Q2 2025 Duolingo Inc Earnings Call
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Good evening, everyone and welcome to Dueling. Go second quarter, 2025 earnings webcast today after market closed. We released this quarter shareholder letter. A copy of what you can find on our IR website and investors at duolingo.com. On today's call, we have Luis vanon, our co-founder and CEO and Matt skarupa our CFO, they'll begin with some brief remarks. Before opening the call to questions analysts will be able to ask a question by using the raise hand feature. And please note, this event is being recorded and all attendees are in listen-only mode. Just a reminder we'll make forward-looking statements regarding future events and financial performance which are subject to material risks and uncertainties. Some of these risks have been set forth in the risk factors in our filings with the SEC.
These 4 looking statements are based on assumptions that we believe to be reasonable as of today. And we have no obligation to update those statements as a result of new information or future events. Additionally, we'll present both gaap and non-gaap financial measures on today's call. These non non-gaap measures are not intended to be considered in isolation from a substitute for or Superior.
To our Gap results. And we encourage you to encourage to consider all measures when analyzing our results. And now I will turn it over to Luis.
Hi everyone, and thanks for joining us today. We had another great quarter record profitability, strong Topline growth and solid performance across all subscription tiers.
As a result, we're racing our full year guidance. Again while still investing in both our Core Business and exciting new areas like chess math and music that we believe will drive long-term growth.
All of this brings us 1 step closer to our mission, which is to develop the best education in the world and make it universally available. And now we'll take your questions.
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Our first question comes from Nathan feathers with Morgan Stanley. Nathan please unmute your audio and video and ask your questions.
Hey, everyone. And congrats on the strong quarter, um, 2 from my end. Uh, first dowo growth was still really strong but moderated a touch in 2q. I guess, can you write down the primary drivers behind that and how we should think about the shape of user growth kind of through the year and into the back half? And then also want to touch on the Chinese market can provide some color on what you're seeing in that region. Any recent product improvements that are resonating and and when we might see video call, we're out there. Thank you.
Yeah, thanks. Thank you, Nathan for your questions. Um, okay. So for daus, we just posted 40%, uh, year-over-year growth, uh, in Q2, uh, and that's lapping, uh, Q2 from last year, which was 60% year-over-year growth, which is lapping in turn Q2 of 2023, which was also 60% year-over-year growth. So we've had really tremendous growth over the last several years. Um, last time we um guided to, we were going to say our dear growth was going to be somewhere between 40 and 45%. Um and we normally don't guide to do growth. Um, but we decided to do that last time because we had a really strong q1 uh, in particular because of our dead Duo campaign. And also we had a really strong Q2 of last year. Um, so we knew that, you know, this was going to be somewhere between 40 and 45. We came in at 40%, um, which is, you know, slightly on the on the lower end of, of what we thought. Um, uh, everything is is, you know, we feel very strong about this. Um, what, what the
Reason we came up towards the, the lower end was because, um, I said some stuff about Ai and this was I, I didn't give enough context.
And because of that, um we got particularly in our social media, we got some backlash on it. And what that did is it, you know, the most important thing is we wanted to make our sentiment the sentiment on our social media became negative. So we wanted to make the sentiment positive
So, uh, we stopped posting edgy posts on our social media. And we started posting things that we thought would get our sentiment more positive. And that has actually worked. Uh, by now, the sentiment on our social media channels is all very positive. Uh, but we are, we still are not posting the extreme edgy things that go, that that are more likely to go viral. So, that's that's probably what, what had, you know, how does come in in slightly the lower end, I should say the effect of that was essentially all in the United States and when I say United States, that like includes Canada and stuff like that, but it's essentially all in the United States, uh, and and among, uh, young audiences. Um, but you know, this is something that we think is, is, um, is that impact is in the past? Um, we typically only guide to do whenever, uh, there's going to be a big change this time. We're not guiding to the Au, uh, so that just should tell you that, you know, kind of, at least for next quarter. We're not expecting a big change from where we are now.
Uh, and your next question was about China. Uh, we feel really good about China. It's it's our fastest growing Market. Um, we've been growing a lot. We had a really, uh, incredible partnership. Um, this time around with luck in coffee, uh, where for a couple of weeks, uh, you know, looking it's it's like the Starbucks, uh, it's essentially everywhere for a couple of weeks. Uh, uh, a lot of their stores were basically,
Decorated with dual lingo and had dual lingo cups. And there were drinks named after dueling when everything and that was a pretty big, Big Boon for us. Um, you know, our product feels really good in China. The 1 thing is we do not have Max in China yet, and that is because, uh, because of regulations. We cannot use, uh, llms other than local llms. And after you choose a local element, which we have, um, you need approval from the government and that's completely outside of our control. We don't have 1 yet, uh, approval for the government but, uh, at some point soon, we'll we'll have Max. I, I cannot give you a time line on that because I myself, don't know it.
Very helpful. Thank you.
Thanks so much for your question. Our next question comes from Alex Scar from Raymond James, please unmute your audio and your video. Please ask your question.
Yeah, so we feel we feel very good about Max and and super, um, the both are growing and both are growing nicely. Um, the percentage of subscribers that are Max subscribers has gone a couple of quarters to go with 5%. Then last quarter was 7%, uh, and then in Q2, it was uh, 8%. So it's been growing, um, it it actually grew a little less than we expected. But part of the reason for that is because super grew even more. Um, so this just a fraction between those 2 super just great is is, is kind of Performing even better than we expected while Max is performing a little less than we expected. Um, the reason for uh Max uh not growing as fast as the super um or or not growing as fast as we expected that, um, is because for, um, more beginner users. The main feature for Max is video call and is something that allows you to practice your conversation for more beginner users. This feature is just a little too difficult.
And so we're going to be working on that, of course, 1 of the problems for that feature is that at the moment, it is entirely monolingual. So it is entirely in the language that you're learning, but when you're just a beginner and you only know like 20 words it's pretty hard to have a conversation entirely in that language. So 1 of the things we're going to be experimenting with is having a a conversation that is bilingual. So if you're an English speaker, learning Spanish, some of it is going to be in English. Some of it is going to be in Spanish to to kind of ease you in. So, that's the type of stuff we're going to be seeing their, we're ALS going to be working on making the conversations more engaging. Um if you, if you
Play with video call, you'll see that. Um now Lily has backgrounds, um, so she's like in different places and she can talk about that, that that's a really good conversation topic. So, this, um, you know, we're, we're doing a bunch of things to improve that that 1 feature. Uh, that is the, the killer feature for Max.
All right, great color there, and maybe 1, follow-up, but probably for you, Louise. But last quarter, you kind of talked about testing, taking payments directly, maybe bypassing the App Store. At least from test. Can you, can you just update us where those tests stand today and, and any early learning so far?
Yeah, we're testing it.
Um, and you know the there's a couple of things to say about that. So this is this is on uh, iPhones uh, or an iOS on iOS in general, uh, at least till the end of the year. Um, we are able to have a, a web purchase flow. So, something that takes you to a website to pay instead of paying through the Apple purchase load in the United States. That is the ruling, not in other countries. Um, we don't know if this ruling is going to stand. So it we really only know towards the end of the year for this, uh, next year, who knows what'll happen. But so far, the testing shows that
We can send people to a web purchase flow. Uh, minimally lose bookings. We do lose some bookings by sending people uh, to an external purchase flow because there's more friction. But uh, it it really significantly increases, uh, our, you know, our profit because we don't have to pay instead of having to pay Apple for the first time the subscription for you, paid them 30%. Um, in this case, we only
Pay whichever, uh, provider we're using, like, stripe. We only pay like, 2%, I mean, or some small fraction. So, so this, it, it it's good. It's a good change. We have not, um, uh, done the full, uh, push to all our users on that, but you'll likely see us do that. I should say the impact on that, even though it, you know, we're very happy with that. But the impact on that because of of, um, Gap, the impact on that is not going to be felt all that much this year, by the way, all of this is in our, in our guide, it's not going to be felt all that much this year, because whenever you get a subscription in the, you know, the main thing we sell is is 12 months subscriptions. You kind of have to advertise it over the 12 months. And you know, the rest of this year, by the time, we push this out to all our users, it's only going to be. It's only going to be about 3 of the 12 months there. Um, so so the impact this year and our and our finance is not going to be huge, but but it is something that we're pretty excited about especially if it holds um, you know, past the end of the year.
All right, thanks for the caller. We'll be on the lookout. Yep.
Thanks so much for your question. Ally, our next question comes from Ralph Shaker from William Blair. Please unmute your mic and ask your question.
Great. That 2 questions I like to assume you can hear me Louise. Yep. Yep. Hi Ralph. Good, good good. Hey, how's it going? Um, just maybe first Matt, um, just on looking at the mouse it looked like they declined sequentially. Um, was that related to the social campaign? Um, and then maybe it's the broader question. The least typically, when you roll out new products like, uh, uh, you know, map,
Or music, you sort of play them down and say it's not going to really impact the business, at least historically. But you called it out in the shareholder letter. So I'm asking, um, you highlighted Chests as sort of contributing earlier. Maybe kind of speak to what you're seeing with this product versus the other products. And it seems like there's some excitement there because that contributes to the platform earlier, perhaps some of the other products. Thanks.
My best Louise impression on on Mao which is in general you know we don't um we don't have a team focused on Mao growth. We have a team focused on De growth Dau growth because language learning is a daily practice and so we're more focused on that metric. But as you said, Mao, growth did come down.
Um, it was a, a set of factors. And if you look at the trend, you know, I don't think the trend line was all that, uh, different than it was kind of in in q1 from Q4, Etc. So, um, we are not worried about, uh, Mao growth in that Trend. Um, and we think if anything, it's following the, The Da growth trend,
I, I should also say it is an important. When you look at, uh, q1 versus Q2 and q1, we had this amazing dead Duo campaign. Um, so the comparison between q1 and Q2, okay? Um, you're, you're going to see a little bit of a drop from that.
Uh, and in terms of uh math you know, math music and stuff. Yeah. We're we're very excited about. Actually we're very excited about both uh, all 3 math music and tests. Um, we uh uh, we specifically called out chess in, in the shareholder letter. It's, it's, it's just grown a lot. Um, and it's it's a project that has gone really fast. I mean, 1 year ago, exactly 1 year ago, we had not even written a single line of code for chess in our app. Like this was this project had not started.
Um, and within a year, or less than a year, we launched it. And it's there on iPhones now and it's been growing. And, uh, when you restrict only to iPhones and only to English user interface already chess has surpassed math and music. So we're we're seeing a lot of demand for that and and we're very happy with that. Um, but you know that that also that also does not mean that we're not excited about math and music. I mean, you saw or maybe you didn't see, I mean, we just, we just acquired a team for music and we're super excited about that. Um, uh, that has made some really amazing music games. So we're we're very excited about all these subjects. Now, in terms of, you know, you, you said we we downplayed a lot. The thing that we do is
We just we we want to be cautious about uh particularly uh um you know investors getting very excited about the amount of Revenue that these courses are going to provide because at the moment you know we're just selling everything on the same subscription and we're not even trying to optimize revenue for math music or even chess. So we're very excited. We think this is really going to help us grow The Tam, uh, because it's going to get way more people to, to, to, to want to, uh, use our product. But at the moment, we just don't have much to say in terms of, you know, this is going to contribute to a certain percentage of our Revenue, Etc. We don't we don't have much to say on that. This is going to take a few years for it to be very meaningful.
Understood. Thank you. Please thanks Matt.
Thanks for your question. Ralph, our next question, comes from Chris country Rich from UBS. Please unmute your audio and ask your question.
I just want to go back to Max for a second and specifically around retention. What are you seeing with some of your earlier? Larger cohorts says, as they're coming up for Renewal what are kind of the key drivers here of churn that you're seeing kind of what are your? How is this really kind of comparing to what super churn is at this point?
Yeah, I know, I'm happy to jump in there. I think, you know, it's early, if you think about the kind of killer feature for Max, it's video. Call with Lily. You know that, um, feature didn't really start to scale out to the majority of folks, um, until Q3 or Q4 of last year. So, we haven't seen those cohorts yet. The early renewal signs in Max, like I think we said on the last call,
Um, you know, look attractive, uh, relative to Super again. We think it's too early to kind of really parse that too finely, because we haven't seen these
Cohorts. We'll know more about that in in Q3 and Q4, but to just back up just 1 Step, you know, the, um, the overall thing. We're optimizing for on the platform with super Max, and these questions around mix is LTV for the platform and because of Max price point, um, you know, the LTV is the highest of any subscription offering we have. And so, as we
As Max gain share as a percent of subscribers, our LTV is going up. So I think we'll have more to say on the kind of specifics on um, the renewal rates as we get more data on it. But um, you know, in general we like how Max is is growing overall
Got it, that's helpful. Um, maybe just 1 follow up, uh, on on Grace margin and just can you help us? Think about, uh, the back half of the Year kind of benefits from AI cost savings versus. Potentially any? Any of that flowing? Uh, any of the uh web based checkout flowing through, the gross margin. Thanks.
Effect that takes time to feather in, uh, just giving how the accounting works. So, uh, I don't think that'll be a big driver. I think the...
drivers that we saw in Q2.
Which were, you know, we outperformed our expectations on gross margin because AI costs. Overall did come down and a a driver of that which was you know, lower, um kpi calls token costs.
We've got a lot of data now. Um, from the first 2 cores of the year that says that the trend, we expected to see which was lowering of those unit costs.
Uh, coming down, we think that trend is likely to stay intact. And so that's reflected in the guide. Um, as we waited out, I think the Q2 performance was helped a little bit by add pricing. Um, that remains to be seen, you know, over the course of the year.
Appreciate it.
Thank you for your question. Chris, our next question comes from Justin Patterson from KeyBank.
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Looks like Justin's getting connected right now.
There we go. Sorry that took a second right there with you, Louise. Um so I wanted I like that. I like that.
Yeah, so does Matt from our last Fireside together but uh I'd like to touch on energy actually I thought it was really interesting that you brought up how it's uniquely moved 3 metrics. It's pretty rare for a feature to do that. So I'd love to hear about, you know, just some of the early learnings from energy. And how you hope to iterate that on that more over time and then maybe thinking just bigger picture in there? You know, if I look at the app today, there's about 4 different uh, modalities for Education featured. So if you consider jumping into some new areas over time, how do you pre prevent the consumer from getting too confused or overwhelmed by that experience as as you launch into the new courses? Thank you. That makes sense.
Um, okay, this is. Thank you for asking these questions. These are excellent. Um, okay, so energy were very excited about energy, um, just to give context what it is is, it's a, it's a different pacing mechanic, uh, for free users. So, historically, we had this mechanic that we called Hearts. I mean, it's basically, uh, you started with 5 hearts, if you made a mistake, you lost the heart. Uh, and if you ran out of Hearts, you basically could not continue unless you watch something like a rewarded video or something, to, to, to gain some hearts. That was the hearts mechanic. Energy is different, you start with a larger amount of energy. So you start with, like,
25 units of energy and you spend 1 unit every time you do an exercise, whether you got it right or wrong. So we we do not before you, we used to penalize you for getting something wrong. Now, we don't penalize you for getting anything wrong, but if you get 5 in a row, uh, correct we actually give you energy back like a random reward back. So what's really nice about it? Is that for the average user at least, um, we we've substituted a carrot for a stick, so it used to be the case that every time you made a mistake, you lost something. Now, if you don't make mistakes, you gain something, so that's actually quite rewarding. Um, and what we have seen in, when we're rolling this out, is that this increases revenue or bookings on both? Um, it increases daily active users and it increases the median times spent using the app,
Um, so we're we're we're really happy with this. Um, we've been rolling it out, you'll see us, you'll see us. It's taking some time to roll out, and it'll continue taking some time. But, you know, my sense is that significantly. Before the end of the year, this we will have switched all of our users from Hearts to energy. All of our free users from Hearts to energy. This was not affect paid users, really? Um, and, and, you know, we're very happy with with what this is going to do for our for our users.
Oh, and you asked about some subjects being, uh, um, you know, you said, well, we now teach, uh, four different things. We teach languages, we teach math, we teach music, and we teach chess? How is it not confusing to users? Yeah, I mean, that's something we think a lot about, and you know, we'll probably add more subjects. By the way, I'm not announcing new subjects; we are not working on any new subjects at the moment or anything, but we'll probably at some point—it's just, you know, stands to reason that we'll probably add more subjects at some point. Um, so yeah, this is something we think a lot about. We're going to be working on the multi-subject experience too, um, because we are noticing that a lot of the people that use Duolingo, they're not just learning one thing anymore; they're learning, you know, it's like they're learning Italian and chess. Um, and I think we need to do a better job with that, but I think at the moment we’re not seeing a lot of user confusion on that.
And stuff like that.
Great. Thank you.
Thanks for your question.
Please unmute your line and video and ask your question.
Just give them a quick moment here. Please loading. Hi guys. Can you hear me? Yep. Yeah, hi great. I uh, just have another quick 1 on the Energy System. I realized that you're seeing positive changes in da use time, spent subscriber conversion and all that but I've just observed some feedback from users on social media, Reddit stuff of that sort and they don't seem to really like the change. Have you seen any negative impacts to any cohorts or demographics or anything like that? As a result of that switch?
Yeah, I mean this is something that we we knew would happen. Whenever we do a major switch to a mechanic on Dual lingo. There's uh you know, there's a there's a number of people that um don't like the change. Um you know, 1 of the things that happens is the Dual linguist The Habit building app. We build a habit to use dueling where every single day and the thing about habits is you want them to be the same every single day. That's what people like. But of course, we would like to continue improving the app. So there is some Trends change aversion that we see so that that this we we saw this exactly happen about about 2 years ago. When we switched our home screen. We used to have a tree and we changed it to
Linear path. It was a lot of backlash for that even though our metrics showed that, you know this was actually good. Uh in that case this was that that that that particular change for switching from a path to a tree was not about Revenue. It's about uh, simplifying the app, but our metrics were good in this case. The metrics are really good. Um, both for daily active users, um, uh, uh, uh, Revenue, uh, million times spent learning. Uh, so, you know, we listen to the metrics. We did expect people, some people would not like it, and, and 1 cohort that it, it would not like it if there is a group of people that had gotten really good at a not paying and B, not making many mistakes so they could use the app for a while. Whereas with energy, uh, you you basically get capped, even if, if you're going to use a, you're going to do a lot of lessons and not pay us. You're going to end up getting PA capped. This affects only a minority of users. But essentially these are the people that are complaining, um, because they are
You know, they are now, uh, can't do as many lessons, um, as they did when they had managed to find a way to not make that many mistakes.
Got it. Okay, that makes sense. And then I just had another quick one on active users. It looks like the DAU to MAU ratio improved pretty substantially, uh, sequentially. And we saw, you know, that step down in MAU growth, was that...
Driven by the Mao step down, or is it, you know, Dax is getting more engaged? Could you kind of just walk us through what happened there?
Yeah, it it's probably a little bit of both. I mean the reality is if you look at our dau2 Mao Trend that the the trend of that ratio that has been, I don't know if it's a 100% monotonically, but essentially monotonically increasing. Uh, almost every quarter. Uh, I think it's every quarter actually uh, for the last several years. I mean, uh, a few years ago, it was 20% and then it just kind of has been creeping up to at this point. It's something like 37% um, and we like that. I mean the reality is that the healthiest, um, uh, you know, consumer products out there, have high da2 Mao ratios. Um, so we like the fact that we are, you know, that that keeps going up. Uh, in this, for this particular quarter it was a little bit of both. I mean, we increase
Um, our retention of Dau. So the Dau to Mao ratio gets better when your Dau is retained better. So we increased our retention of Dau. That is 1 of the reasons why, uh, that got better. And also it's the case that Mao's went down a little bit when compared to the previous quarter. Um, but the main reason they went down a little bit when compared with previous quarters, you got to remember in q1. We had this crazy campaign of dead Duo that kind of slightly inflated Maus that may not have been daus because it got a lot of people that may not have been very committed to just come in.
Um, and so I, you know, we kind of passed that effect. And this is this is 1 of the reasons why the data ratio went up. Yeah. And and why just to put numbers to that, I was looking it up for Ralph's, question, on, on the Mao Trends. And, um, you know, q1 went up, uh, by about a point and a half on year-over-year growth rate versus Q4 for Mao growth. And then went down from there to the 24% in Q2 you what Lewis is saying is that up, um, you know, was higher than otherwise would have been. And so that otherwise Trend probably looks more more normalized. So I think that is part of the math.
Got it. All right. Thanks, guys.
To your question. Why our next questions come from Ryan McDonald from Needham and Company? Please unmute your audio and video and ask your question.
All right. Thanks. And congrats on a great quarter. Thanks for taking my questions. Um, maybe just start Louise. I know when 1 of the goals early on with Max and video. Call was really to continue to try to bring on and attract English Learners, uh, to the platform just curious as you are seeing sort of video Call and Max mature over the last, uh, near nearly a year. Are you starting to see that pick up on on the, the non-english or the English Learners coming to the platform? Or is it more of a mix of sort of upgrades from the existing, uh, base?
Yeah, we're we're definitely seeing growth in English. Learners, that is outpacing the growth, uh, overall of of Learners of other languages in particular. So we're very happy with that. We're also seeing the case that people who are learning English are using video, call more. Also intermediate Learners are using video call more and those are typically English Learners. And also in Asia, uh we're seeing a a pickup of not only using video call more but also uh uh slightly higher propensity to buy Macs when compared to the rest of the world because of video calls. So we're very happy with the early signals. I mean I I should say, we're still early in this.
Uh, but I mean so far, we're very happy with what we're seeing, and it's exactly what we expected.
And maybe the follow-up on the, um, on sort of the DAU, uh, commentary and sort of the slowing, uh, slowdown with, with the AI comments. One, is there a potential impact where if this goes beyond DAU growth slowdown into actual churn of subscribers? And sort of any concerns about sort of a knock-on effect of that as we get to the end of the year? And, Luis, not trying to get you in trouble on social media again, but does this change your view in terms of the rate of internal adoption of AI within the company?
On the advice of counsel, I'm not saying anything. I'm kidding.
Uh, okay. So first of all, you know, you know, you saw, um, what happened with the quote, I mean, we beat bookings by we'd be bookings, pretty healthy. Um, and you know, the rest of what we expect this on our guide, um, you know, we, we, we just don't believe that. That the effect of this is is, is is very material on terms of when you're when you're looking at actual Financial metrics, we do expect a little bit of um you know, if you were if you were to look at uh kind of what our guide includes. Um, there's some positives uh uh some some good things that includes and there's some things that are, uh, uh, you know, kind of not as positive. Um, so the, the things that, that it include that are that are positives, um, you know, are, are are Soopers doing really well, so that that's in their energy is, is another positive ads and APS are positive. So,
We, you know, we're those are, those are, those are the positives, uh, bringing it down. Uh, I think it's like, uh, Max are, it's just not growing as fast as, as we expected. This is, this is what I, what I mentioned already, um, uh, the, the Dual lingo English test. Um, we we think that, you know, the, the main audience for the Dual and Google English test the main, uh, consumers are international students applying for universities here in the US, or in the UK and given the macro Trends, we're seeing that, um, there's just much fewer people applying to universities in, uh, you know, internationally because of that. So, you know, the the Dual English test, we're going to be. We we, it's lower than expected and then there's, there's something that we're putting in there, um, which is about our social media. At the moment, is not in full force because we are we've recovered sentiment. Uh, but we are not taking as many risks, uh, because honestly we're skiddish about it. But I think over the next few weeks,
um, uh, I don't know exactly how many weeks week slash months. Uh, we're going to be recovering, uh, or, or posting more edgy things that are more likely to go viral and that does help um, uh, booking some but I, you know, everything should be in our guide.
Yeah. Yeah. Right. I would just round that out for Luis to kind of remind everyone that, um, you know, the
The impact of what you're asking about was really concentrated in the U.S.
And the US had, you know, we talked about this on almost every Earnest call how the US, um, grows slower than the average because the rest of the world grows above the average, uh, do you grow growth rate? Um, and then the US, uh, growth rate decelerated a bit, over the course of the quarter. And and now we think that we're past that and it's
Stable. And, um, once we go back on social media in any way, you know, we expect, uh, things to go back. All of that does have an impact, as Lewis said, on the guide, and that's all in there. I think I would just point out that, um, you know, we beat by 9% on bookings. Um, a couple points of that.
Mark that down. Um, a couple points that it was ads. My, um, my point is that when you're uh, not doing edgy things on social media, the uh chance for a viral breakout hit like a dead Duo uh goes down. So the chance for like a real surprise. Uh to the upside also goes down so that be uh should not be carried forward.
As an expectation. Appreciate it.
Thanks for your question, Ryan. Our next question comes from Ross Sandler from Barkley's. Please unmute your audio and video and ask your question.
Uh, great. Hey everybody. Uh, Louis. So we've seen pretty rapid uh, Improvement in model capability and and latency uh lower latency from a lot of these AI companies. Um, so as that improves, how does that kind of change your thinking around, how you evolve your service, to take advantage of those improvements and it, and the follow up to that would be. It sounds like the video call feature in Max is getting better engagement. Um, are there things that you're doing behind the scenes to kind of improve? Uh, you know, the way that the interaction happens with the video call to then, you know, make it a better experience to then drive higher, Max adoption. Could you talk about that, please?
Yeah. So, you know I'm also getting better. I mean, that is that is that is happening. Um,
In some cases, that helps us; in some, it kind of doesn't do all that much. It depends on the use case. Um, you know, we have multiple use cases. One of our biggest use cases is just in the generation of content, um, our language learning content.
You know, improvements in models or latency or, or all of that doesn't help all that much for a language learning content. It helps somebody, it's not all that much because the malls are already pretty good at language and and have been for a while for example for generating content for math. Uh the improvements in the models actually helps because uh if you remember kind of a year ago, the models simply couldn't do math. Today the models can do math so we were able to generate more more math content. Um in a case like in the case of video call um uh latency certain helps improvements in latently, certainly helped. Um uh but also improvements in the model, um, you know, 1 of the things that, that, that really helps us is whenever a new model comes out. What happens is that the previous 1, they just lower the price.
And so that helps us a lot the so maybe that we don't use the latest 1 but we are using the, the still, the same 1, but the price just came down. Um, so it helps with that. Um, now in terms of video call what we're doing, we're doing a number of things to make it more engaging. I mean, for example, we are, we are training, our own, uh um uh you know, fine-tuning, our own models to make it. Um
You know, to make it more engaging. Um and so what you'll see the the the types of things you'll see. So it may not look all that different in the product when you use it. The 1, the 1 changes literally now has background. So that looks different. But most of it is not. It's not going to look all that different. It's just the conversations are going to flow a lot better and they're going to adapt to your level a lot better. Um, and that you're we're seeing basically changes kind of on a, on a weekly basis on that. The other thing that I'll say with video call is, um,
Early on. We didn't really have a metric that we were in, uh, optimizing for video call. Uh, we just kind of wanted people to use it more. Now, we have a really good metric that we're optimizing for, which is average, number of words, spoken per Max subscriber, and it's a really good metric because we can move it and because it it exactly captures, uh, what what we want people to do, which is to speak more and ever since we started optimizing that, I think our video calls just started getting better and better in the sense that they that. Now, the models are starting to learn that it is better to do things to keep you to keep you engaged. So,
Ask you more questions, uh, etc. To keep you engaged and also asking you open-ended questions as opposed to yes or no questions, uh, to get you to practice more. So that's the type of stuff that we're doing, and I'm very happy with the progress.
Thanks for your question, Ross. Our next question comes from Shweta Kajura from Wolfe Research. Please unmute your audio and video to ask your question.
Comparison. That's the first question, and then the second is just on downloads. I know it's not a metric you report, but did you see any particular trends in the U.S. or abroad on how your app downloads are tracking? Thanks a lot.
Yeah. Um the uh, you know, in terms of how our I'm I'm not entirely sure. I understand the question. I mean, there are translation translation apps that are, uh, I mean, you mentioned translation, there are translation apps that are really good for kind of voice to voice translations that are we, we, you know, we do we do teaching. Um, and you know, in that case, you know, we feel really good about our offering with video call. Um, uh, you know, the, the most important thing is that, uh, it is engaging and we feel really good about that.
Um, in terms of downloads, you know, I honestly don't know the answer to that. We I I don't even look at that. So I don't know if Matt does, but I don't know. No, I I was just thinking short, I'm sorry, I I don't actually know. Okay, the trend and download that that tells you how much we look at this?
Well, as you may know,
quarter, there was
growing fear.
But also downloads. And so if that's, you know, not something that you care about, that's fine. And so, if I could do a quick follow-up on the AU, anything in particular that you saw across geographies on engagement? So how did U.S. trends versus certain other geographies on engagement?
Yeah, in terms of, uh, okay. So, um, you know, our de user are drawing, um, very nicely, 40% year-over-year and again, that lapse year, that was 60%, which last year that was 60%. Etc. So we're we're very happy with the with the do growth. Not all countries are growing equally. I mean, some countries obviously are growing faster than others. Um the the US has been growing below our our you know, overall average for, you know, a few quarters uh and it has actually kind of have been the the the the the the year-over-year growth of the US has kind of been slowing down uh over time. Um we and and we think the main reason for that is because the US is unique.
When compared to every other country that we operate in,
We don't spend any marketing money in the U.S.
Uh, our historically, we have not spent any marketing money in the US in, in, in every other country that we, at least the ones that that are kind of larger enough markets. We we actually spend money with Performance Marketing with, uh, influencers. Some brand that said, in the US, because our internal thought was, well, we're growing really nicely in the US. Historically, we've been growing really nicely in the US. Uh, and it's so expensive to Market in the US that we're like, well we're just going to. We're just going to not spend money there and we'll spend money everywhere else. Um, and so, you know, we think that that is contributing to kind of the slowdown in growth and we, uh, we we are comparing it a lot with the situation of Mexico. Um, for a while, we were also not spending at all.
In Mexico. We were entirely relying on our social media and we've noticed that in Mexico uh, Dau growth. I mean there's always been growing but there are you growth was also slowing down and it had gotten pretty low at some point. And then we decided to start spending in Mexico and it's not a large spend. Uh, I mean, you see how much spend we have in, you know, in our filings. We don't spend a lot of marketing, but we started spending a little bit on Performance Marketing, and a little bit of influencers and that made it so that year-over-year growth in Mexico. At this point Mexico is significantly above average because we spend some amount. So what we think we're going to be doing in the US, you will see us start spending some in the US, again, we're not going to be spending, 100 million bucks in the US or anything like that. These are small amounts, uh, but we believe that, that, that helps because it just helps you reach different audiences. Um, so that's, that's kind of how we see it in the US.
Thanks guys. Thanks Matt.
Thanks for your question, Sheena. Our next question comes from Brian Smiling from JP Morgan. Please unmute your audio and video and ask your question.
Good friend.
You should be loading in now.
Great. Thanks for taking the questions, Matt. Luis, I guess just to start, you know, a few quarters ago, you had mentioned that north of 2 million daily active or intermediate or advanced English learners on the platform. I'm just curious, you know, what are the investments that are needed to drive deeper efficacy and just overall broader engagement and adoption of English learners on the platform, just given it is the vast majority of the time.
And conversely, as well on monetization. Um, you know, Matt, how do you think about the overall pricing of Max in some of these international markets, as the cost of compute comes down to Max approaches potential gross margin accretion over time? Thank you.
Yeah, I mean, English Learners are very important. I mean, we've been talking about them for a while. Um, and, yeah, English Learners, not just advanced but all in the listeners, including also beginners in English Learners, that's the largest demographic.
Adding not only adding but also improving a lot of our content for English learning, uh, and we're going to continue doing that. Um, most of our features for learning, uh, we spend a lot of the effort on the English, um, and we're seeing that, you know, that 2 million number is now a lot higher. I don't know if we report on that, but it is now a lot higher than 2 million.
Um, and so, you know, we're very happy with that with that progress. Um, I I, I'll let Matt talk about the pricing. Um, experimentation. Yeah. So I mean, Brian it's a great question because I think it allows us to talk about 2. Um,
Well, three concepts: the three concepts are LTV optimization, relative pricing of our subscription offerings, and then...
You know, the cost of compute. So, we'll take the last one. First, the cost of compute is coming down, as we've talked about. I think it is widely expected to continue, not just by us.
And the good news about that is it gives us options to do more experiments with pricing of Max, to put more Max features that may use less compute in different tiers. It gives us options, basically.
And so we're going to experiment with that over time as those costs come down, being mindful of, you know, growth not only in gross margin, but ultimately that LTV. Um, because again, I just want to reiterate what we're doing with Max and the family plan in particular. You know, people ask how ARPU and bookings and those things are important. But what we're trying to do is optimize LTV. And so, the pricing of Max not only matters about the cost of compute and its gross margin accretion or dilution.
It matters on how does it help us relative to our other tiers? So 1 of the things that we said was that was growing a little slower than we expected. Um and that was partially offset because super experiments um, were growing faster than we expected and again that is not independent. Like when you show a Max price in a super price, you get some relative compared comparative value, um, math going on in the consumer's head so this is all a long-winded. Way of introducing 3 Concepts just to say that as computer comes down, we have now more options to experiment.
Experimenting is our sweet spot, and so I would expect us to run some experiments around relative pricing for Max and Super for family plans and geographically. Again, if costs come way down, it does open up a couple of really interesting markets for us that right now we're not really offering maximum. And so that could be interesting down the line.
Great, thank you both.
Thanks for your question, Brian. Our next question comes from Mark Mahaney from Evergreen. Please unmute your audio and video and ask your question.
Let's give Mark a second here. It looks like...
All right, great. You should be in, Mark. Can you hear us?
Yeah.
All right. Uh let me throw uh 2 questions 1. Matt you talked about the pricing on um super and so just bring us up to date and I know you did some experimentation with super pricing in the March quarter. And I think you rolled it out globally. So just talk about what kind of um, what kind of response you saw to that. And then I want to ask you a question and maybe it's a little bit rude but I'll ask it to you anyway. Which is what if you John, what kind of lessons in terms of, you know, Leadership Lessons? Have you drawn from, you know, what happened in the in the controversy. Do you think the messaging was bad? The message was bad. You know, like how do you learn about from that and and uh, you know, how do you improve going forwards? And then I also want to ask you to the same time, you know, just address other concerns. You know, is there is there is the growth somehow or a reflection of maturation or saturation of end markets or are there, you know, uh, much greater competitive pressures in the market. So I'm throwing a lot by you lease, but, but, uh, I I know you can answer them. Yeah. Those are, those are good questions for Louise. I will answer the easy 1 mark on pricing, which is we ran.
Some pricing experiments earlier in the year.
The way our pricing experiments work, like I just mentioned, is we're testing volume price and trying to calculate and get a sense of LTDL.
You know, not perfect. Um, and they were beneficial to bookings. They increase bookings. So we raised prices um and you know, that had a small impact, it wasn't, you know, um, a very large part of of the movement you saw in Q2 and just to point out that our, our food has gone up really nicely. Um, I think Q2 rpu, I think it was up around 5 or 6%. Um, most of that didn't come from, uh, this price change. Write, it either came from FX or plan mixed shift to higher price plans. And just, you know, again I can't control FX but what we can try to control is more family plan and and Max over time, that will be the larger driver of of our food. Not um,
Price point increases, and now over to Luis for the other questions.
As a leadership, just don't post on LinkedIn.
I'm kidding. Um uh look I think ultimately I did not give enough context on our post internally. Um, this was, you know when I when I sent that email to the company this was not controversial. I mean, we know internally that we've always been since the beginning of this company. This is many years ago. Many years before llms were a thing. Um, uh, you know, we have decided that we're we're going to do is we're going to teach people with a computer.
And that ultimately means we're using AI. Um, and the goal for us to use, AI is to teach better and to reach more users and, uh, you know, have more content that is the goal. Um, and I think, I did not give enough context to say that that is the goal and what people understood from my message, which is not the intention is that, um, you know, oh, we just wanted to fire all our employees which is is not what we did, and not what we wanted to do. We love our employees. Um, so, you know, I I've learned that I need to be a lot more careful, you know, when talking externally versus internally and and giving enough context, sometimes it's just you know the the external world thinks about things very differently than you know, the internals of Just Us and other tech companies.
Uh, so that, you know, that's, that's my sense. Uh, in the case of, uh, a maturation, we're not worried about this. I mean, um, if you look at our idea, you growth, um,
Some of our most penetrated markets are actually the ones that are growing fastest, so we don't see. Uh, we don't see that like, oh, we've reached the level of penetration that allows us that, that, that makes it so that we're going to grow slow everywhere. We don't see that. I mean, there's some countries that are growing faster than others. But um you know uh the the the penetration is is not something we're worried about and I, you know, just want to remind you. I mean we have the 2 billion people learning a language in the world. We have about 130 million active users uh give or take and so there's a lot of room there and now we're also adding other subjects. I mean, there's hundreds of millions of people that are interested or already playing chess. The same is true for math. The same is true for music. So I I just don't think that we're anywhere near uh, our our full time.
Okay, thank you, Louise. Thank you, man.
Thanks Mark.
Thank you for your question. Mark, our next question comes from Andrew Boone from Citizens. Please unmute your audio and video and ask your question.
Hi guys, thanks so much for taking the question. Um, I wanted to go back to Max and talk about incrementality. Uh, Matt, you've kind of talked about it in a couple of ways in terms of solving for LTV. But how do we think about your ability to actually increase conversion? Given Max's offering, especially with more advanced learners and some of the testing that you guys have put out that shows it's epic.
Acacius, is that the right word? Okay. Um, and then very specifically in terms of the guide and thinking through the numbers, our POO has continued to go up. Matt, can you break that down a little bit further than just kind of FX and some of the stuff that you talked about? And then how do we think about that going forward in terms of relating it to the guide for the back half of the year? Thanks so much.
Luis, do you want to start with the, uh, Max?
How we think about conversion? Or do you, uh, want me to jump in on our proof first? Uh, you can jump in at our boo. I mean...
yeah. So um
So, Andrew, I think the way to think about it for the guide.
Uh, on Arthur, is that we were up around 6%. This quarter again. I keep, I think it's around 5 or 6% and again, that came from mix shift of plans, and I don't really think that that Harpoon number is, um, it's certainly not going back down. I think it's going to stay in that range. Consistently, you know, low single digit positive because we have, um,
A good visibility into some of the revenue that came from bookings in the past that flows through. And then, you know, we hope to continue to mix shift it up. Um, on the guide I would say that FX, you know, has been a nice tailwind. As you can tell in the...
Report from Q2, right? We had a nice tailwind to bookings.
Um,
From FX, and that's certainly driving a meaningful part of the guidance. The majority, or vast majority of the guide for the back half is, you know, we have a nice FX tailwind. So I think that's how we're thinking about FX playing out through the guide and then peppering in through our ARPU. But that takes, you know, more time, the ARPU impact.
FX is spread out over 4 quarters. So.
yeah. And in terms of, you know, Max and our different plants, I think, you know, the way we think about it, we we now have a, a, a bunch of different plants to offer people. I mean, there's the free plan of course, but then there's super, there's super family. There's Max, there's Max family. And we need to, you know, we are always trying to figure out what is the right plan to offer to the right person or at the right time.
That's Matt's favorite. Um, but you know, there are just some users for whom, uh, supers are probably a better thing or super family or something. And, you know, we're always experimenting about, uh, you know, what actually increases platform LTV. Um, and you know, that's the driving factor here.
Thank you. Thanks Andrew.
Thanks for your question, Andrew. Our next question comes from Curtis Nagel from Bank of America. Please unmute your audio and video and ask your question.
Great. Thanks so much. Maybe just a few first. Just going to go back to Viacom, um, including, which was you're not expecting a big change from Q1 to Q2. Could you elaborate on this? Is this, you know, sequential basis? This is year over year, and you know, in line with, you know, the 40% in Q2? Just some clarification on that would be helpful. Not a question for Luis. Yeah, so Chris, I mean what we're basically telling you is that in general we try not and haven't historically guided to DAU. Um, last quarter, we did because we had this amazing Q1, 49% year-over-year, 51...
Oh yeah, 50 around 50% DAU growth in Q1. And then we knew, because of that peak from Duo and the tough console, we already mentioned that it was going to be in the 40 to 45% range. So we told you that because we didn't want anyone to get surprised.
And so when it's a change of, you know, that scale and size, and there's clear predictability about it. We want to tell you about it. Um, when there's not something like that, we're we're not going to uh, Opie on the exact numbers. And so that's what Luis mentioned earlier. That, you know, you can take it as year-over-year growth rate sequentially, is that framework that we just laid out for you?
Yeah, I meant to year-over-year growth sequentially. We don't expect a big change.
Okay, that's helpful. Um, and then maybe just going back to the switch from energy to Hearts, um, and the higher Revenue in terms of what's driving that um, it was, is it that you know Cold Heart of the high usage? Non mistaking, users who, you know? Just were um,
You know, I didn't want to pay, um, and they're converting, or is there something else going on? What is, uh, the energy feature fully rolling out? I don't think I have a piece of mind. So, uh, yeah. Just some thoughts on that would be great. Yeah. What's going on? Is the following—it's, um, you know, internally we just had a belief and this is...
Executing them that belief.
Is that if you use Duolingo a lot?
And you are able to pay.
For example, if you use Duolingo a lot and you pay for Netflix, you should pay us.
Uh, that is how we see it, um, and energy basically accomplishes that. So, it used to be the case that, um,
You know, there's the type of person that is always going to pay. Never mind. They pay with whatever; they just don't like ads, etc. But the pacing mechanic, I mean, there's an energy bias towards. If you make a lot of mistakes, you have to pay us.
Uh, whereas this just biases to if you use it a lot, um, you know, it would be good if you paid us. And so that's what we're seeing.
Um, and sorry. Uh, what else? Oh, a rollout. Um, uh, you know, we're rolling it out. It's, uh, more than half rolled out on iOS now.
Um, as in more than half of daily active users of iOS have, um, energy. Um, Android is less than half, so Android's behind iOS. Um,
I don't know exactly when we'll be done, but it'll be, you know, a couple of months, give or take. We'll essentially be done.
Okay, thank you. Appreciate it.
Thank you, Curtis. Our next question comes from Hanukkah from Sitics. Please unmute your audio and video and ask your question.
Um, hi Louis. Uh,
hi.
It's another strong quarter. Congratulations on the result! I have this nice notebook from your collaboration with Latin in China. Nice, nice. We love that collaboration. It was awesome.
Percent and you are guidance for 4 year is around like 28.5 to 29%. So I will know more like um what your investing in the uh next next half of the year and uh it will be the related to new content or it will be related to the new features in AI. Yeah.
Okay, I'll take the first question and then, Matt, you can take that question. Um, so, uh, uh, uh, you know, we're like I said, we're very happy with our growth in in, in all of Asia. Really? Asia is growing as the fastest growing region. China was a positive surprise to this quarter. Um, it grew faster than we expected part of that was the partnership with looking. Um, I, you know, for people who are in the US, I don't think, you know, it's, it's hard to explain the, the, the prevalence of locking in China. Um, so it it, you know, that, that grew faster than expected. I probably some of that has to do with super growing even faster than Max. Um, because because of that, my sense is that's probably a small amount. Uh, my sense is that the, the reality is just that uh, uh, super has been we've just been doing a better job with super than with Max. Um, and yeah that's that's that's my concern. Um, yeah. And then on the investment side again, we feel very um,
Happy about the fact that we're able to grow so quickly, expand margins, and reinvest in the back half of the Year we're doing. Um, what we, what we think is the most important thing for the long-term growth of the business, which is investing back in the product, which is mainly, you know, we do a bunch of hiring. We have a bunch of new grads Who start in Q3. Um, we also are, you know, bringing on a group of people who were really excited about who are going to help us grow our music. Uh, roadmap extremely excited about the group of people and I'm going to go have drinks with them very soon. Yeah.
Um, so we're doing those things to invest back in the product; that's a big chunk of it. And then, as Luis already mentioned, we're going to spend a small amount of money, you know, incrementally, on marketing in the back half of the year. I think the overall thing I would say is, if you look at the trend in our guide around Ava, down margin by quarter, the guide lines up very closely with what happened last year in actuality, in terms of the shape of that curve. So I think this is kind of more normal course, as you'd expect. Last year, Q2 was our highest quarterly EBITDA margin, and I think that's what we're implying is going to be the case this year.
Okay, thank you. Thank you, man. Thank you, Louis.
Thank you.
Thank you for your questions, honey. I am showing no further questions. This concludes the Q&A section of the call. I would now like to turn the call back to Luis for closing remarks.
Uh, thank you everyone, uh, for tuning in, and thank you to all the analysts for the questions. And, um, we'll see you next time.