Q2 2026 Duolingo Inc Earnings Call

August 5, 2026

Speaker #1: And we're being, we're being, we're being, being.

Speaker #2: Everybody, everybody.

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Speaker #2: Everybody, rock your body right. Backstreet tech, alright. Alright.

Speaker #1: We're being, we're being, being. We're being, we're being, we're being, we're being, being, being, we're being, we're being, we're being, being.

Speaker #4: Good evening, everyone, and welcome to Duolingo's second quarter earnings webcast. Today, aftermarket closed, we released this quarter's shareholder letter, a copy of which you can find on our IR website at investors.duolingo.com.

Deborah Belevan: Good evening, everyone, and welcome to Duolingo's Q2 earnings webcast. Today, after market close, we released this quarter's shareholder letter, a copy of which you can find on our IR website at investors.duolingo.com. On today's call, we have Luis von Ahn, our co-founder and CEO, and Gillian Munson, our CFO. They'll begin with prepared remarks before we open the call for questions. Analysts may ask a question by using the raise hand feature. Please note this call is being recorded and all participants are currently in listen-only mode. Before we begin, please note that we'll make forward-looking statements regarding future events and financial performance. These statements are subject to risks and uncertainties described in our SEC filings and are based on assumptions we believe to be reasonable as of today. We undertake no obligation to update them. We'll also discuss both GAAP and non-GAAP financial measures.

Debbie Belevan: Good evening, everyone, and welcome to Duolingo's Q2 Earnings Webcast. Today, after market close, we released this quarter's shareholder letter, a copy of which you can find on our IR website at investors.duolingo.com. On today's call, we have Luis von Ahn, our co-founder and CEO, and Gillian Munson, our CFO. They'll begin with prepared remarks before we open the call for questions. Analysts may ask a question by using the raise hand feature. Please note this call is being recorded and all participants are currently in listen-only mode.

Speaker #4: On today's call, we have Luis Van On, our co-founder and CEO, and Gillian Munson, our CFO. They'll begin with prepared remarks before we open the call for questions.

Speaker #4: Analysts may ask a question by using the raise hand feature. And please note this call is being recorded and all participants are currently in listen-only mode.

Speaker #4: Before we begin, please note that we'll make forward-looking statements regarding future events and financial performance. These statements are subject to risks and uncertainties described in our SEC filings and are based on assumptions we believe to be reasonable as of today.

Debbie Belevan: Before we begin, please note that we'll make forward-looking statements regarding future events and financial performance. These statements are subject to risks and uncertainties described in our SEC filings and are based on assumptions we believe to be reasonable as of today. We undertake no obligation to update them. We'll also discuss both GAAP and non-GAAP financial measures.

Speaker #4: And we undertake no obligation to update them. We'll also discuss both gap and non-gap financial measures, reconciliations can be of the two can be found in our earnings materials, and we encourage you to review them when evaluating our performance.

Deborah Belevan: Reconciliations of the two can be found in our earnings materials. We encourage you to review them when evaluating our performance. Now I will turn it over to Luis.

Debbie Belevan: Reconciliations of the two can be found in our earnings materials. We encourage you to review them when evaluating our performance. Now I will turn it over to Luis.

Speaker #4: And now I will turn it over to Luis.

Speaker #5: Thanks, Debbie. And thank you all for joining. Q2 was a strong quarter. DAUs grew 23% year over year, accelerating from Q1 and coming in slightly ahead of our expectations.

Luis von Ahn: Thanks, Debbie. Thank you all for joining. Q2 was a strong quarter. DAUs grew 23% year over year, accelerating from Q1 and coming in slightly ahead of our expectations. We're encouraged by what we're seeing so far in Q3. The vast majority of that growth came from the work we do every day through what we call The Green Machine. We test hundreds of product changes, measure their impact, and double down on what works. Most changes are small, but they compound over time. As I discussed in our shareholder letter, that's also what's driving CUR, a measure of user retention, to an all-time high. Another highlight of the quarter was Streak Revival, a one-time campaign we ran in June. The idea was simple. Give learners who lost their longest streak a chance to earn it back by completing 3 lessons.

Luis von Ahn: Thanks, Debbie. Thank you all for joining. Q2 was a strong quarter. DAUs grew 23% year-over-year, accelerating from Q1 and coming in slightly ahead of our expectations. We're encouraged by what we're seeing so far in Q3. The vast majority of that growth came from the work we do every day through what we call The Green Machine. We test hundreds of product changes, measure their impact, and double down on what works. Most changes are small, but they compound over time. As I discussed in our shareholder letter, that's also what's driving CUR, a measure of user retention, to an all-time high. Another highlight of the quarter was Streak Revival, a one-time campaign we ran in June. The idea was simple. Give learners who lost their longest streak a chance to earn it back by completing 3 lessons.

Speaker #5: And we're encouraged by what we're seeing so far in Q3. The vast majority of that growth came from the work we do every day through what we call the green machine.

Speaker #5: We test hundreds of product changes, measure their impact, and double down on what works. Most changes are small, but they compound over time. As I discussed in our shareholder letter, that's also what's driving CUR, a measure of user retention to an all-time high.

Speaker #5: Another highlight of the quarter was street revival. A one-time campaign we ran in June. The idea was simple: give learners who lost their longest streak to a chance to earn it back by completing three lessons.

Speaker #5: More than 15 million learners revived their streaks. And what's particularly encouraging is that these users are also showing better retention than a typical re-engaged cohort.

Luis von Ahn: More than 15 million learners revived their streaks. What's particularly encouraging is that these users are also showing better retention than a typical re-engaged cohort. We brought learners back to a product that keeps getting better at teaching languages, Chess, Math, and Music. They're staying. We're still early in executing our strategy of prioritizing user growth and teaching better. Q2 gave us more confidence that we're on the right track. With that, I'll turn it over to Gillian.

Speaker #5: We brought learners back to a product that keeps getting better at teaching languages, chess, math, and music, and they're staying. We're still early in executing our strategy of prioritizing user growth and teaching better, but Q2 gave us more confidence that we're on the right track.

Speaker #5: With that, I'll turn it over to Gillian.

Speaker #4: Thanks, Luis. Welcome, everyone. As Luis said, Q2 was a strong quarter. In addition to the DAU acceleration Luis just mentioned, top-line results were in line with our expectations.

Gillian Munson: Thanks, Luis. Welcome, everyone. As Luis said, Q2 was a strong quarter. In addition to the DAU acceleration Luis just mentioned, top-line results were in line with our expectations, and profitability was slightly ahead of our plan. As we look at the remainder of 2026, I want to reiterate how we're managing the business. We are investing deliberately in the opportunities that we believe can make Duolingo a significantly larger business over the long term. At the same time, our team continues to operate with discipline. We continue to execute to our full year bookings and revenue target ranges of 10% to 12% bookings growth and 15% to 18% revenue growth. We have increased our target adjusted EBITDA outlook to 26.5% from the 25% we outlined at the start of the year. As for point estimates to help you build your models, please keep in mind the following.

Speaker #4: And profitability was slightly ahead of our plan. As we look at the remainder of 2026, I want to reiterate how we're managing the business.

Speaker #4: We are investing deliberately in the opportunities that we believe can make Duolingo a significantly larger business over the long term. At the same time, our team continues to operate with discipline.

Speaker #4: We continue to execute to our full-year bookings and revenue target ranges of 10% to 12% bookings growth and 15% to 18% revenue growth. We have increased our target adjusted EBITDA outlook to 26.5% from the 25% we outlined at the start of the year.

Speaker #4: As for point estimates, to help you build your models, please keep in mind the following. For the full year, we expect bookings growth of approximately 11% and revenue growth of roughly 16%.

Gillian Munson: For the full year, we expect bookings growth of approximately 11% and revenue growth of roughly 16%. At constant foreign exchange rates from our last call, the bookings growth rate would be about half a point higher. For gross margin, we now expect to end the year closer to 70% as compared to the 69% we initially expected, as we drive more AI content into our products, offset by AI cost savings. We expect adjusted EBITDA to be approximately $320 million at the margin of roughly 25.5% I just mentioned, and we expect to generate over $375 million of free cash flow this year. While it is not included in our 2026 guidance, we do want you to know that the company has a bonus plan that will trigger if Q4 DAU growth is 25% or higher and would be paid out during Q1.

Speaker #4: At constant foreign exchange rates, from our last call, the bookings growth rate would be about half a point higher. For gross margin, we now expect to end the year closer to 70% as compared to the 69% we initially expected as we drive more AI content into our products, offset by AI cost savings.

Speaker #4: We expect adjusted EBITDA to be approximately 320 million dollars at the margin of roughly 25.5% I just mentioned. And we expect to generate over 375 million dollars of free cash flow this year.

Speaker #4: While it is not included in our 2026 guidance, we do want you to know that the company has a bonus plan that will trigger if Q4 DAU growth is 25% or higher.

Speaker #4: And we'd be paid out during Q1. Since it's currently uncertain whether that threshold will be met, we have not included it in our 2026 guidance.

Gillian Munson: Since it's currently uncertain whether that threshold will be met, we have not included it in our 2026 guidance. If it were achieved, we would expect the payout to be roughly $10 million in cash, potentially higher if DAU growth is higher. For Q3 itself, we expect bookings of approximately $307 million, or growth of 9%, revenue of $302 million, representing growth of 11%. We expect gross margin to be 71% and adjusted EBITDA of roughly $76 million, representing a margin of 25.2%. Our balance sheet and cash flow potential remains strong. We ended the quarter with $1.3 billion in cash and investments and generated $79 million in free cash flow. We repurchased about $44 million of stock during the quarter, bringing cumulative repurchases under our authorization to $72 million or approximately 700,000 shares. Putting it all together, our user momentum is strong.

Speaker #4: If it were achieved, we would expect the payout to be roughly $10 million in cash, potentially higher if DAU growth is higher. For Q3 itself, we expect bookings of approximately $307 million, or growth of 9%. Revenue of $302 million, 11% growth. We expect gross margin to be 71% and adjusted EBITDA of roughly $76 million, representing a margin of 25.2%.

Speaker #4: Our balance sheet and cash flow potential remain strong. We ended the quarter with $1.3 billion in cash and investments, and generated $79 million in free cash flow.

Speaker #4: We repurchased about 44 million dollars of stock during the quarter, bringing cumulative repurchases under our authorization to 72 million dollars or approximately 700,000 shares.

Speaker #4: Putting it all together, our user momentum is strong. Our business model continues to generate significant cash flow. And our team is executing well in an important investment year.

Gillian Munson: Our business model continues to generate significant cash flow, and our team is executing well in an important investment year. We remain focused on reaching 100 million DAUs in 2028, and we believe the path there can create a significantly more valuable business for our shareholders. Now I'll turn it back to the operator, and we're happy to take your questions.

Speaker #4: We remain focused on reaching 100 million DAUs in 2028. And we believe the path there can create a significantly more valuable business for our shareholders.

Speaker #4: And now I'll turn it back to the operator, and we're happy to take your questions.

Operator: We will now move to our question and answer session. At this time, if you would like to ask a question, please click on the Raise Hand button, which can be found on the black bar at the bottom of your screen. You may remove yourself from the queue at any time by lowering your hand. When it is your turn, you will receive a message on your screen asking to be promoted to a panelist. Please accept, wait a moment, and once you have been promoted, you will hear your name called, and you may unmute your video and audio and ask your question. Your Zoom application may disappear momentarily. This is expected, and your window will reappear. We are allowing analysts one relevant follow-up to their main question. We will now pause a moment to allow the team to gather and assemble the queue.

Speaker #6: You will now move to our question-and-answer session at this time if you would like to ask a question, please click on the raised hand button, which can be found on the black bar at the bottom of your screen.

Speaker #6: You may remove yourself from the queue at any time by lowering your hand. When it is your turn, you will receive a message on your screen asking to be promoted to a panelist, please accept, wait a moment, and once you have been promoted, you will hear your name called and you may unmute your video and audio and ask your question.

Speaker #6: Your Zoom application may disappear momentarily. This is expected in your window will reappear. We are allowing analysts one relevant follow-up to their main question.

Speaker #6: We will now pause a moment to allow the team to gather and assemble the queue. Your first question comes from Wyatt Swanson with DE Davidson.

Operator: Your first question comes from Wyatt Swanson with D.A. Davidson.

Speaker #7: Hey, thanks for the question. Appreciate it.

Wyatt Swanson: Hey, thanks for the question. Appreciate it.

Speaker #5: Hi, Wyatt.

Gillian Munson: Hi, Wyatt.

Speaker #7: Hi. Given DAUs are now expected to be above that 20% year-over-year growth in the second half of the year, could you maybe give some color as to why the full-year bookings guide wasn't raised more?

Wyatt Swanson: Hi. Given DAUs are now expected to be above that 20% year-over-year growth in the H2 of the year, could you maybe give some color as to why the full-year bookings guide wasn't raised more? I realize you're in experimentation mode, but shouldn't a larger amount of users on the platform technically translate to increased bookings, even if you're not pushing for monetization?

Speaker #7: I realize you're an experimentation mode, but shouldn't a larger amount of users on the platform technically translate to increased bookings even if you're not pushing for monetization?

Speaker #5: Yeah, I think that's a it's a great question. I mean, the first thing to note is that our users don't monetize immediately. I mean, some of them monetize it takes a while for them to monetize because we have this freemium model.

Gillian Munson: Yeah, I think that's a great question. The first thing to note is that our users don't monetize immediately. Some of them monetize, it takes a while for them to monetize because we have this freemium model. We do expect that higher DAUs will imply higher revenue, but it's going to take some time. The second reason is exactly what you said. We said at the beginning of this year that we were going to operate in this box, in terms of revenue, and we are going to continue with this box. Basically, roughly 11% year-over-year bookings growth. The rest of the efforts are in increasing DAUs and in teaching better.

Speaker #5: We do expect that higher DAUs will imply higher revenue. But it's going to take some time. And the second reason is exactly what you said.

Speaker #5: We said at the beginning of this year that we were going to operate in this box in terms of revenue, and we are going to continue with this box—basically, roughly 11% year-over-year bookings growth.

Speaker #5: And then the rest of the efforts are in increasing DAUs and in teaching better.

Speaker #7: Got it. Okay. That's helpful. And then you noted with the extension of free trials, it helps improve both engagement and monetization. Could you just talk to some of the underlying mechanics as to how exactly that works going from one month to two months?

Wyatt Swanson: Got it. Okay. That's helpful. You noted with the extension of free trials, it helps improve both engagement and monetization. Could you just talk to some of the underlying mechanics as to how exactly that works going from 1 month to 2 months? Thanks.

Speaker #7: Thanks.

Gillian Munson: Yeah. Just to put it into context, our monetization team, their goal this year is to find things that monetize that are not at odds with user growth. Historically, some of the ways that we have monetized have been by adding friction to the free user product, and that is at odds with user growth. One of the things that has worked the best is longer free trials, and in particular, the main one that we're trying is historically Duolingo, the free trial on Duolingo, when we say, "Hey, you can try it for free," it's been 7 days. We give you 7 days for free. That's what historically has happened. We are now shifting most of our free trials, not quite all of them yet, to a 1-month free trial.

Speaker #5: yeah. So we're just to put it into context, our monetization team their goal this year is to find things that monetize that are not at odds with user growth.

Speaker #5: I mean, historically, some of the ways that we have monetized have been by adding friction to the free user product. And that is at odds with user growth.

Speaker #5: So one of the things that has worked the best is longer free trials. And in particular, the main one that we're trying is historically Duolingo, the free trial on Duolingo, when we say, "Hey, you can try it for free," it's been seven days.

Speaker #5: So we give you seven days for free. That's what historically has happened. We are now shifting most of our free trials, not quite all of them yet, to a one-month free trial.

Speaker #5: And what the way that works is basically significantly more people decide to take that trial because it's just a better deal. And because of that, we got a larger number of people actually converting to payers.

Gillian Munson: The way that works is basically significantly more people decide to take that trial because it is just a better deal. Because of that, we got a larger number of people actually converting to payers. The other nice thing is that as soon as they agree to go on the free trial, the experience just gets better because we turn off energy, we turn off the ads. This actually increases daily active users as well. We like it very much, and it is having a lot of good traction.

Speaker #5: And the other nice thing is that as soon as they agree to go on the free trial, the experience just gets better because we turn off energy, we turn off the ads.

Speaker #5: So this actually increases daily active users as well. So we like it very much. And it's having a lot of good traction.

Wyatt Swanson: Cool. Thanks, guys.

Speaker #7: Cool. Thanks, Seth.

Speaker #5: Thank you.

Gillian Munson: Thank you.

Operator: Your next question comes from the line of Andrew Boone with Citi. You may unmute your video and audio and ask your question.

Speaker #6: You're next. Your next question comes from the line of Andrew Brune with Citizen. You may unmute your video and audio and ask your question.

Speaker #7: Hey, Andrew.

Gillian Munson: Hey, Andrew.

Speaker #8: Hi, guys. Thanks so much for taking the questions. I wanted to ask about just your role in terms of influencers. How do we think about international marketing and kind of the changes that you guys highlighted in the letter?

Andrew Boone: Hi, guys. Thanks so much for taking the questions. I wanted to ask about your role in terms of influencers. How do we think about international marketing and kind of the changes that you guys highlighted in the letter? Secondly, as we think about the US, Luis, understood the strength in the quarter and kind of resurrected users. Can you talk about top of funnel, though? How do you feel about trends there and kind of the broader opportunity of attracting new users that may be new to Duolingo? Thank you.

Speaker #8: And then secondly, as we think about the US, Luis, understood the strengths in the quarter and kind of resurrected users. Can you talk about top of funnel, though?

Speaker #8: How do you feel about trends there and the broader opportunity of attracting new users, and maybe those new to Duolingo? Thank you.

Speaker #5: Yeah. So I should say our marketing team just to put it in historicals, most of our growth has been organic through word of mouth.

Luis von Ahn: Yeah. I should say our marketing team, just to put it in historicals, most of our growth has been organic through word of mouth. In fact, for the first several years, it was 100% organic through word of mouth. We added, mainly one form of marketing, which was social, our own social media accounts. That's still going really well. We're getting more than 1 billion impressions per quarter on our own social media accounts, which is incredible. Our marketing team is really starting to expand to having other important tools. One of them is creators, like groups of creators. That's working quite well, actually, specifically in certain countries. Countries like China, Indonesia, and India. Something like two-thirds of our total social media impressions come from influencers, and what we're finding is that we are able to not spend a ton of money on this.

Speaker #5: In fact, for the first several years, it was 100% organic through word of mouth. Then we added mainly one form of marketing, which was social, our own social media accounts.

Speaker #5: And that's still going really well. We are I mean, we're getting more than a billion impressions per quarter on our own social media accounts, which is incredible.

Speaker #5: But our marketing team is really starting to expand to having other important tools. One of them is creators—groups of creators. And that's working quite well, actually, specifically in certain countries, countries like China, Indonesia, and India.

Speaker #5: Something like two-thirds of our total social media impressions come from influencers. And what we're finding is that we are able to not spend a ton of money on this.

Speaker #5: What's nice is that these people have different audiences than us, and so this really just brings in a lot of new users. This is something that we're very happy with.

Luis von Ahn: What's nice is that these people have different audiences than us. This really just brings in a lot of new users, and this is something that we're very happy with. We use influencers differently in different countries, some countries more than others. That's working really well. I should also mention that our marketing team has just become significantly more sophisticated on performance marketing. While still the majority of our growth is organic, we're getting good traction on both usage of influencers and performance marketing, and we are seeing that in top of funnel, so it is increasing. We actually feel pretty good about our top of funnel. It is increasing. You ask about the US in particular. The US growth has increased quite a bit in the last quarter, and that's something that we're happy with.

Speaker #5: We use influencers differently in different countries—some countries more than others—but that's working really well. I should also mention that our marketing team has just become significantly more sophisticated on performance marketing.

Speaker #5: So while still the majority of our growth is organic, we're getting good traction on both usage of influencers and performance marketing. And we are seeing that in top of funnel.

Speaker #5: So it is increasing. So we actually feel pretty good about our top of funnel. It is increasing. And you asked about the US in particular.

Speaker #5: The US growth has increased quite a bit in the last quarter. And that's something that we're happy with. By the way, if you look at our growth, our DAU growth is really broad-based.

Luis von Ahn: By the way, if you look at our growth, our DAU growth is really broad-based. Basically, all regions are growing, and all regions are growing faster than they were before. Asia's still the fastest-growing, but US has increased.

Speaker #5: Basically, all regions are growing, and all regions are growing faster than they were before. Asia is still the fastest growing, but the US has increased.

Speaker #6: One thing I might add to that, Andrew, is the top of the funnel is part of the story of the quarter. It got better.

Gillian Munson: One thing I might add to that, Andrew, is the top of the funnel is part of the story of the quarter. It got better. As you know, that's been a focus area of ours. We've talked about how we want to get better there. In almost every region, the rate of growth there improved in top of the funnel in the quarter, which is a great accomplishment for the team.

Speaker #6: As you know, that's going to focus area of ours. We've talked about how we want to get better there. And in almost every region, the rate of growth there improved in top of the funnel in the quarter, which is a great accomplishment for the team.

Speaker #8: Thank you.

Andrew Boone: Thank you.

Speaker #6: Your next question. Your next question comes from the line of Nathan Feather. Please unmute your audio and video and ask your question.

Luis von Ahn: Thanks, Andrew.

Operator: Your next question comes from the line of Nathan Feather. Please unmute your audio and video and ask your question.

Speaker #7: Hey, everyone. Thanks for taking the question.

Nathan Feather: Hey, everyone. Thanks for taking the question.

Luis von Ahn: Hi, Nathan.

Speaker #5: Amazing.

Speaker #7: It's on my end, both on the monetization angle, I guess. Interested to hear what the learnings you've seen so far from giving video call to new super subscribers and how does that influence your plans for video call and match generally as we go from here?

Nathan Feather: On my end, both on the monetization angle, I guess, interested to hear what the learnings you've seen so far from giving Video Call to new Super subscribers, and how is that influencing your plans for Video Call and Max generally as we go from here?

Speaker #5: Yeah, so video call is an interesting thing. I mean, we love this feature. It's an excellent feature for learning conversations, practicing conversation—it really works.

Luis von Ahn: Yeah. Video Call is an interesting thing. We love this feature. It's an excellent feature for learning conversation, for practicing conversation. It really works. We have, in fact, research that shows that if you use Video Call, you get better at conversation. It really works. It's really good. When we first started adding Video Call to the platform, the first time that we put a Video Call in the platform, I remember the team that was working on it told me, "Okay, we can give this to users, but it's going to cost like $0.30 per call to give to users." That was expensive, and this is why we decided to put it behind our most expensive plan, which is Max.

Speaker #5: We have, in fact, research that shows that if you use video call, you get better conversation. So it really works. It's really good. When we first started adding video call to the platform, the first time that we put a video call in the platform, I remember the team that was working on it told me, "Okay, we can give this to users, but it's going to cost like 30 cents per call to give to users." And that was expensive.

Speaker #5: And this is why we decided to put it behind our most expensive plan, which is Max. But we said back then, if we can decrease the cost of this, we're going to try it in different places because it is our aim to give video call to as many people as possible because it really helps in learning a language.

Luis von Ahn: We said back then, if we can decrease the cost of this, we're going to try it in different places because it is our aim to give Video Call to as many people as possible because it really helps in learning a language. The good news is that through a lot of really hard work, we've been able to bring down the cost of Video Call. It is now under $0.01 per Video Call. The reason for that is mainly a move towards open source models. It's just a lot cheaper to do that, and we don't see a loss in quality in there. We're very happy with that, and because of that, we're able to now give Video Call to Super subscribers. The state that we're in right now is most new Super subscribers get Video Calls.

Speaker #5: The good news is that through a lot of really hard work, we've been able to bring down the cost of video call. It is now under a cent per video call.

Speaker #5: And the reason for that is mainly a move towards open-source models. It's just a lot cheaper to do that. And we don't see a loss in quality in there.

Speaker #5: So we're very happy with that. And because of that, we're able to now give video call to super subscribers. The state that we're in right now is most new super subscribers get video call.

Speaker #5: So if you buy Super right now, we will get video call as well. We expect that over the next few months, we're going to give video call to existing user subscribers.

Luis von Ahn: If you buy Super right now, you will get Video Call as well. We expect that over the next few months, we're going to give Video Call to existing user subscribers. We haven't quite done that to all of them. We expect that we're going to do that as well, and that's really good because more people are going to be able to practice conversation. That calls into question, what are we doing with Max? My answer is, I don't know yet. There's a few possibilities. One possibility could be that while Super subscribers get a limited version of Video Call, like limited number of Video Calls, and Max subscribers get unlimited. That is a possibility. Another possibility, truthfully, is that we may actually sunset Max.

Speaker #5: We haven't quite done that to all of them. We expect that we're going to do that as well. And that's really good because more people are going to be able to practice conversation.

Speaker #5: Now, that calls into question, what are we doing with Max? And my answer is, I don't know yet. There are a few possibilities. One possibility could be that super subscribers get a limited version of video call, like a limited number of video calls, and Max subscribers get unlimited.

Speaker #5: That is a possibility. Another possibility, truthfully, is that we may actually sunset Max. But what I will tell you is that we’re going to have an answer to this in the next couple of quarters.

Luis von Ahn: What I will tell you is that we're going to have an answer to this in the next couple of quarters, and in addition to that, we're going to try to do this without a loss of revenue. That's partly why we're not going super fast here, because we're trying to figure out how to do this without losing much revenue. Again, our intent is that we give it to as many users as possible.

Speaker #5: And in addition to that, we're going to try to do this without a loss of revenue. And that's partly why we're not going super fast here because we're trying to figure out how to do this without losing much revenue.

Speaker #5: But again, our intent is that we give it to as many users as possible.

Speaker #7: Okay, great. That's really helpful. And then one thing we've seen reports that you're testing in ad-supported tier. So I guess to help us think through, do you see an opportunity for maybe a lower price tier, something in between Super and the free model?

Nathan Feather: Okay, great. That's really helpful. One thing we've seen reports that you're testing an ad-supported tier. I guess to help us think through, do you see an opportunity for maybe a lower priced tier or something in between Super and the free model? From a user segmentation perspective, what are you really going after there?

Speaker #7: And from a user segmentation perspective, what are you really going after there?

Speaker #5: Yeah. We are testing that. It's called Super Lite. It is being tested. Now, I really want to emphasize the word tested. We are I don't know what's going to happen with Super Lite in the end.

Luis von Ahn: Yeah, we are testing that. It's called Super Lite. It is being tested. Now, I really want to emphasize the word tested. I don't know what's going to happen with Super Lite in the end. It is cheaper than Super. It's about half the price, depending on the geography. It is ad-supported, so you get ads, and in addition to that, basically, you don't get unlimited energy. You get twice as much energy. That's the idea. At the moment, it's still a small fraction of our subscribers are on Super Lite. Part of the reason is that we're early in the testing. We're just not advertising it very well. Of course, the goal with a light plan like this would be, if we're pretty sure that you're not going to buy Super, then we should try to sell you Super Lite.

Speaker #5: It is cheaper than Super. It's about half the price. Depending on the geography. It is ad-supported. So you get ads. And in addition to that, basically, you don't get unlimited energy.

Speaker #5: You get twice as much energy. So that's the idea. At the moment, still only a small fraction of our subscribers are in Super Lite.

Speaker #5: But part of the reason is that we're early in the testing. We're just not advertising it very well. And of course, the goal with a Lite plan like this would be, if we're pretty sure that you're not going to buy Super, then we should try to sell you Super Lite.

Speaker #5: That's kind of the idea. And you're going to see us experiment with that over the next few months. I don't know what will end up happening.

Luis von Ahn: That's kind of the idea, and you're going to see us experiment with that over the next few months. I don't know what'll end up happening, but it's something that we're trying.

Speaker #5: But it's something that we're trying.

Speaker #7: Okay. Very helpful. Thank you.

Brian Nowak: Okay. Very helpful. Thank you.

Bryan Smilek: Okay. Very helpful. Thank you.

Speaker #6: Your next question comes from the line of Brian Smealik with JP Morgan. Please unmute your audio and video and ask your question.

Operator: Your next question comes from the line of Brian Nowak with JPMorgan. Please unmute your audio and video and ask your question.

Brian Nowak: Great. Thanks for taking the questions. Good to see you, Luis.

Bryan Smilek: Great. Thanks for taking the questions. Good to see you, Luis.

Speaker #8: Great. Thanks for taking

Speaker #7: the question. It's good to see you, Luis. I'm curious, good to see Cur at an all-time high. Just curious, could you share more color on just overall retention by cohort?

Luis von Ahn: Hi, Brian.

Brian Nowak: Good to see CUR at an all-time high. Just curious, could you share more color on just overall retention by cohort? Are these new free trial users that are engaging on a daily basis exhibiting higher engagement trends? Just curious anything you can add there from a retention perspective going forward.

Bryan Smilek: Good to see CUR at an all-time high. Just curious, could you share more color on just overall retention by cohort? Are these new free trial users that are engaging on a daily basis exhibiting higher engagement trends? Just curious anything you can add there from a retention perspective going forward.

Speaker #7: Are these new free trial users that are engaging on a daily basis exhibiting higher engagement trends? Just curious, anything you can add there from a retention perspective, going forward.

Speaker #5: Yeah. So like we mentioned in the letter, our retention—our user retention—pretty much all metrics of user retention are at an all-time high. The one we look at the most is this one called CURR, which is current user retention rate. We're very happy that it is at an all-time high and that it has increased by about a percentage point in the last year, because tiny changes to CURR end up implying pretty large changes in daily active users over time, since it really compounds.

Luis von Ahn: Yeah. Like we mentioned in the letter, our user retention, pretty much all metrics of user retention are at an all-time high. The one we look at the most is this one called CUR, which is Current User Retention rate. We're very happy that it is an all-time high and that it has increased by about a percentage point in the last year, because tiny changes to CUR end up implying pretty large changes in daily active users over time, because it really compounds. This is pretty broad-based. Basically, you see it in every region. You see it across all types of users. The reason for this is just that the product is stickier.

Speaker #5: This is pretty broad-based. Basically, you see it in every region. You see it across all types of users. The reason for this is just that the product is stickier.

Speaker #5: I mean, basically, we have added a number of things. And it's hard to pinpoint to a single one because, again, every single we have a new version of the app every single week.

Luis von Ahn: Basically, we have added a number of things, it's hard to pinpoint to a single one because again, we have a new version of the app every single week, every version of the app has approximately 350 changes. It's hard to point to something that actually did it. It's just generally our product is just stickier, and we're very happy with that because that's kind of the best type of growth you can expect. That it's just pure, it's a better product.

Speaker #5: And every version of the app has approximately 350 changes. So it's hard to point to something that actually did it. But just generally, our product is just stickier.

Speaker #5: And we're very happy with that because that's kind of the best type of growth you can expect that is just pure. It's a better product.

Speaker #7: Great. Thank you. That's super helpful. And then also kind of building on Nathan's question around Max overall, more from the speaking angle as well, can you just share more color in terms of overall engagement with more intermediate and advanced learners, which would, in my view, likely start to take on more speaking practice within the app?

Brian Nowak: Great. Thank you. That's super helpful. Also, kind of building on Nathan's question around Max overall, more from the speaking angle as well. Can you just share more color in terms of overall engagement with more intermediate and advanced learners, which would, in my view, likely start to take on more speaking practice within the app?

Bryan Smilek: Great. Thank you. That's super helpful. Also, kind of building on Nathan's question around Max overall, more from the speaking angle as well. Can you just share more color in terms of overall engagement with more intermediate and advanced learners, which would, in my view, likely start to take on more speaking practice within the app?

Speaker #5: Yeah. I mean, so there's two things to say about that. The first one is that if you have access to video call, the engagement is very good.

Luis von Ahn: Yeah. There's two things to say about that. The first one is that if you have access to Video Call, the engagement is very good, in fact, that feature has just gotten significantly better. One of the main metrics that we have for this feature is number of words spoken by DAU who has access to that. That graph is a beautiful graph because it is entirely up and to the right over the last couple of years. It's just every month, it is a little better than the previous month in terms of us getting you to speak more. Ultimately, this will just translate in people learning better and being engaged with it. There's Video Call. We're also, in the free tier, making people speak more.

Speaker #5: And in fact, that feature has just gotten significantly better. One of the main metrics that we have for this feature is number of words spoken by DAU who has access to that.

Speaker #5: That graph is a beautiful graph because it is entirely open to the right over the last couple of years. It's just every month, it is a little better than the previous month in terms of us getting you to speak more.

Speaker #5: And ultimately, this will just translate in people learning better and being engaged with it. So there's video call. We're also in the free tier, making people speak more.

Speaker #5: Just there's more speaking exercises. And there's also more ways to answer exercises that before you had to tap on the phone. Now you can answer it with your voice.

Luis von Ahn: There's more speaking exercises and there's also more ways to answer exercises that before you had to tap on the phone, now you can answer it with your voice. We're pretty happy with that, and it's exactly what you said. This is much more important to advanced and intermediate users, and we see that as something that will, over time, really help with certainly monetization, but also word of mouth, because if people are learning better, they're going to tell their friends, et cetera. We're very proud of that.

Speaker #5: So we're pretty happy with that, and it's exactly what you said. This is much more important to advanced and intermediate users. We see that as something that will, over time, really help with not only monetization, but also word of mouth. Because if people are learning better, they're going to tell their friends, et cetera.

Speaker #5: So we're very proud of that.

Speaker #7: Thank you, Luis.

Brian Nowak: Thank you, Luis.

Bryan Smilek: Thank you, Luis.

Speaker #5: Thank you, Brian.

Luis von Ahn: Thank you, Brian.

Speaker #6: Your next question comes from the line of Ryan McDonald with Need Him. Please unmute your audio and video and ask your question.

Operator: Your next question comes from the line of Ryan MacDonald with Needhams. Please unmute your audio and video and ask your question.

Speaker #5: Hi, Ryan.

Luis von Ahn: Hi, Ryan.

Luis von Ahn: Luis. Hi, Juliana.

Ryan MacDonald: Luis. Hi, Juliana.

Speaker #7: Luis, hi, Gillian. Thanks for taking the questions. Maybe just to ask on the bonus incentive comment, sort of at the end of the career remarks, obviously, the team internally is operating towards trying to get to that 25% rate.

Gillian Munson: Hi, Ryan.

Gillian Munson: Thanks for taking the questions. Maybe just to ask on the bonus incentive comment, sort of at the end of the prepared remarks. Obviously, the team internally is operating towards trying to get to that 25% rate. How should we think about that translating to, let's call it the pace of new experimentation between now and the end of the year? If that picks up, are there any sort of features or initiatives that you'd call out that you're most excited about? Or is this really about just letting the changes and the experiments you've already made continue to sort of mature within the market and sort of let them produce results?

Ryan MacDonald: Thanks for taking the questions. Maybe just to ask on the bonus incentive comment, sort of at the end of the prepared remarks. Obviously, the team internally is operating towards trying to get to that 25% rate. How should we think about that translating to, let's call it the pace of new experimentation between now and the end of the year? If that picks up, are there any sort of features or initiatives that you'd call out that you're most excited about? Or is this really about just letting the changes and the experiments you've already made continue to sort of mature within the market and sort of let them produce results?

Speaker #7: How should we think that about that translating to, let's call it, the pace of new experimentation between now and the end of the year?

Speaker #7: And if that picks up, are there any sort of features or initiatives that you'd call out that you're most excited about? Or is this really about just letting the changes and the experiments you've already made continue to sort of mature within the market and sort of let them sort of produce results?

Luis von Ahn: It's a bit of both. Certainly our rate of experimentation will continue. It's pretty high this year. If you look at actually number of experiments that we're putting out per week, that keeps growing. Over the last year, that's significantly increased. In fact, it has increased faster than our headcount. That means that per person, we're actually putting out more experiments every week. You will see that throughout the rest of the year. There's a lot of experimentation that's going to happen. Generally, that's across all the things that we experiment. Teaching better and daily active user growth are where we're spending our focus, but you're also going to see experimentation and monetization, et cetera.

Speaker #5: It's a bit of both. So certainly, our rate of experimentation will continue. I mean, it's pretty high this year. So if you look at actually number of experiments that we're putting out per week, that keeps growing.

Speaker #5: Over the last year, that has significantly increased. In fact, it has increased faster than our headcount. So that means that per person, we're actually putting out more experiments every week.

Speaker #5: So we're you will see that throughout the rest of the year. There's a lot of experimentation that's going to happen. And generally, that's across all the things that we experiment.

Speaker #5: Teaching better, and daily active user growth are where we're spending our focus. But you're also going to see experimentation and monetization, et cetera. And it's related to the bonus in some way, but mainly, it's just this year, our goal as a company was we decided we are going to focus most of our efforts of our incredible experimentation machine to just make it so that we can continue growing daily active users.

Luis von Ahn: It's related to the bonus in some way, mainly it's just this year, our goal as a company was we decided we are going to focus most of our efforts of our incredible experimentation machine to just make it so that we can continue growing daily active users. We think that if, as we said many times, if we can get to a company that is 100 million daily active users, that's just a much bigger business, and that's where we want to get to. You will see experimentation. You'll see a lot, as you usually see from us.

Speaker #5: Because we think that if, as we’ve said many times, if we can get to a company that is 100 million daily active users, that’s just a much bigger business.

Speaker #5: And that's where we want to get to. But you will see experimentation. You'll see a lot as you usually see from us.

Speaker #7: Excellent. And then maybe on Max, you obviously are sort of working on a lot of things with Max right now and one being sort of super voice sort of being rolled out more to super is there any sort of, I would call it, new feature or product development that's sort of maybe geared or aimed towards the Max tier at this point that could potentially sort of continue to extend the life of that tier or is really everything more focused sort of at the lower tier experimentation right now?

Ryan MacDonald: Excellent. Then maybe on Max. You obviously are working on a lot of things with Max right now, and one being sort of Super or Voice being rolled out more to Super. Is there any sort of, I would call it, new feature product development that's maybe geared or aimed towards the Max tier at this point, that could potentially continue to extend the life of that tier, or is really everything more focused at the lower tier experimentation right now?

Speaker #5: So I won't rule that out. It may happen that we develop something that we end up putting behind Max. We're developing a lot of features.

Luis von Ahn: I won't rule that out. It may happen that we develop something that we end up putting behind Max. We're developing a lot of features, and there may be some that, because of costs of them or something, we end up putting them behind Max. That is not the goal. The goal really is to try to give, particularly speaking features, which are the most expensive ones to provide, the goal is to provide it to as many users as possible. Again, we just believe that the more people have access to this, the more word of mouth, the more users we have, and the larger this business becomes. That's the goal.

Speaker #5: And there may be some that because of costs of them are something we end up putting them behind Max. But that is not the goal.

Speaker #5: The goal really is to try to give, particularly, speaking features, which are the most expensive ones to provide. The goal is to provide them to as many users as possible because, again, we just believe that the more people have access to this, the more word of mouth, the more users we have, and the larger this business becomes.

Speaker #5: So that's the goal. But I guess what I'll say is that's not what we're trying to do, but it may be that in two months, I come back and say, "Hey, Max actually got a new feature." And it's not because I'm trying to be secretive to you.

Luis von Ahn: I guess what I'll say is that's not what we're trying to do, but it may be that in 2 months, I come back and say, Hey, Max actually got a new feature. That is not because I'm trying to be secretive to you. I just don't know what'll end up happening in terms of cost of certain features that we're developing.

Speaker #5: I just don't know what I'll end up happening in terms of cost of certain features that we're developing.

Ryan MacDonald: Appreciate the call. Thanks, Luis.

Speaker #7: I appreciate the comment. Thanks, Luis.

Speaker #6: Thanks, Ryan.

Gillian Munson: Thanks, Ryan.

Speaker #5: Thank you, Ryan.

Luis von Ahn: Thank you, Ryan.

Speaker #6: Your next question comes from the line of Suita Kajuria with Wolf Research. Please unmute your audio and video and ask your question.

Operator: Your next question comes from the line of Shweta Khajuria with Wolfe Research. Please unmute your audio and video and ask your question.

Speaker #7: Hello. How are you?

Luis von Ahn: Shweta, how are you?

Gillian Munson: Hello.

Speaker #2: Good, thanks. I see both of you. Thanks for taking my questions. First one is, as attention span, I guess, decreases, how are engagement and session time across the app trending?

Luis von Ahn: Ryan.

Shweta Khajuria: Good, thanks. Good to see both of you. Thanks for taking my questions. First one is on attention span for users. As attention span, I guess, decreases, how is the engagement and session time across the app trending, and I guess, how are you addressing that? The second is on Duolingo Math and Duolingo Music. Could you please talk about just the product roadmap as you see Duolingo Math and Duolingo Music develop through the year and how that could drive contribution to DAU growth? Thank you.

Speaker #2: And I guess, how are you addressing that? And then the second is on math and music. Could you please talk about just the product roadmap as you see math and music developed through the year and how that could drive contribution to DAU growth?

Speaker #2: Thank you.

Speaker #5: Yeah, thank you. I think part of your question is something that we've said in the past, which is just the world in general, attention span is going down.

Luis von Ahn: Yeah. Thank you. I think part of your question is something that we've said in the past, which is just the world in general, attention span is going down. If you look at how people use things like social media apps, they use them in 10-second bursts. Whereas for Duolingo, our lesson on Duolingo is maybe two minutes. That is something that we need to address, and we are working on that, trying to make the minimum session length longer. We're testing stuff there, but we have not yet released anything. Part of the issue there is that if you make the minimum session length shorter, that's good, but you got to make sure that people actually also come back many other times in the day so that it compounds. That's kind of what we're experimenting with. It is something we're actively experimenting with.

Speaker #5: I mean, if you look at how people use things like social media apps, they use them in like 10-second bursts. Whereas for Duolingo, our lesson on Duolingo is maybe two minutes.

Speaker #5: That is something that we need to address. And we are working on that, trying to make the minimum session length longer. We have not yet we're testing stuff there, but we have not yet released anything.

Speaker #5: Part of the issue there is that if you make the minimum session length shorter, that's good, but you've got to make sure that people actually also come back many other times in the day so that it compounds.

Speaker #5: And that's kind of what we're trying what we're experimenting with. But it is something we're actively experimenting with. In terms of math and music, so we're pretty excited about both of those.

Luis von Ahn: In terms of Math and Music, we're pretty excited about both of those. I should say they're still, certainly when compared to Chess, even though they do have single-digit millions of DAUs, they're much smaller than Chess. We do expect growth from both of them, but the contribution to our overall, we have 60-some million daily active users. Even a 50% growth here doesn't contribute all that much, but we do expect them to grow. Probably the easiest one to talk about in terms of strategy is Math, because we understand that pretty well, or at least better than Music, I think. With Math, originally when we launched Math, I thought, and I was wrong, I thought that we could get the average person on the street to get addicted to learning Math. I was wrong. I don't believe we can do that.

Speaker #5: I should say there's still certainly when compared to chess, they still even though they do have single-digit millions of DAUs, they're much smaller than chess.

Speaker #5: So we do expect growth from both of them, but the contribution to our overall I mean, we have 60-some million daily active users. Even a 50% growth here doesn't contribute all that much.

Speaker #5: But we do expect that they're growing we expect them to grow. Probably the easiest one to talk about in terms of strategy is math because we are we understand that pretty well or at least better than music, I think.

Speaker #5: With math, originally when we launched math, I thought and I was wrong, I thought that we could get the average person on the street to get addicted to learning math.

Speaker #5: I was wrong. I don't believe we can do that. So now our strategy is actually to mainly teach math to the people who actually need to learn math, which are basically K through 12 students.

Luis von Ahn: Now our strategy is actually to mainly teach Math to the people who actually need to learn Math, which are basically K-12 students. We may not sell to schools. That's not our goal, to sell to schools, but it's at least that our user base for Math is mainly under 18. As soon as we started working on that clarified a lot of things, and I think we started making a lot more progress, rather than trying to get your average 35-year-old person who hates Math to suddenly love it. I would love to do that, but I've given up on that one. Music, it's a bit early. We are working a lot on Music. We'll have more to say about Music in maybe a quarter or two.

Speaker #5: Now, we may not sell to schools. That's not our goal, to sell to schools. But it's at least that the user, our user base for math, is mainly under 18.

Speaker #5: And as soon as we started working on that, that clarified a lot of things. And I think we started making a lot more progress rather than trying to get your average 35-year-old person who hates math to suddenly love it.

Speaker #5: I would love to do that, but I've given up on that one. And in music, it's a bit early. I mean, we are working a lot on music.

Speaker #5: I'll have we'll have more to say about music in maybe a quarter or two.

Speaker #2: Okay. Thanks, Luis. 35 may be a bit too late for math. If you don't like it, you don't like it. All right. Thank you.

Shweta Khajuria: Okay. Thanks, Luis. 35 may be a bit too late for Math. If you don't like it, you don't like it. All right. Thank you.

Luis von Ahn: You don't like it, you don't like it. I really wanted to get people to love Math. That's what I want, but.

Speaker #5: If you don't like it, you don't like it. But I really wanted to get people to love math. That's what I want.

Shweta Khajuria: Me too. Me too. All right. Thank you. Thank you both.

Speaker #2: We do. We do. All right. Thank you. Thank you both.

Luis von Ahn: Thank you, Shweta.

Speaker #5: Thank you, Chantal.

Speaker #6: Your next question comes from the line of Mark Mahaney with Evercore. Please unmute your audio and video, and ask your question.

Operator: Your next question comes from the line of Mark Mahaney with Evercore. Please unmute your audio and video and ask your question.

Mark Mahaney: Hey.

Speaker #7: Okay. I'm trying to unmute. All right. Sorry about that. Let's see. Hey, hello to both of you. Your comment about video call functionality, I'm sorry, Luis, were you saying that you could make it available to all Duolingo users or all Super subscribers?

Luis von Ahn: Hi, Mark.

Luis von Ahn: I'm trying to come on here. All right. Sorry about that.

Luis von Ahn: No.

Ryan MacDonald: Let's see. Hey, hello to both of you. Your comment about video call functionality, I'm sorry, Luis, were you saying that you could make it available to all Duolingo users or all Super subscribers?

Luis von Ahn: I would love to make it available to all Duolingo users. I don't think we can do that right now. My goal in the moment is to make it available to all Super subscribers.

Speaker #5: Our goal look, I would love to make it available to all Duolingo users. I don't think we can do that right now. My goal in the moment is to make it available to all Super subscribers.

Luis von Ahn: I would love to make it available to all Duolingo users. I don't think we can do that right now. My goal in the moment is to make it available to all Super subscribers.

Speaker #7: Okay. And the gating factor for it not to be available to all users is just price, right? Or cost, I mean. And if you bring it down by another 90% next year, you could do it.

Ryan MacDonald: Okay. The gating factor for it not to be available to all users is just price, right? Or cost, I mean. You bring it down by another 90% next year, and you could do it.

Speaker #5: Yes, but there's one other thing that we do have to take into account. This is one of the main things that gets people to buy.

Luis von Ahn: Yes, but there's one other thing that we do have to take into account. This is one of the main things that gets people to buy. If suddenly all users have it, there's less incentive to buy, and then we would have to find other reasons to get people to buy. There's a little bit of a trade-off here. It's both cost, and this is one of the main things that gets people to buy.

Speaker #5: So if suddenly all users have it, there's less incentive to buy and then we would have to find other reasons to get people to buy.

Speaker #5: So there's a little bit of a trade-off here. So it's both cost and this is one of the main things that gets people to buy.

Speaker #7: Okay. And then I want to switch gears and ask you about advertising. And I think you've maybe changed a little bit the last couple of years in terms of your view on both advertising revenue and on advertising spend.

Mark Mahaney: Okay. Then I want to switch gears and ask you about advertising. I think you've maybe changed a little bit the last couple of years in terms of your view on both advertising revenue and on advertising spend. Where are you on that journey? Is there something that you've seen that's made you maybe a little bit more constructive on marketing spend and the efficiency of it and the desirability, perhaps, of advertising revenue?

Speaker #7: Where are you on that journey? Is there something that you've seen that's made you maybe a little bit more constructive on marketing spend and the efficiency of it?

Speaker #7: And the desirability, perhaps, of advertising revenue?

Speaker #5: You are right. That over the last couple of years, I have come I've come around to add both in terms of ad revenue and ad spend.

Luis von Ahn: You are right that over the last couple of years, I've come around to ads, both in terms of ad revenue and ad spend. A couple of things to say. In terms of ad revenue, for the foreseeable future, we will remain a subscription business. Our subscription business is much larger than ads.

Speaker #5: A couple of things to say. For the in terms of ad revenue, I mean, for the foreseeable future, we will remain a subscription business.

Speaker #5: I mean, our subscription business is much larger than for a while. However, we see a pretty large opportunity with ads. I mean, we have a lot of users; we have a lot of active users.

Mark Mahaney: Yeah.

Luis von Ahn: It will continue being like that for a while. However, we see a pretty large opportunity with ads. We have a lot of users, we have a lot of active users, and pretty much every app our size or larger than us makes a ton more money from ads than we do. We see a pretty big opportunity there, which is why we have become a lot more sophisticated on that over the last. There was a time at Duolingo a couple of years ago where our entire investment in ad revenue was half a person. There was one person whose half-time job was to deal with ads. This is how much we were investing then. We now have a team. It's significantly much more professional. They know what they're doing.

Speaker #5: And pretty much every app our size or larger than us makes a ton more money from ads than we do. So we see a pretty big opportunity there, which is why we have become a lot more sophisticated on that over the last there was a time at Duolingo a couple of years ago where our entire investment in ad revenue was half a person.

Speaker #5: There was one person whose half-time job was to deal with ads. So this is how much we were investing in them. We now have a team.

Speaker #5: It's significantly much more professional. They know what they're doing. So I would expect that over the next few quarters, that they're going that you're going to see some improvements in our ads business.

Luis von Ahn: I would expect that over the next few quarters that you're going to see some improvements in our ads business. This takes some time to get the hang of it, but what I'm seeing is we're just going to be able to give significantly higher quality ads in our product that also make us more money. We're working on that. There's active work stream that we're doing. There's that. In terms of ad spend, like for marketing for us, we're also significantly more sophisticated. There was a while where I was massively allergic to performance marketing. The way I see it now is I don't think that we want to get addicted to performance marketing, because that's never good. However, it is a good tool to have to complement your other marketing strategies.

Speaker #5: This takes some time to get the hang of it, but what I'm seeing is we're just going to be able to give significantly higher quality ads in our product that also make us more money.

Speaker #5: So we're working on that. This is active workstream that we're doing. So there's that. In terms of ad spend, for marketing, for marketing for us, we're also significantly more sophisticated.

Speaker #5: I mean, there was a while where I was massively allergic to performance marketing. The way I see it now is I don't think that we want to get addicted to performance marketing because that's never good.

Speaker #5: However, it is a good tool to have to complement your other marketing strategies. So our marketing team, which I really think is probably the best marketing team in the world, has now started adding as another strategy performance marketing.

Luis von Ahn: Our marketing team, which I really think is probably the best marketing team in the world, has now started adding, as another strategy, performance marketing, and we're very happy with that. We're seeing the results in our top of funnel for that.

Speaker #5: And we're very happy with that. We're seeing the results in our top of funnel for that.

Speaker #7: Okay. Thank you, Luis. Thank you, Julian.

Mark Mahaney: Okay. Thank you, Luis. Thank you, Jillian.

Speaker #5: Yeah. Thank you.

Luis von Ahn: Yeah. Thank you.

Speaker #6: Thanks, Mark. See you. Your next question comes from the Wedbush. Please unmute your audio and video and ask your question.

Operator: Thanks, Mark. See you. Your next question comes from the line of Ygal Arounian with Wedbush. Please unmute your audio and video and ask your question.

Speaker #7: Hi, Yagal.

Ygal Arounian: Ygal. Hey, Luis. Hey, Gillian. Thanks for taking the questions. I guess, as I listened to the call and what we're talking about here, it feels a little bit like we're starting to maybe shift or start to focus a little bit more on monetization. Talking about ads and new tiers. Is that fair? Not to say that you're moving away from the optimization around DAUs, but it does feel like you are maybe shifting a little bit the monetization side. How do you think about that transition? When is the right time? What's involved? Then I have a follow-up.

Speaker #8: Hey, Luis. taking the questions. I guess, as I listened to the call and what we're talking about here, it feels a little bit like we're starting to maybe shift or start to focus a little bit more on monetization.

Speaker #8: We're talking about ads and new tiers. Is that fair? Are you not to say that you're moving away from the optimization around DAUs, but it does feel like you are maybe shifting a little bit the monetization side.

Speaker #8: How do you think about that transition? When is the right time? What's involved? And then I have a follow-up.

Speaker #5: Yeah. I mean, it's perceptive of you. It's a good question. I mean, the reality is this year, and for a while, we really want to the main thing that we're concentrating on is expanding our active user base.

Luis von Ahn: Yeah. It's perceptive of you. It's a good question. The reality is this year and for a while, the main thing that we're concentrating on is expanding our active user base because we just think that more users is just better for everything, significantly larger business, et cetera. We have this aggressive goal to try to get to 100 million daily active users. We feel good about that goal. We think we can make it. If we do get there, kind of all things get better. Just more users, you can make more money. All things get better. It is true that our experimentation. When we started the year, we had a little bit of a pause on monetization in the sense that we're like, "Whoa, wait.

Speaker #5: Because we just think that more users is just better for everything. It's significantly larger business, et cetera. And we have this aggressive goal to try to get to 100 million daily active users.

Speaker #5: We feel good about that goal. We think we can make it. And if we do get there, kind of all things get better, just more users.

Speaker #5: You can make more money. All things get better. It is true that our experimentation when we started the year, we had a little bit of a pause on monetization in the sense that we're like, whoa, whoa, whoa, whoa, wait.

Speaker #5: Any monetization that we're doing that is counter to DAU growth, don't do it. And the reality is we were doing a number of things that were counter to DAU growth.

Luis von Ahn: Any monetization that we're doing that is counter to DAU growth, don't do it." The reality is we were doing a number of things that were counter to DAU growth. We kind of had a little bit of a reset. At this point, enough time has passed that we understand levers significantly better. We are a little more back into like, "Okay, this type of monetization is good, this type of monetization is good." For example, we mentioned longer free trials. We understand that, and we are kind of going hard on those. Ads is another business that we're perfectly happy if we have significantly better quality of ads and make more money from them, we're very happy with that because that's also DAU-aligned. We are funding that. It is true that we're probably taking it more seriously.

Speaker #5: So we kind of had a little bit of a reset. At this point enough time has passed that we understand levers significantly better. So we are a little more back into like, okay, this type of monetization is good.

Speaker #5: This type of monetization is good. So for example, we mentioned longer free trials. We understand that and we are kind of going hard on those.

Speaker #5: Ads is another business that we're perfectly happy if we have significantly better quality of ads and make more money from them. We're very happy with that because that's also DAU aligned.

Speaker #5: So we are funding that. So it is true that we are probably taking it more seriously. I don't know if that's the right term.

Luis von Ahn: I don't know if that's the right term. We're focusing a little more on it than when compared to six months ago. That is true. I don't think there's a time when we're like, a lot of people ask us, Oh, when are you going to stop worrying about DAUs, and when are you going to start making money? A lot of people ask us that. I don't think that we're going to have a shift like that. We're going to continue really trying to get to 100 million DAUs in 2028. You'll see probably increased monetization focus kind of gradually over time as we find ways to monetize that are not at odds with DAU growth.

Speaker #5: We're focusing a little more on it than when compared to six months ago. So that is true. I don't think there's a time when we're like a lot of people ask us, oh, when are you going to stop worrying about DAUs and we're going to and when are you going to start making money?

Speaker #5: A lot of people ask us that. I don't think that we're going to have a shift like that. We're going to continue really trying to get to 100 million DAUs in 2028.

Speaker #5: But you will see probably increased monetization focus kind of gradually over time. As we find ways to monetize that are not at odds with DAU growth.

Speaker #8: Okay. That's really helpful. And then I want to come back to the comments you made about the open source models and how that's driven down AI compute costs.

Ygal Arounian: Okay. That's really helpful. I want to come back to the comments you made about the open source models and how that's driven down AI compute costs. A, how should we think about that opportunity in terms of the margin structure over time? It feels like there's multiple levers you could pull on that. It's an interesting theme because we've heard this over and over again, this earning cycle from a lot of companies and this lean into open source models. How does that change the product velocity? Because I know AI has been a big component in driving your product velocity. Does that become a bigger opportunity with the cost coming down? Thanks.

Speaker #8: So, A, how should we think about that opportunity in terms of the margin structure over time? It feels like there are multiple levers you could pull on that.

Speaker #8: And I mean, it's an interesting theme because you've heard this over and over again this earnings cycle from a lot of companies, and this lean into open source models.

Speaker #8: And then how does that change the product velocity? Because I know AI has been a big component in driving your product velocity. So does that become a bigger opportunity with the costs coming down?

Speaker #8: Thanks.

Speaker #5: Yeah. I mean, so at the highest level, it just turns out that there's when compared to a year ago, there's just significantly better open source options now.

Luis von Ahn: Yeah. At the highest level, it just turns out that when compared to a year ago, there's just significantly better open source options now. While for some stuff they are behind the frontier labs, they're not that behind for most things, maybe 3 to 6 months. It just turns out that for a lot of applications, you don't need the absolute smartest model. The reality is the quality is indistinguishable for many applications that we use. For example, serving a call, like a conversation practice to somebody who can only speak 100 words of a language. Your model doesn't need to be as good as a philosopher. You're probably going to talk about, I don't know, frying eggs. You're not going to talk about very sophisticated stuff. We find that in a lot of cases, we can switch to the open source model.

Speaker #5: And while for some stuff they are behind the frontier labs, they're not that far behind for most things—maybe three to six months. And it just turns out that for a lot of applications, you don't need the absolute smartest model.

Speaker #5: The reality is the quality is indistinguishable for many applications that we use. For example, serving a call, like a conversation practice to somebody who can only speak 100 words of a language, you don't need to serve your model doesn't need to be as good as a philosopher.

Speaker #5: You're probably going to talk about, I don't know, frying eggs. You're not going to talk about very sophisticated stuff. So we find that in a lot of cases, we can switch to the open source model.

Luis von Ahn: Internally, of course, we're still using many models from, say, OpenAI, Anthropic, we'll continue doing that. It'll just always be a decision, a trade-off between can we do it at roughly the same quality, but with the open source? If that's the case, we'll use the open source. There are still cases where we're not able to, and in those cases, we'll continue paying. I do expect that what'll happen is that the cost per usage of AI, whatever it is, the cost per token, if you want to call it, will come down for us because we will continue moving more and more to open source. I also, just like you said, that'll probably mean that we're able to offer more and more AI features to more users. I'm pretty excited about that in general.

Speaker #5: Internally, of course, we're still using many models from, say, OpenAI and Anthropic, and we'll continue doing that. And it'll just always be a decision—a trade-off between whether we can do it at roughly the same quality, but with open source.

Speaker #5: And if that's the case, we'll use the open source. There are still cases where we're not able to. And in those cases, we'll continue paying.

Speaker #5: But I do expect that what will happen is that the cost per usage of AI, like whatever it is, the cost per token if you want to call it, will come down for us because we will continue moving more and more to open source.

Speaker #5: And I also just like you said, that'll probably mean that we're able to offer more and more AI features to more users. And so I'm pretty excited about that in general.

Speaker #2: Yeah. And the way to think about it is we set out the year to be very patient with ourselves about what the business model is going to be.

Gillian Munson: The way to think about it is, we set out the year to be very patient with ourselves about what the business model is going to be. We really have been trying to stick to this idea that we are going to grow bookings 10% to 12%, revenue 15% to 18%. When we started the year at 25% adjusted EBITDA margin, it felt like the right level of investment relative to growth. What we are basically saying is by going up about a point and a half on that adjusted EBITDA margin, we are seeing AI cost savings that will give us a bit structurally a better margin, even with our goal to put voice call out to all super users over the course of the year.

Speaker #2: So, we really have been trying to stick to this idea that we're going to grow bookings 10 to 12 percent, revenue 15 to 18 percent.

Speaker #2: And when we started the year, a 25 percent adjusted EBITDA margin felt like the right level of investment relative to growth. What we're basically saying is by going up about a point and a half on that adjusted EBITDA margin, we are seeing AI cost savings that will give us a bit structurally a better margin, even with our goal to put voice call out to all super users over the course of the year.

Speaker #8: Very helpful. Thank you.

Ygal Arounian: Very helpful. Thank you.

Speaker #1: Thank you, Gong.

Luis von Ahn: Thank you, Gong.

Speaker #3: Your next question comes from the line of Justin Patterson with KeyBonk. Please unmute your audio and video and ask your question.

Operator: Your next question comes from the line of Justin Patterson with KeyBanc. Please unmute your audio and video and ask your question.

Speaker #4: Justin, hello.

Luis von Ahn: Justin, hello.

Speaker #2: Hi, Justin.

Gillian Munson: Hi, Justin.

Speaker #7: Hi, good afternoon. So, scan here. First, could you talk through just what's driving the confidence level behind that acceleration in Q4? Is that simply easy comps, or are you seeing something on the product side finally starting to click there?

Justin Patterson: Hi. Good afternoon. Two of can here. First, could you talk through just what's driving the confidence level behind that acceleration in Q4? Is that simply easy comps, or are you just seeing something with the product side finally starting to click there? Luis, I just wanted to go back to making the mission affordable or making education affordable for the masses. Obviously, as you increase advertising in there, you do start to have a tension point in there of people get frustrated with the user experience in it. Does that start causing some bad behaviors? I'd love to hear more how you're thinking through the guardrails of still monetizing across the business while still having education be widely accessible within here. Thank you.

Speaker #7: And then Luis, I just wanted to go back to making the mission affordable or making education affordable for the masses. Obviously, as you increase advertising in there, you do start to have attention.

Speaker #7: Attention point in there of people get frustrated with the user experience. In it, does that start causing some bad behaviors? So I'd love to hear more how you're thinking through the guardrails of still monetizing across the business while still having education be widely accessible within here.

Speaker #7: Thank you.

Speaker #2: So I'm going to cover the bookings guidance. On the bookings guidance, the reality is how the year is playing out hasn't really changed too much.

Gillian Munson: I'm going to cover the bookings guidance. On the bookings guidance, the reality is how the year is playing out hasn't really changed too much. Of course, we've held the guidance. Q2 was a little better than we expected, you're basically seeing us adjust for that in the guidance. I think it's important to remember that our bookings guidance also includes about half a point of FX headwind. Net-net, you're probably at a little bit of a better place, I think the year is playing out the way we thought. We've always thought that acceleration is going to come over time. This is not a slow and steady, that's not the way this place is.

Speaker #2: Of course, we've held the guidance Q2 was a little better than we expected. So you're basically seeing us adjust for that in the guidance.

Speaker #2: I think it's important to remember that our bookings guidance also includes about half a point of FX headwind. So net net, you're probably at a little bit of a better place.

Speaker #2: But I think the year is playing out the way we thought. We've always thought that acceleration is going to come over time. This is not a slow and steady process.

Speaker #2: It's not the way this place is. But we know this can take a little time for the work we're doing to play through. And that's what you see in terms of us holding, which the guidance which implies Q4 gets better from a year-over-year rate of growth perspective.

Gillian Munson: We know that it's going to take a little time for the work we're doing to play through, and that's what you see in terms of us holding the guidance, which implies Q4 gets better from a year-over-year rate of growth perspective.

Speaker #5: Yeah. And the question about making education affordable, I mean, this is a very mission-driven company. Hopefully, we have shown that. We will continue being a very mission-driven company.

Luis von Ahn: Yeah, your question about making education affordable, this is a very mission-driven company. Hopefully, we have shown that. We will continue being a very mission-driven company. Our mission is to develop the best education in the world and make it universally available, and that is our goal. The way we're going to be operating is similar to how we're operating right now, which is we are first and foremost care about our reach. That every extra active users that we reach means there's one other person that we're teaching, means there's one other person that instead of doom scrolling on social media is actually learning something that is valuable to them. That's what we're emphasizing.

Speaker #5: Our mission is to develop the best education in the world and make it universally available. And that is our goal. The way we're going to be operating is similar to what we're operating right now to how we're operating right now, which is we are first and foremost care about our reach.

Speaker #5: And that every extra active users that we reach means there's one other person that we're teaching, means there's one other person that instead of scrolling doom scrolling on social media is actually learning something that is valuable to them.

Speaker #5: So we're that's what we're emphasizing. But we also believe that that turns out that our mission I really do believe that even though we're a very mission-driven company, I think that if we succeed in our mission, that's also aligned with just making this a very large business.

Luis von Ahn: We also believe that it turns out that I really do believe that even though we're a very mission-driven company, I think that if we succeed in our mission, that's also aligned with just making this a very large business. The more users we have, in one way or another, the more we'll be able to monetize them.

Speaker #5: The more users we have, in one way or another, the more we'll be able to monetize them.

Speaker #7: Thank you.

Justin Patterson: Thank you.

Speaker #5: Thanks, Justin.

Luis von Ahn: Thanks, Justin.

Operator: Your last question comes from the line of Arvind Ramnani with Truist. Please unmute your audio and video and ask your question.

Speaker #3: Your last question comes from the line of Arvind Ramnani with Truist. Please unmute your audio and video and ask your question.

Arvind Ramnani: Hi, Luis. Hi, Gillian.

Speaker #6: Hi, Luis. Hi, Julian. Hope.

Luis von Ahn: Hi.

Arvind Ramnani: Hope you're doing well. Just a couple of questions. With China just continuing to become an important geo for you all, and you all are running OpenAI and Anthropic to run your models, or I think mostly OpenAI. Does it create some sort of data residency risk or regulatory risk? There's just a lot going on in terms of regulation and protectionist measures, and or would you just move to a local model in that market? Just how are you thinking about it? Because, Luis, I know you're fairly forward-thinking about AI and not as reactive. We'd just love to see, not that you'll make any changes, but how you're thinking about it.

Speaker #1: Arvin.

Speaker #6: Hope you're doing well. Just a couple of questions. Just with China, just continuing to become a kind of important geo for you all. And you all are running OpenAI and Anthropic to run your models or I think mostly OpenAI.

Speaker #6: Does it create some sort of data residency risk or regulatory risk? There's just a lot going on in terms of regulation and protectionist measures.

Speaker #6: And what do you just kind of move to a local model in that market? Just how are you thinking about it? Because Luis, I know you're fairly forward thinking about AI and not reactive.

Speaker #6: So just love to see not that you're making any changes, but how are you thinking about it?

Speaker #5: Yeah. So you were right. Thank you for asking about China. I mean, China is a very exciting market for us. It keeps growing. It is our second largest market in terms of daily active users.

Luis von Ahn: Yeah. You were right. Thank you for asking about China. China's a very exciting market for us. It keeps growing. It is our second-largest market in terms of daily active users, and we expect it to become our largest market in terms of daily active users in a year or two. Also, China monetizes pretty well for us. It monetizes about as well as France. It is an exciting, good market for us. When it comes to AI, there's a lot there. The reality is that in China, we simply cannot use the AI models, the kind of US AI models. We have to use local models. That's by law.

Speaker #5: And we expect it to become our largest market in terms of daily active users in a year or two. Also, China monetizes pretty well for us.

Speaker #5: It monetizes about as well as France. So it's an exciting good market for us. When it comes to AI, there's a lot there. The reality is that in China, we simply cannot use the AI models kind of US AI models.

Speaker #5: We have to use local models that's by law. So we do that. In China, all of our usage of AI uses Chinese models. That is just that you have to do that.

Arvind Ramnani: Okay.

Luis von Ahn: We do that. In China, all of our usage of AI uses Chinese models. You have to do that.

Arvind Ramnani: Okay.

Speaker #5: And in terms of regulatory risk, it's important to mention that, of course, we understand that China poses some regulatory risk. This kind of outside of our control, how they operate the country.

Luis von Ahn: In terms of regulatory risk, it's important to mention that, of course, we understand that China poses some regulatory risk. It's kind of outside of our control how they operate the country. We feel pretty good about what we're doing there in terms of our government relations. We feel pretty good. I don't know what the government will decide at any point.

Speaker #5: But we feel pretty good about what we're doing there in terms of our government relations. So we feel pretty good. But I don't know what the government will decide at any point.

Speaker #6: Perfect. Yeah. And just on this topic, right, can you just give us a just a rough estimate, right? I'm not looking for anything precise, whether but just rough estimate of what your AI costs are.

Arvind Ramnani: Perfect. Yeah, just on this topic, can you just give us just a rough estimate? I'm not looking for anything precise, but just a rough estimate of what your AI costs are, is it largely on Anthropic OpenAI, or are they open-weight models? I'm just in terms of your cost to revenue, does AI cost you 1%? Is it 10%? Just directionally, how significant are your AI expenses?

Speaker #6: And is it like largely on Anthropic, OpenAI, or are they kind of open weight models? And just in terms of your cost of revenue, is it like does AI cost you like 1%?

Speaker #6: Is it 10%? Just directionally, how significant are your AI expenses?

Gillian Munson: Yeah, our expenses on AI in the cost of goods sold are in the tens of millions of dollars, so they're significant to the cost of goods sold. Hosting is another big cost for us as well, but those are the two biggies going through the cost of goods sold. Inside the business, we also use AI, and that is closer to the $10 million range internally.

Speaker #2: Yeah. Our expenses on AI in the cost of goods sold are in the tens of millions of dollars. So they're significant to the cost of goods sold hosting is another big cost for us as well.

Speaker #2: But those are the two biggies going through the cost of goods sold. Inside the business, we also use AI. And that is more closer to the 10 million dollar range internally.

Speaker #6: Yeah. Perfect. No, that sounds great. Yeah. I think those are the main questions. I mean, Luis, if you have any broader thoughts on just there's a lot of debate right now on AI sovereignty, open weight models, or closed-loop models.

Arvind Ramnani: Yeah. Perfect. No, that sounds great. Yeah, I think those are the main questions. Luis, if you have any broader thoughts on there's a lot of debate right now on AI sovereignty, open-weight models or closed-loop models. If you're able to share anything, I'd love to get your high-level view on that.

Speaker #6: Are you able to share anything? I'd love to get your high-level view on that.

Speaker #5: I mean, at the highest level, our view inside the company is that it is in our best interest as a company to use open-weight models as much as possible.

Luis von Ahn: At the highest level, our view inside the company is that it is in our best interest as a company to use open-weight models as much as possible. If I had a magic wand, I would try to move everything to an open-weight model. It's not always possible because sometimes the frontier models are more advanced. From a company standpoint, it is just significantly better because it's way cheaper to use open-weight models.

Speaker #5: So, if I had a magic wand, I would try to move everything to an open-weight model. It's not always possible, because sometimes the frontier models are more advanced.

Speaker #5: But from a company standpoint, it is just significantly better because it's way cheaper to use open weight models.

Speaker #6: Perfect. Perfect. And so what do you expect? Like, is this—so how we had a hybrid cloud—where do you think that's where we end up?

Arvind Ramnani: Perfect. Would you expect this, have we had a hybrid cloud? Do you think that's where we end up? You have some sort of orchestration where you put some traffic towards the highest quality models versus open-weight. Is that how you expect it to evolve?

Speaker #6: You have some sort of orchestration where you put some traffic towards the highest quality models versus open weight. Is that how you expect?

Luis von Ahn: My guess is that most companies that use AI heavily have a portfolio of models that they use, where for some uses, you kind of have to pick this one model that happens to be a proprietary model, but for other things, you try to use the open-weight models. My sense is most companies will have a portfolio model like that. That's certainly what we have. What I would say is that our expectation is that over the next some amount of time, that portfolio will be weighted a little more towards open-weight models than it is today.

Speaker #5: That's probably my guess—that most companies that use AI heavily have a portfolio of models that they use, where for some uses, you kind of have to pick this one model that happens to be a proprietary model, but for other things, you try to use the open-weight models.

Speaker #5: So my sense is most companies will have a portfolio model like that. That's certainly what we have. What I would say is that our expectation is that over the next some amount of time, that portfolio will be weighted a little more towards open weight models than it is today.

Speaker #6: Perfect. Thank you so much.

Arvind Ramnani: Okay. Thank you so much.

Speaker #2: Thank you.

Gillian Munson: Thank you.

Speaker #3: I'm showing no further questions. This concludes the Q&A section of the call. I would now like to turn the call back to the host for closing remarks.

Operator: I'm showing no further questions. This concludes the Q&A section of the call. I would now like to turn the call back to the host for closing remarks.

Luis von Ahn: Thank you, operator. I'd just like to thank everyone for joining us. We look forward to seeing you on the next call.

Q2 2026 Duolingo Inc Earnings Call

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