Okay, next up is Andrew Boone at Jampi.
Luis Bonon: Thank you for calling me bootleg Antonoff. I'd save Mr. Chalupa for another day. That's going to be a thing.
Speaker Change: Thank you.
Speaker Change: Thanks so much for taking the question. I want to go back to Ross's question.
Speaker Change: Thank you for calling this bootleg antiknock.
Speaker Change: I'd say if Mr Chalupa for another day.
Speaker Change: It's a derivation of it. Luis, in your first priority, you talked about growing users, improving subscriber conversion, and then promoting Macs through testing.
Mark Mahaney: All right, next question comes from Mark Mahaney at Evercore. Okay, thank you. You talk about in the letter making Lilly more dynamic and interactive. That seems like a pretty low bar to me.
Speaker Change: That's going to be a thing.
Speaker Change: Alright next question comes from Mark Mahaney at Evercore.
Speaker Change: Right, and so like the question is, okay, you guys are doing so much more content How does that relate to testing in terms of generative AI? Are you guys seeing accelerated like propagating in terms of what you guys could put out there? Help us understand your testing velocity as it relates to 2020 plot. Thanks much
Speaker Change: Okay. Thank you.
Speaker Change: You talked about in the letter, making literally more dynamic and interactive that seems like a pretty low bar to me.
Luis Bonon: So what are you thinking about? Secondly, Matt, the subscription revenue per average sub. So we've sort of seems like we've hit this inflection point. I assume it's relatively like in that guidance that you gave for the full year, should we assume that that subscription revenue per average subs continues to grow because of greater max and family adoption? And then third, the ad revenue, I guess, was a little came in a little lower and I mean, pressured gross margins a little bit. Is that just because it's less of a focus for the company? You just don't need the ad dollars?
Speaker Change: So what are you thinking about secondly map the subscription revenue per average sub so we've sort of feels like we've hit this inflection point I assume it's relatively like in that guidance that you gave for the full year should we assume that that subscription revenue per average subs continues to grow because of.
Speaker Change: I think I understand your question. I'm not 100% sure, but basically, you know, if you're asking about tests, the types of tests that we run, I mean, we usually run these A-B tests to try to improve our core metrics, and we have to concentrate on a number of core metrics. In this case, we are concentrating on getting more users to subscribe to Macs.
Speaker Change: Greater Maxim.
Speaker Change: Family adoption, and then third the AD revenue I guess it was a little came in a little lower pressured gross margins a little bit is that just because it's less of a focus for the company you just don't need the AD dollars or I don't know is that a problem you need to solve thanks a lot.
Matt Skarupa: Or I don't know, is that a problem you need to solve?
Thank you.
Speaker Change: The types of tests that we run are things like, when do we advertise Macs? Who do we advertise it to?
Matt Skarupa: Thanks a lot. Thanks, Mark.
Matt Skarupa: First one, I'll take. Yeah. I mean, in general, what we meant by that is, you know, at the moment, Lilly is not necessarily your best friend yet. We want that to happen. We really want her to have, you know, we want it to be the case that you want to talk to Lilly. And by the way, that is the thing that really differentiates us from, you know, every other learning thing that not only do we teach effectively, but also people actually want to use Duolingo. And in particular for Lilly, we want people to actually want to talk to her.
Speaker Change: Okay.
Speaker Change: First one I'll take.
Speaker Change: Yeah.
Speaker Change: In general what we meant by that.
Speaker Change: At the moment Lilly is not necessarily your best friend, yet we want that to happen, we really wanted to have.
Speaker Change: experiment a lot. So for example, one of the main ways we're getting people to subscribe to Max is with an ad for video call. We show kind of what it looks like to do video call and that is very effective at getting people to subscribe.
Speaker Change: We wanted to be the case that you want to talk to Lilly and by the way that its the thing that really differentiates us.
Speaker Change: Every other learning thing.
Speaker Change: And in terms of the velocity of these tests, I feel really good. This year, well, in 2024, we ran more tests than we've ever done before. And I believe that in 2025, we're going to run way more tests than in 2024.
Speaker Change: Not only do we teach effectively but also people actually want to use duolingo and in particular for Lilly, we want people to actually want to talk to her and so that just means every time you go there you'll have something interesting to tell you you'll remember what you told there last time. She will ask you about your problems et cetera, and we're working on that I mean, it's it's it's a it's a fine balance.
Luis Bonon: And so that just means, you know, every time you go there, she'll have something interesting to tell you. She'll remember what you told her last time. She'll ask you about your problems, etc. And we're working on that. I mean, it's a fine balance, because one of the things that is hard is we're getting these people who may not be able to express themselves all that well, yet we want to be able to ask them, you know, how their lives are and tell them something about Lilly's life. So that's what we're going to be working on.
Speaker Change: So our velocity is looking really good and we have a really good roadmap for that. Yeah, hopefully that answers your question.
Speaker Change: Because one of the things that is hardest we're getting these people who may not be able to express themselves all that well yet.
Thank you.
Thank you for watching!
Great, next question comes from Justin Patterson at KeyBank.
Speaker Change: Yet we want to be able to ask them.
Speaker Change: and a lot and a lot and a lot and a lot and a lot
Speaker Change: How their life are and tell them something about lilly's life. So that's that's what we're going to be working on and there's a lot of work to be done there, but I think by the end of the year, what's gonna happiness.
Speaker Change: All right, thank you. It's fitting I get to ask bootleg Jack Antonoff a question wearing a bootleg Duolingo t-shirt. But, you know, maybe building on just...
Luis Bonon: And there's a lot of work to be done there.
Matt Skarupa: But I think by the end of the year, what's going to happen is we're just going to see much higher engagement numbers, even though they're already, I feel pretty good about our current engagement numbers with Lilly, we're going to see much better engagement numbers with Lilly. And then on the ARPU question and on the ads, on the ARPU, you're absolutely right, Mark. We told you last call that we thought it'd be, you know, flat to up, and it ended up up, which was great. And it gives me a chance just to remind everyone that we talk a lot about pricing, and we run pricing experience all the time.
Ross's and Andrew's question a little bit more.
Speaker Change: Just going to we're just going to see much higher engagement numbers, even though theyre already I feel pretty good about our current engagement numbers with Lilly, we're going to see much better engagement numbers with her.
Speaker Change: Louise, you have a mission to make education more affordable to the masses.
Speaker Change: You alluded to it earlier with Max, you don't want to be pricing at bad unit economics internationally.
Speaker Change: And then on the <unk> quest.
Speaker Change: Since we get into this environment where inference costs continue dropping, how do you think about just the pace that you might provide some of those savings back to users?
Speaker Change: Question and on the ads on the ARPA, you're absolutely right Mark.
Speaker Change: Told you last call that we thought it'd be.
and, you know, then secondarily just thinking about video calls.
Speaker Change: Flat to up and ended up up which was great and it gives me a chance just to remind everyone that when we talk a lot about pricing and we run pricing experience. All the time, we're running them now price point experiments, but the larger shifts we expect over the next several years as they were effective at continuing to shift people to family plan and didn't.
Speaker Change: Any additional learnings you can share about just the proficiency of people engaging there? Since you've already done the hard part, you've gotten casual users to jump into the category, I'm curious how well you're doing converting them from, say, more casual usage to advanced proficiency. Thank you.
Matt Skarupa: We're running them now, price point experiments. But the larger shift we expect over the next several years is that we're effective at continuing to shift people to family plan and can, and to shift more folks to max, that'll be the larger. Arpoo Swing. For the rest of the year you're right, the guide assumes that we see positive Arpoo year-over-year throughout the year.
Speaker Change: And the shift to more folks to Max that will be the larger.
Speaker Change: Yeah, sorry, what was your first question again, just to remind me? First question was just as inference costs continue to drop, how do you think about the value of that? Yeah, generally, you know, we have these three tiers. We have the free tier, we have the super, and we have the highest tier max. At the moment, because of inference costs, particularly for video call, we have to have video call in the highest tier.
Speaker Change: <unk> swing.
Speaker Change: For the rest of the year you raised the guide assumes that we see positive.
Matt Skarupa: And then on ads... You're absolutely right. We're a subscription business. And so our most of our energy is running experiments to optimize our subscriptions. Ads was lighter in Q4. It was a combination of volume and RPMs. The volume is a good news story for us because we're showing more Duolingo ads to get folks to take super or max. So I don't expect ads to fundamentally shift up a gear. We're focused on subscriptions.
Speaker Change: Our improved year over year throughout the year.
Speaker Change: And then on an ads.
Speaker Change: You are absolutely right, we are a subscription business and so our most of our energy is.
Speaker Change: Running experiments to optimize our subscriptions.
Speaker Change: <unk> was lighter in Q4 is a combination of volume and.
Thank you.
Speaker Change: That's not necessarily going to always be the case. It may be the case that at some point it gets cheap enough for us to put in a lower tier. We may even be able to give some of it for free.
Speaker Change: Rpms the volume is a good news story for us because we're showing more duolingo adds to get folks to take Super Max.
Speaker Change: And in general, we'll be testing whatever is best for the long term, you know, not just not just LTV, but the long term health of our app. And we know that in many cases, giving things for free is actually the best thing for our app.
Speaker Change: So I don't expect adds to fundamentally shift.
Speaker Change: <unk> up a year, we're focused on subscriptions.
Matt Skarupa: Thanks, Matt. Thanks, Moose.
Speaker Change: Thanks, Matt Thanks, Bruce.
Wyatt Swanson: And next question comes from Wyatt at D.A. David. Hey, thanks, guys. Just have a quick one here. Given the massive TAM of 2 billion language learners, it's still really early, clearly, of the potential user base that you guys could have. Could you maybe talk about where you see user growth coming from next? What markets or demos do you consider the next growth avenue? Where are you under-penetrated right now? And how are you setting yourselves up to achieve growth in those areas?
Mark Mahaney: Hey, Mark.
Speaker Change: And next question comes from why at D. A Davidson.
Speaker Change: So, we're just going to be testing a lot. At the moment, our hands are a bit tied because the costs are just high, you know, too high, but it will definitely be...
Mark Mahaney: Thanks, guys.
Speaker Change: Instead of a quick one here given the massive Tam.
Speaker Change: testing where to have these features. Now, in terms of getting the user's proficiency, we're really happy with how much better we are teaching, particularly conversation, now with video call. We know that before this.
Speaker Change: 2 billion language learners, it's still really early literally at the potential user base that you guys get the half can you maybe talk about like where you see user growth coming from next like what markets or demos do you consider the next growth area.
But what are you wonder where are you under penetrated right now and like how are you setting yourselves up to achieve growth.
Speaker Change: We really didn't have a great way to practice conversation and now we do and that is it's working. I mean, it's really effective
Luis Bonon: Yeah, thanks for the question. OK, so at the moment, we're seeing really growth in every geography. They're not identical growth in every geography, but we're seeing growth in every geography. There are you know, one of the things I said in a previous answer, the what's amazing, at least to me, is that the how penetrated a geography is or how mature a geography is essentially not correlated with how fast it's growing. So some of our most mature geographies like Latin America are some of our also some of our fastest ones, which means we're just there's really we're nowhere near tapped out.
Speaker Change: Yeah. Thanks for the question Okay. So.
Thank you.
Speaker Change: At the moment, we're seeing really growth in every geography, they're not identical growths in every geography, we're seeing growth in every geography.
Thank you for calling me bootleg Antonov.
I'd save Mr. Chalupa for another day.
Speaker Change: They are.
That's going to be it. Thanks.
Speaker Change: One of the things I said in a previous answer the whats amazing at least to me is that.
All right, next question comes from Mark Mahaney at Evercore.
Okay, thank you.
Speaker Change: The how penetrated a geography or how mature geographies isn't essentially not correlated with how fastest growing so some of our most mature geographies like Latin America or some of our also some of our fastest ones, which means we're just there's really we're nowhere near a capped out.
Speaker Change: You talk about in the letter making Lilly more dynamic and interactive. That seems like a pretty low bar to me That that so what are you thinking about? Secondly Matt the subscription revenue per average sub so we've sort of seems like we've hit this inflection point I assume it's relatively like in that guidance that you gave for the full year should we assume that that subscription revenue per average subs continues to grow because of
Luis Bonon: So that's good.
Luis Bonon: Now, in terms of where are we more or less penetrated, generally, Asia is the place where we're least penetrated, simply because we started much later there. And so I think there's a huge opportunity there. Places like Japan, Korea, India, China, I think there's a huge opportunity there. What we're doing there is we're setting up marketing. I mean, we've already set it up, but it's a little less developed than our marketing in some of our more mature markets. But we're setting up marketing. And by marketing, I mean, just to be clear, don't mean a bunch of performance market or anything.
Speaker Change: So that's good now in terms of what are where are we more or less penetrated generally Asia is the place where we're at least penetrated simply because we started much later there.
Speaker Change: greater max and family adoption. And in third, the ad revenue, I guess, was a little, came in a little lower, and I mean, pressured gross margins a little bit. Is that just because it's less of a focus for the company? You just don't need the ad dollars? Or I don't know, is that a problem you need to solve? Thanks a lot.
Speaker Change: So I think theres a huge there's a huge.
Speaker Change: Each opportunity there.
Speaker Change: Places like Japan, Korea, India, China.
Speaker Change: I think theres a huge opportunity there what we're doing there is where we're setting up marketing I mean, we've already set it up but it's a little less.
Speaker Change: Thanks Mark. You can take the first one, I'll take the second one. Yeah, yeah, yeah. I mean, in general, what we meant by that is...
Speaker Change: Less developed than our marketing in some of our more mature markets, but we're setting up marketing and by marketing I mean just to be clear.
Speaker Change: You know at the moment Lily is not necessarily your best friend yet. We want that to happen We really want her to have you know We want it to be the case that you want to talk to Lily and by the way That is the thing that really differentiates us
Luis Bonon: Essentially, very similar marketing to what you see here in the US, which is a lot of social media stunts and stuff like that that work really well. Fun fact, by the way. Duo, our owl, faked his death in every single market that we had, except for Japan, because it turns out that in Japan, joking about death is not as kosher. So in Japan, he was just not dead. Got it. All right. Appreciate the fun fact.
Speaker Change: Don't mean, a bunch of performance market or anything, especially very similar marketing to what you see here in the U S, which is a lot of you know a lot of social.
Speaker Change: from, you know, every other learning thing that not only do we teach effectively but also people actually want to use Duolingo and in particular for Lily we want people to actually want to talk to her.
Speaker Change: Media stunts and stuff like that that work really well fun fact by the way.
Speaker Change: Duo our our faked his death in every single market that we had except for Japan, because it turns out that in Japan.
Speaker Change: And so that just means, you know, every time you go there, she'll have something interesting to tell you. She'll remember what you told her last time. She'll ask you about your problems, etc. And we're working on that.
Speaker Change: <unk> about death is not kosher so in Japan. He was just not dead.
Chris Kuntarich: All right, moving on to we've got Chris Kuntarich from UBS. Great. Thanks for taking the question.
Speaker Change: It's a fine balance, because one of the things that is hard is we're getting these people who may not be able to express themselves all that well.
Speaker Change: Got it alright I appreciate it.
Speaker Change: Moving on to our we've got Chris <unk> from UBS.
Matt Skarupa: I just wanted to ask you about the four days of stronger promo period and maybe just zoom out for a second and kind of hear about how did Max perform versus your expectations in the promo period? Are you seeing larger uptake for Max versus the super plan? And just kind of how does that mix look as we look at adoption during that promo period? Thanks. Yeah, I'm happy to take a shot and Luis can come in. So the overall promo period surpassed our forecast. And it did so both on Max, as you kind of alluded to, Max did better.
Speaker Change: Yet we want to be able to ask them, you know, how their lives are and tell them something about Lily's life So that's that's what we're going to be working on and there's a lot of work to be done there But I think by the end of the year what's going to happen is
Speaker Change: Yeah.
Chris: Great. Thanks for taking my question I, just wanted to ask about the four days of stronger promo period, and maybe just zoom out for a second and kind of hear about how does macs performed versus your expectations and the promo period are you seeing larger uptake for Max versus the Super plan and just kind of how does it how does that mix look because.
Speaker Change: We're just going to see much higher engagement numbers, even though they're already, I feel pretty good about our current engagement numbers with Lily, we're going to see much better engagement numbers with her.
Chris: As we look at at adoption during that promo Darren Thanks, Yeah happy to take a shot and Luis can can come in so.
And then on the...
Speaker Change: The ARPU question and on the ads. On the ARPU, you're absolutely right, Mark. We told you last call that we thought it'd be
Chris: The overall promo period.
Chris: Surpass our forecast and it did so both on Max as you kind of alluded to.
Matt Skarupa: And then the family man also did better in those last four days of the year. So it was kind of a well-rounded outperformance in those last four days. I do think that it's important to know that the performance throughout the quarter was strong though. It wasn't just the last four days or the promo period. We had strong user growth throughout the quarter and a bunch of other, you know, bread and butter monetization experiments that really paid off in the quarter, but, you know, even differentially and above our expectations. So it wasn't just the New Year's promo.
Speaker Change: you know, flat to up and it ended up up which was great. And it gives me a chance just to remind everyone that we talk a lot about pricing and we run pricing experiments all the time, we're running them now, price point experiments.
Chris: Max did better and then the family can also did better in those last four days of the year. So it was kind of a well rounded outperformance in those last four days.
Speaker Change: But the larger shift we expect over the next several years is, if we're effective at continuing to shift people to family plan and to shift more folks to MACs, that'll be the larger.
Chris: <unk>.
Chris: I do think that it's important to know that performance throughout the quarter was strong though it wasn't just in the last four days or the promo period.
Chris: Long user grow throughout the quarter and a bunch of other bread and butter monetization experiments that really paid off in the quarter a bit even differentially in above our expectations.
Speaker Change: ARPU swing. For the rest of the year, you're right, the guide assumes that we see positive ARPU year over year throughout the year.
and then on on ads
Chris: So it wasn't just the new year's promo.
Speaker Change: You're absolutely right. We're a subscription business and so are most of our energy is.
Matt Skarupa: All right.
Georgia Anderson: Thanks, Chris.
Georgia Anderson: Next question comes from Georgia Anderson at Wolf, stepping in for Shweta. Hi, thanks for the time. I was wondering if you could talk a little bit about the languages that are available on the app on the Duolingo Max tier. I think most of the Romantic languages were available as of a couple of months ago, but I was wondering if there's kind of an ideal number of languages, what the rollout of that has kind of been, what languages are kind of easier or more difficult to add? Just anything along those lines would be helpful.
Speaker Change: running experiments to optimize our subscriptions. Ads was lighter in Q4. It was a combination of volume and RPMs. The volume is a good news story for us because we're showing more Duolingo ads to get folks to take Super or Max.
Chris: Thanks, Chris Alright, thanks, guys.
Chris: Our next question comes from Georgia, Anderson at Wolf stepping in for Shredder.
Hi, Thanks for the time I was wondering if you could talk a little bit about the languages that are available on the app on their drilling go next year I think most of the romantic languages, where available as of a couple of months ago months ago, but I was wondering.
Speaker Change: So I don't expect ads to fundamentally shift up a gear. We're focused on subscriptions.
Chris: They're kind of and I know a number of languages with the rollout of that has kind of been hello, English languages, or kind of easier or more difficult to add.
Thanks, Matt. Thanks, Luz.
Thank you, Mark.
And next question comes from Wyatt at DA Davidson.
Georgia Anderson: Sure, happy to take that. Generally, we have our largest languages by demand already available on Macs. So, for example, English is available, French, Spanish, etc. Japanese is available. Chinese is available. Now, The thing to understand about our languages is that there's a pretty lopsided demand. So, for example, about half our users are learning English. a little under 20% are learning Spanish and a little under 10% are learning French. So those three combined, it's like 75%, give or take. And that's just three languages. And then all other languages combined, we in total teach about 40 some languages.
Chris: Just anything along those lines would be helpful.
Thanks, guys.
Chris: Sure happy to happy to take that.
Let's have a quick one here.
Chris: Generally we have our largest languages by demand already available on Max.
Speaker Change: given the massive TAM of 2 billion language learners, it's still
Speaker Change: really early, clearly, of the potential user base that you guys could have.
Chris: So for example, English available French Spanish et cetera, Japanese is available.
Speaker Change: Do you maybe talk about where you see user growth coming from next? Like what markets or demos do you consider the next growth avenue?
Chris: <unk> is available.
Chris: Now.
Chris: The thing to understand about our language is that there is a pretty lopsided demand. So for example about half of our users are learning English.
Speaker Change: Like, what are you under, where are you under penetrated right now, and like, how are you setting yourselves up to achieve growth in those areas?
Chris: A little under 20% of our learning Spanish and a little under 10% of our learning French so those three combined it's like 75% give or take and that's just three languages and then all other languages combined.
Speaker Change: Yeah, thanks for the question. Okay, so at the moment we're seeing really growth in every geography.
Speaker Change: They're not identical growths in every geography, but we're seeing growth in every geography.
Georgia Anderson: All other 37, call it languages, only account for 25%. So we cover with Macs, we cover at least the big bulk. We have we cover the top eight.
Chris: Total teach about 40 some languages all other 37 call. It languages only account for 25%. So we cover with Max we cover at least the big bulk we have we cover the top eight.
Speaker Change: There are, you know, one of the things I said in a previous answer, the
Speaker Change: What's amazing, at least to me, is that how penetrated a geography is, or how mature a geography is, is essentially not correlated with how fast it's growing. So some of our most mature geographies, like Latin America, are also some of our fastest ones, which means we're just...
Georgia Anderson: It is true that it is harder to add it to non-Romance languages. So, for example, it's harder to add it to Japanese or Chinese. And part of what's difficult there is that it's just learning those languages, particularly for people from Western countries, learning those languages so much harder that when we put, for example, a video call on for an early Japanese learner. They really it's very hard for them to understand anything. Whereas if we put a video call in Spanish, if you're in the U.S. and we put a video call in Spanish, the vast majority of people, even if we haven't taught them anything, can understand Buenos Dias.
Chris: It is true that it is harder to add it to non romance languages.
Chris: So for example, it's harder to added to Japanese or Chinese and part of whats difficult. There is that it just learning those languages, particularly for our people from western countries learning those languages, so much harder.
There's really, we're nowhere near tapped out.
Speaker Change: So that's good. Now, in terms of where are we more or less penetrated, generally, Asia is the place where we're least penetrated, simply because we started much later there.
Chris: When we put for example, a video call on for an early Japanese learner.
Chris: They really it's very hard for them to understand anything, whereas if we put a video call in Spanish.
Speaker Change: And so I think there's a huge opportunity there, places like Japan, Korea, India, China.
In the U S and we put a video call in Spanish the vast majority of people, even if we haven't got them anything kind of on the windows.
Georgia Anderson: Like most people can do that. Whereas for for a language like like Japanese is much harder in that respect. So we have to do all kinds of things to make it to really either put things like video call, start it, start them later or dumb it down even more than than than we would need to. That's the type of stuff we have. That's helpful. Thank you.
Speaker Change: I think there's a huge opportunity there. What we're doing there is we're, you know, we're setting up marketing. I mean, we've already set it up, but it's a little...
Chris: Like most people can do that whereas for it for a language like like Japanese is much harder in that respect. So we have to do all kinds of things to make it to really either a foot.
Speaker Change: less developed than our marketing in some of our more mature markets. But we're setting up marketing, and by marketing, I mean, just to be clear.
Speaker Change: Are things like video call started started them later.
Speaker Change: Or dumb it down even more than than we would need to that's the type of stuff we have to do.
Speaker Change: Don't mean a bunch of performance market or anything. Essentially, very similar marketing to what you see here in the US, which is a lot of, you know, a lot of social media stunts and stuff like that that work really well. Fun fact, by the way,
Kurt Nagler: Okay, next up is Kurt Nagler at BofA. Awesome, great. Thanks so much for taking the question.
That's helpful. Thank you.
Speaker Change: And the next step is a current nagler at Bofa.
Matt Skarupa: Maybe Matt, one for you. And, you know, I guess, forgive me if I misread this, just maybe expand on why the revenue growth is expected to step down a little bit in terms of rate of growth, right? Max is ramping.
Speaker Change: Awesome great. Thanks, so much for taking my question.
Speaker Change: Having that one for you.
Speaker Change: Duo, our owl, faked his death in every single market that we had except for Japan because it turns out that in Japan Joking about death is not as kosher. So in Japan He was just not dead
Speaker Change: I guess forgive me if I misread. This just maybe expand on why the revenue growth is expected to step down a little bit in terms of rate of growth rate Max's ramping and then as a related question.
Matt Skarupa: And then, you know, as a related question, where do you think max, maybe for you, Luis, where do you think max penetration could end up by year end, kind of what's embedded in the guidance, you know, what are your aspirations, you know, for Thanks, Rick. Yeah, on the revenue guide, that's just a factor of the math of the bookings rate. So revenue in any given quarter is essentially just a composite of the last, you know, four quarters of bookings growth rate. So that's just a mathematical outcome of the bookings guide. So I don't think there's all that much there.
Speaker Change: Do you think Max maybe for you.
Got it. All right. Appreciate the fun fact.
Speaker Change: Where do you think Max penetration could end up by year end kind of what's embedded in the guidance what are your aspirations for that.
Alright, moving on to, we've got Chris Kuntarek from UBS.
Speaker Change: Thanks, Greg.
Speaker Change: <unk>.
Chris Kuntarek: Great, thanks for taking the question. I just wanted to ask you about the four days of stronger promo period and maybe just zoom out for a second and kind of hear about how did Max perform versus your expectations in the promo period? Are you seeing larger uptake?
Speaker Change: On the revenue guide and that's just a factor of the map.
Speaker Change: Of the bookings rates of revenue in any given quarter is essentially it's a composite of Alaska.
Speaker Change: Yeah, you know four quarters of bookings growth rates. So that's just a mathematical outcome of the bookings guidance. So I don't think there is all of them.
Matt Skarupa: I would just also call out that You know, as we lay out the bookings guide for the year, that does have a pretty sizable FX impact, right? So that will be felt over time through the revenue guide as well. So both of those things are at play.
Speaker Change: for Max versus the super plan and just kind of how does how does that mix look as we look at Adoption during that promo period. Thanks. Yeah, I'm happy to take a shot and Louise can can come in. So
Speaker Change: Sir I'm just also call out that.
Speaker Change: You know as we lay out the bookings guide for the year that does have a pretty sizable FX impact right. So.
The overall promo period surpassed our forecast.
Speaker Change: That will be felt over time through the revenue guide as well so both of those things are at play.
Luis Bonon: And then I think Luis had the second part of the question. Just how high max penetration can get? I mean, look, in general, we don't really know. We know it can get higher than 5% because we're seeing it grow kind of on a daily basis. So it'll get, you know, it'll grow throughout the year. But we don't really know how high it is. I'm sure we have something in the model. Yeah, I mean, I think our expectation for Max is that it's a material amount of bookings in 2025, because we're seeing really nice growth and penetration in it.
Speaker Change: and it did so both on Max as you kind of alluded to. Max did better and then the family plan also did better in those last four days of the year. So it was kind of a well-rounded outperformance in those last four days.
Speaker Change: And then I think Louise had the second part of the question just how high Max penetration can get.
Speaker Change: Look in general we don't really know.
Speaker Change: Where that that as we know it can get higher than 5% because we're seeing it grow kind of on a daily basis.
Speaker Change: I do think that it's important to know that the performance throughout the quarter was strong though, it wasn't just the last four days or the promo period. We had strong user growth throughout the quarter and a bunch of other, you know, bread and butter monetization experiments that really paid off in the quarter. A bit, you know, even differentially and above our expectations.
Speaker Change: So it'll get you know it'll grow throughout the year, but we don't really know how high it is I'm sure we have something in model.
Speaker Change: Sure.
Speaker Change: Yeah, I mean, I think our expectation from acts as a it's a material amount of.
Matt Skarupa: But as Luis points out, we think it's we're early days, there's a ton of rapid innovation to do on those features, and how we surface that and how we price that and then what the AI. So it's just very early, and we're excited about it for that reason.
Speaker Change: Bookings in 2025, because we are seeing really nice growth and penetration in it.
So, it wasn't just the New Year's promo.
Speaker Change: But is it really points out we think it's we're early days there is a ton of rapid innovation to do it.
Speaker Change: All right, thanks Chris. Next question comes from Georgia Anderson at Wolf, stepping in for Shweta.
Speaker Change: On those features.
Speaker Change: And how we surface that and how we price that and then what the AI. So it is very early and we're excited about it for that reason.
Matt Skarupa: Okay, thank you.
Georgia Anderson: Hi, thanks for the time. I was wondering if you could talk a little bit about the languages that are available on the app on the Duolingo Max tier. I think most of the Romantic languages were available as of a couple of months ago, but I was wondering if there's kind of an ideal number of languages, what the rollout of that has kind of been.
John Colantuoni: Okay, next question. John Colantuoni at Jefferies. Great. Thanks for the question. I wanted to ask one about reinvestment. When comparing how users typically interact with Duolingo today, relative to intermediate English learners, how do you expect a growing focus on intermediate English learners to evolve your approach to marketing and flexibility to reinvest dollars back into product and innovation? Thank you.
Speaker Change: Okay. Thank you.
Speaker Change: The next question Don current Silone at Jefferies.
Speaker Change: Great. Thanks for the question.
Speaker Change: I wanted to ask one about reinvestment when comparing how users typically interact with duolingo today relative to intermediate English learners.
Georgia Anderson: What languages are kind of easier or more difficult to add? Just anything along those lines would be helpful. Sure, happy to take that.
Speaker Change: You expect a growing focus on intermediate English learners to evolve your approach to marketing and flexibility to reinvest dollars back into product and innovation.
Georgia Anderson: Generally, we have our largest languages by demand already available on Macs. So, for example, English is available, French, Spanish, etc. Japanese is available, Chinese is available.
Luis Bonon: Yeah, in terms of the more intermediate, so just to remind people, I think, take a little step back. We have decided to concentrate on more intermediate English learners, so relatively recently. It's really, you know, a couple of years ago. The reason for that is because that is a huge part of the market that we pretty much were not serving. We had English courses, but, you know, they were mostly for beginners. So we started really investing in more advanced English courses. We now have the content there, so the content is now there, and so that it's kind of a matter of time for people to start, you know, interacting with this content.
Speaker Change: Yeah in terms of the more intermediate so just to remind people I think take a little step back.
Georgia Anderson: The thing to understand about our languages is that there's a pretty lopsided demand. So, for example, about half our users are learning English.
Speaker Change: We have that we have decided to concentrate on more intermediate English learner. So it's relatively recently, it's really a couple of years ago. The reason for that is because that is a huge part of the market that we pretty much we're not serving.
Georgia Anderson: A little under 20% are learning Spanish and a little under 10% are learning French. So those three combined, it's like 75% give or take.
Georgia Anderson: And that's just three languages, and then all other languages combined, we in total teach about 40 some languages. All other 37, call it, languages only account for 25%. So we cover, with Macs, we cover at least the big bulk. We cover the top eight.
Speaker Change: We had English courses, but.
Speaker Change: We're mostly for beginners.
Speaker Change: So we started really investing in more advanced English courses, we now have the content. There. So the content is now there and so that it's kind of a matter of time for people to start interacting.
Luis Bonon: And one of the things about Duolingo is that our main way of growing is word of mouth. That's how we've mainly grown, and for the last, you know, more than a decade, basically, the word has gotten around that Duolingo is a fun way to learn a language, and people have, you know, come to the app. In English learning markets, so in non-English speaking countries, the word also got around that we're good for beginners, but not for advanced learners because the content wasn't even there. So at the moment, if you go and talk to your average person in, you know, pick any country where they're trying to learn English, many of them will tell you, yeah, if you're a beginner, that's what you should use Duolingo.
It is true that it is harder
Speaker Change: Interacting with its content and one of the things about dwelling was with our main way of growing is word of mouth. That's how we've mainly grown and for the last more than a decade basically the word has gotten around the dwelling always a fun way to learn a language and people will have come.
Georgia Anderson: to add it to non-Romance languages. So, for example, it's harder to add it to Japanese or Chinese. And part of what's difficult there is that it just...
Georgia Anderson: Learning those languages, particularly for people from Western countries, learning those languages is so much harder that when we put, for example, a video call for an early Japanese learner...
Speaker Change: Come to the App.
Speaker Change: In English learning market. So in non English speaking countries. The award also got around that were good for beginners, but not for advanced learners because the content wasn't even there. So at the moment. If you go and talk to your average person in.
Georgia Anderson: They really it's very hard for them to understand anything whereas if we put a video call in Spanish
Georgia Anderson: If you're in the U.S. and we put a video call in Spanish, the vast majority of people, even if we haven't taught them anything, kind of understand, like, buenos días.
Luis Bonon: If you're more advanced, that's not the case because they don't know that the content is there. It is, of course, our job to make sure that they have the content there. Because most of what we do is word of mouth, we expect that through word of mouth it will get out that we have the content. Now, the problem with that is that it will take some time for that. We will do some marketing for that. And so that'll help. But one thing that is just maybe a challenge is that our most effective marketing throughout the world is things like.
Speaker Change: Pick any country, where they're trying to learn English many of them will tell you yeah, if you're a beginner that's what you should use dwelling with your more advanced that's not the case because they don't know that the content is there.
Georgia Anderson: Like, most people can do that, whereas for a language like Japanese, it's much harder in that respect. So we have to do all kinds of things to make it, to really either put things like video calls, start them later, or dumb it down even more than we would need to. That's the type of stuff we have to do.
Speaker Change: It is of course, our job to make sure that they have the content there.
Speaker Change: Costs most of what we do is word of mouth, we expect that through word of mouth. It will get out to that we have the content now the problem with that is that it will take some time for that we will do some marketing for that.
That's helpful. Thank you.
Okay, next up is Kurt Nagler at BofA.
Kurt Nagler: Awesome, great. Thanks so much for taking the question. Maybe Matt, one for you, and you know, I guess forgive me if I misread this, just
Speaker Change: And so that that will help but one thing that is.
Speaker Change: Yes.
Speaker Change: Maybe a challenge is that our our most effective marketing throughout the world if things like.
Luis Bonon: duo deciding to fake his death. very effective. But that does nothing for convincing people about whether we're good at more advanced English or not. It's just good to get the word out. So we do have to change some of our marketing tactics for that. And we're working on it. But so you'll basically see us do that. What we're seeing is that the content for more advanced English learners is getting more and more interaction. So we're getting more and more advanced English learners over time. And so that number is growing quite a bit. And my sense is that by the end of the year, we'll have way more and then by the end of the year, the year after that, we'll have even more.
Georgia Anderson: Maybe expand on why the revenue growth is expected to step down a little bit in terms of rate of growth, right? Max is ramping. And then, you know, as a related question, where do you think Max, maybe for you, Luis, where do you think Max's penetration could end up by year-end? Kind of what's embedded in the guidance, you know, what are your aspirations, you know, for that?
Speaker Change: Uh huh.
Speaker Change: Duo deciding to fake his death.
Speaker Change: That's very effective but that does nothing for convincing people about whether we're good at.
Speaker Change: More advanced English or not it's just it's just good to get the word out. So we do have to change some of our marketing tactics for that and we're working on it.
Thank you.
Georgia Anderson: Thanks, Rick. Yeah, on the on the revenue guide, that's just a factor of the map of the bookings rate. So revenue in any given quarter is essentially just a composite of the last.
Speaker Change: So you you'll basically see us do that what we're seeing is that the content for more advanced English learners is getting more and more interactions, but we're getting more and more advanced English learners overtime and so that number is growing quite a bit and my sense is that by the end of the year, we'll have way more and then by the end of the year thereafter that will have you been more so it's just growing in pretty.
Georgia Anderson: Four quarters of bookings growth rate. So that's just a mathematical outcome of the bookings guide. So I don't think there's all that much there. I would just also call out that
Luis Bonon: So it's just growing in a pretty nice pace.
Matt Skarupa: And John, just to, you know, we are spending, it's not just on English learners, but we are spending more in absolute dollars in marketing this year than we did last year. And we're still getting leverage on the S&M line, right? Because those growth rates are just smaller than revenue. So I don't, you know, our reinvestment rate in marketing, I feel very comfortable with, we're increasing marketing spend, and yet still getting leverage. And I think that's a nice spot to be pretty lucky spot to be in.
Nice space.
Georgia Anderson: As we lay out the bookings guide for the year, that does have a pretty sizable FX impact, right? So that will be felt over time through the revenue guide as well. So both of those things are at play.
Speaker Change: And John just to.
Speaker Change: We are spending it's not just an English learners, but we are spending more in absolute dollars in marketing this year than we did last year and we're still getting leverage on the <unk> line right because those growth rates are just smaller than revenue. So.
Luis: And I think Luis had the second part of the question.
Speaker Change: I don't our reinvestment rate in marketing I feel very comfortable with where were increasing marketing spend and yet still getting leverage and I think that's a nice spot to be pretty lucky spot to be in.
Luis: Just how high max penetration can get? I mean, look, in general, we don't really know.
Luis Bonon: Thanks. Appreciate it.
Luis: where that is, we know it can get higher than 5% because we're seeing it grow kind of on a daily basis. So it'll get, you know, it'll grow throughout the year. But we don't really know how high it is. I'm sure we have something in the model.
Alexander Sklar: Okay, next question comes from Alex Sklar at Raymond James. Thanks. Luis or Matt, you commented on higher max LTVs that you've observed so far. Obviously, the 2X pricing is a big piece of it.
Speaker Change: Thanks I appreciate it.
Alex Sklar: Okay. Next question comes from Alex Sklar at Raymond James.
Alex Sklar: Thanks.
Matt Skarupa: But I'm just curious, how is early max retention trended relative to super? And then given some of the higher usage features like video call that you called out, how are you thinking about retention of max over the medium term? Yeah, the retention so far looks good. But as your point, he pointed out, it's early days. So we don't actually have the full on, but we have ways we estimate that and we feel good about it. And the LTV is really strong. So max is undeniably our highest LTV tier. And the more we can shift there, the better.
Speaker Change: Yeah, I mean, I think our expectation for Max is that it's a material amount of.
Speaker Change: Luis or Matt just you commented on higher Max Ltvs.
Speaker Change: Observed so far obviously, the two X pricing is a big piece of it but I'm. Just curious how is early Max retention trended relative to Super and then given some of the higher usage features like video call that you called out how do you think about retention of Max over the medium term.
bookings in 2025, because we're seeing really nice...
Speaker Change: growth and penetration in it. But as Louise points out, we think it's we're early days, there's a ton of rapid innovation to do on those features, and how we surface that, and how we price that, and then what the AI costs. So it's just very early, and we're excited about it for that reason.
Speaker Change: Yeah.
Speaker Change: Retention, so far looks good but as you point you pointed out it's early days. So we don't actually have the forlorn, but we have ways, we estimate that in.
Okay, thank you.
Speaker Change: We feel good about it and the LTV is is really strong so.
Next question comes from John Colantuoni at Jefferies.
Matt Skarupa: Hopefully retention goes up over time as well as we improve the features.
Speaker Change: Max's undeniably, our highest LTV tier and the more we can shift there the better.
Speaker Change: Great, thanks for the question. I wanted to ask one about reinvestment. When comparing how users typically interact with Duolingo today relative to intermediate English learners,
Eric Sheridan: All right, great. Thank you.
Speaker Change: Hopefully retention goes up over time as well as we improve the features.
Matt Skarupa: Okay, we've got Eric Sheridan at Goldman Sachs. Thanks so much for taking the question. Maybe Matt, coming back to the way you framed incremental margins for 2025, wanted to maybe ask a two parter. First, what do you as a team see as sort of the critical investments that have to be made that would put somewhat of pressure on incremental margins? I think you called out hiring in the prepared remarks, but I want to put a little bit better scope around that. And in prior years, you have exceeded margin guidance and it's proved to be more conservative or there's been outperformance.
Speaker Change: Alright, great. Thank you.
Speaker Change: And we've got Eric Sheridan at Goldman Sachs.
Eric Sheridan: Thanks, so much for taking the question maybe coming back to the way you framed incremental margins for 2025 wanted to maybe ask a two parter first what are you as a team see as sort of the critical investments that have to be made that would put somewhat of a pressure on incremental margins I think you called out hiring and they're.
Speaker Change: How do you expect a growing focus on intermediate English learners to evolve your approach to marketing and flexibility to reinvest dollars back into product and innovation? Thanks.
Thank you for watching!
Speaker Change: Yeah, in terms of the more intermediate, so just to remind people, I think, take a little step back. We have decided to concentrate on more intermediate English learners. That's relatively recently. It's really, you know, a couple of years ago. The reason for that is because that is a huge part of the market that we pretty much were not serving.
Eric Sheridan: Remarks, but I want to put a little bit better scope around that and in prior years, you had exceeded margin guidance and it's proved to be more conservative or theres been outperformance what could be areas in the business, where you could outperform the margin guidance as opposed to it more coming in line with the expectations as you go deeper into the year. Thanks, so much.
Matt Skarupa: What could be areas in the business where you could outperform the margin guidance as opposed to it more coming in line with the expectations as you go deeper into the year? Thanks so much.
Matt Skarupa: Yeah, thanks, Eric. No, it's a great question. So just to reiterate what I said in the prepared remarks a bit about the less important spend items, the one we're spending them. more money on early on is sales and marketing, right? And we're hiring faster. So that's what that's what you mentioned. We want to do those things, because we see an opportunity. And those are helpful. But the biggest, most important investment and increased cost that's leading to our margin expansion of 200 basis points is the marginal cost of max. And so that's a really important driver of margins.
Speaker Change: We had English courses but you know they were mostly for beginners so we started really investing in more advanced English courses. We now have the content there so the content is now there and so that it's kind of a matter of time for people to start you know interacting with this content.
Eric Sheridan: Thanks, Eric It's a great question. So just to reiterate what I said in the prepared remarks a bit about.
Eric Sheridan: The less important spend items.
Eric Sheridan: One we're spending them.
Eric Sheridan: More money on early or is sales and marketing and we're hiring faster. So that's why you know that you mentioned, we wanted to do those things because we see an opportunity in southern.
Speaker Change: And one of the things about Duolingo is that our main way of growing is word-of-mouth. That's how we've mainly grown. And for the last, you know, more than a decade, basically, the word has gotten around that Duolingo is a fun way to learn a language, and people have, you know, come to the app.
Eric Sheridan: Those are helpful, but the biggest most important.
Eric Sheridan: Investment and an increased cost that's.
Eric Sheridan: Leading to our margin expansion of 200 basis points is.
Matt Skarupa: But it just means that max is going to grow nicely. And that's great for the top line. And it's great for the ultimate LTV of the platform. Because again, as we've said on this call, and we said in the shareholder letter, we believe over time that those costs will come down for max.
in English-learning markets, so in non-English-speaking countries.
The marginal cost of Max and so that's a really important.
Speaker Change: The word also got around that we're good for beginners But not for advanced learners because the content wasn't even there so at the moment if you go and talk to your average person in you know a
Eric Sheridan: Driver of margins, but it just means that Max is going to grow nicely and that's great for the top line and it's great for the ultimate LTV of the platform because again as we've said on this call and we said in the shareholder letter we believe over time that those costs will come down for Max but now is not the time to focus the teams.
Matt Skarupa: But now is not the time to focus the teams on cost optimization. It's the focus that now is the time to focus the team on going as fast as possible to grow adoption of that tier. So that's really the biggest piece of the puzzle on the margin side, Eric. And the upsides to it are cost could come down faster on AI costs. But again, I still feel really good about where our incremental margins are. They're in our long-term margin range. And so I feel very comfortable with how we're balancing margins as we're growing really rapidly on the top.
Speaker Change: Many of them will tell you, yeah, if you're a beginner, that's what you should use Duolingo. If you're more advanced, that's not the case because they don't know that the content is there.
Eric Sheridan: On cost on the stock optimization, it's to focus that now is the time to focus the team on going as fast as possible to grow adoption of that of that tier. So that's really the biggest piece of the puzzle on the margins on Eric.
Speaker Change: It is, of course, our job to make sure that they have the content there. Because most of what we do is word of mouth, we expect that through word of mouth, it will get out that we have the content. Now, the problem with that is that it will take some time for that. We will do some marketing for that.
Eric Sheridan: The upsides to it our cost come down.
Eric Sheridan: Faster on AI cost, but again I still feel really good about where our incremental margins are they are in our long term.
Speaker Change: And so that'll help. But one thing that is just, you know, maybe a challenge is that our most effective marketing throughout the world is things like
Eric Sheridan: Margin range, and so I feel I feel very comfortable with where with how we're bound balancing margins as we're growing really rapidly on on the top line great.
Matt Skarupa: Great, thank you.
Nat Schindler: And looks like final questions from Nat Schindler at Scotiabank. And that, you're on mute. Can't hear you now. Can't hear you. Maybe your headphones, because you are now on mute, and you were not before. No. All right. Sorry about that. I love technology. Right. I'm showing no further questions.
duo deciding to fake his death.
Eric Sheridan: Great. Thank you.
Speaker Change: That's very effective, but that does nothing for convincing people about whether we're good at more advanced English or not It's just it's just good to get the word out So we do have to change some of our marketing tactics for that and we're working on it
Speaker Change: And it looks like a final question is from Nat Schindler at Scotiabank.
Eric Sheridan: Okay.
Speaker Change: So you'll basically see us do that. What we're seeing is that the content for more advanced English learners
Eric Sheridan: Okay.
Alright that Iran yet.
Speaker Change: is getting more and more interaction. So we're getting more and more advanced English learners over time. And so that number is growing quite a bit. And my sense is that by the end of the year, we'll have way more. And then by the end of the year, the year after that, we'll have even more. So it's just growing in a pretty nice pace.
Eric Sheridan: And here you are in that area.
Speaker Change: Maybe your headphones because you are now on mute and you were not before.
Speaker Change: And John, just to, you know, we are spending, it's not just on English learners, but we are spending more in absolute dollars in marketing this year than we did last year.
Speaker Change: No.
Speaker Change: Alright.
Operator: So we can go ahead and wrap it up.
Speaker Change: I got that.
Speaker Change: and we're still getting leverage on the S&M line, right? Because those growth rates are just smaller than revenue. So I don't, you know, our reinvestment rate in marketing, I feel very comfortable with. We're increasing marketing spend and yet still getting leverage. And I think that's a nice spot to be, pretty lucky spot to be in.
Luis Bonon: I'll turn it back to Luis. Thanks, Debbie.
Speaker Change: Got a lot of technology, right and I am showing no further questions. So we can go and wrap it up I will turn it back to Louis.
I'd just like to thank everyone for joining us, and we look forward to seeing you on the next call.
Louis Spun: Thanks, Debbie I'd, just like to thank everyone for joining us and we look forward to seeing you on the next call.
Thanks, appreciate it.
Okay, next question comes from Alex Sklar at Raymond James.
Speaker Change: Thanks. Luisa or Matt, you commented on higher max LTVs that you've observed so far. Obviously, the 2X pricing is a big piece of it. But I'm just curious, how is early max retention trended relative to super?
Speaker Change: And then given some of the higher usage features like video call that you called out, how are you thinking about retention of Macs over the medium term?
Speaker Change: Yeah, the retention so far looks good. But as your point, you pointed out, it's early days. So we don't actually have the full on but we have ways we estimate that and
Speaker Change: We feel good about it, and the LTV is really strong. So Max is undeniably our highest LTV tier, and the more we can shift there, the better. Hopefully retention goes up over time as well as we improve the features.
All right, great, thank you.
Okay, we've got Eric Sheridan at Goldman Sachs.
Eric Sheridan: Thanks so much for taking the question. Maybe, Matt, coming back to the way you framed incremental margins for 2025, I wanted to maybe ask a two-parter. First, what do you, as a team, see as sort of the critical investments that have to be made that would put somewhat of pressure on incremental margins? I think you called out hiring in the prepared remarks, but I want to put a little bit better scope around that. And in prior years, you have exceeded margin guidance, and it's proved to be more conservative.
and Mark Cabana.
Speaker Change: Thanks, Eric. No, it's a great question. So just to reiterate what I said in the prepared remarks a bit about the less important spend items, the one we're spending them
Speaker Change: more money on early on is sales and marketing, right? And we're hiring faster. So that's what you mentioned. We wanna do those things because we see an opportunity and those are helpful. But the biggest, most important investment and increased cost that's...
Speaker Change: leading to our margin expansion of 200 basis points is the marginal cost of max. And so that's a really important
Speaker Change: driver of margins, but it just means that Max is going to grow nicely. And that's great for the top line. And it's great for the ultimate LTV of the platform. Because again, as we've said on this call and we've said in the shareholder letter, we believe over time that those costs will come down for Max.
But now is not the time to focus the teams.
Speaker Change: on cost optimization. It's now the time to focus the team on going as fast as possible to grow adoption of that tier. So that's really the biggest piece of the puzzle.
Speaker Change: on the margin side, Eric, and the upsides to it are, you know, costs could come down.
Speaker Change: you know, faster on AI costs. But again, I still feel really good about where our incremental margins are. They're in our long-term margin range. And so I feel very comfortable with how we're balancing margins as we're growing really rapidly on the top line.
Great, thank you.
Speaker Change: Okay and looks like final questions from Nat Schindler at Scotiabank.
I can't hear you now. I hear you.