Financial Data and Key Metrics Changes - The company reported a 40% year-over-year growth in Daily Active Users (DAUs) for Q2, which is a decrease from the 60% growth in the same quarter last year [10][11] - The company raised its full-year guidance due to record profitability and strong top-line growth [5] Business Line Data and Key Metrics Changes - The percentage of subscribers using the Max subscription increased from 5% to 8% over the past few quarters, indicating growth in this segment [20][21] - The Super subscription is performing better than expected, contributing to the slower growth of Max [21] Market Data and Key Metrics Changes - The Chinese market is identified as the fastest-growing market for the company, with successful partnerships, such as with Luckin Coffee, enhancing brand visibility [15][16] - The company has not yet launched its Max feature in China due to regulatory constraints [16][17] Company Strategy and Development Direction - The company is investing in new areas such as chess, math, and music, which are expected to drive long-term growth [5] - The company plans to start spending on marketing in the U.S. to counteract slower growth rates compared to other markets [120][122] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a temporary slowdown in DAU growth due to social media sentiment issues but expressed confidence in future recovery [12][96] - The company is optimistic about the impact of new features like the energy system, which has shown positive effects on user engagement and revenue [66][78] Other Important Information - The company is testing a web purchase flow to bypass the App Store, which could significantly increase profit margins [25][27] - The energy system has replaced the previous hearts mechanic, leading to increased daily active users and time spent on the app [66][78] Q&A Session Summary Question: Can you break down the primary drivers behind DAU growth moderation? - Management noted that DAU growth was 40%, slightly lower than expected due to negative social media sentiment, which has since improved [10][12] Question: Can you provide an update on the Max subscription? - The Max subscription has grown to 8% of total subscribers, but its growth was slower than expected due to challenges for beginner users [20][21][22] Question: What are the early learnings from the energy system? - The energy system has increased DAUs and revenue by rewarding users for correct answers rather than penalizing mistakes [66][78] Question: How is the company addressing engagement issues in the U.S.? - Management plans to start spending on marketing in the U.S. to improve engagement, as historical growth has been strong without marketing efforts [120][122] Question: What is the outlook for the Duolingo English Test? - The company expects lower demand for the Duolingo English Test due to macro trends affecting international student applications [95][96] Question: How is the video call feature performing? - The video call feature is seeing increased engagement, particularly among English learners, and improvements are being made to enhance user experience [90][108]

Core Viewpoint - Duolingo has established an "AI-first" strategy from its inception, focusing on leveraging AI technologies to enhance personalized education and content creation efficiency, rather than being a reactive transformation to current trends [3][7]. Group 1: Duolingo's AI Practices - Duolingo's core vision is to provide the best education globally, believing that technology can democratize access to high-quality education [7]. - The company has utilized machine learning since 2016 for personalized learning, significantly improving learning efficiency through adaptive testing and algorithms [8]. - AI has drastically increased content creation efficiency, with 148 new courses developed in one year after AI implementation, compared to 100 courses over 12 years previously [8][9]. - AI is also used in product features like "Video Call with Lily," allowing users to engage in personalized conversations, enhancing the learning experience [10]. Group 2: Early Lessons - Duolingo initially hesitated in commercializing its product, delaying the implementation of a monetization strategy for too long, which could have been initiated two years earlier [22][23]. - The company faced challenges in hiring experienced management early on, relying too heavily on recent graduates, which led to operational inefficiencies [26]. Group 3: Key Weapons for User Growth - Duolingo's success is attributed to a culture of extensive A/B testing, leading to continuous improvements in user retention and engagement [33]. - The decision to consolidate various educational content into a "Super App" rather than creating separate applications has streamlined user experience and engagement [32]. Group 4: Team Culture - The strong working relationship between the founders, established through prior collaboration, has been crucial for effective decision-making and conflict resolution [36]. - The CEO remains highly involved in product development, which is relatively uncommon in companies of Duolingo's size, ensuring alignment with the company's vision [37].

User Metrics - Duolingo's daily active users (DAU) reached 46.6 million, a year-on-year increase of 49% [4] - Monthly active users (MAU) reached 130.2 million, growing by 33% year-on-year [4] - The number of paid users surpassed 10 million for the first time, reaching 10.3 million, with a year-on-year growth of 40% [4] - User engagement improved, with DAU/MAU ratio increasing to 35.8% from 32.1% in the same period last year [4] Financial Performance - Total revenue reached $230.7 million, reflecting a year-on-year growth of 38% [4] - Subscription revenue accounted for 83% of total revenue, amounting to $191 million, with a year-on-year increase of 45% [4] - Advertising and other revenue grew by 11% [4] - Net profit was $35.1 million, a year-on-year increase of 30% [4] AI Integration - Duolingo generated 148 new courses through AI in just one year, a process that would have taken 12 years previously, significantly reducing costs and enhancing efficiency [2] - The company is transitioning to an AI-first model, planning to phase out contract workers for tasks that can be handled by AI [3] - The rise of AI-driven language learning products indicates a growing demand in the language learning sector, with competitors like Speak achieving a valuation of $1 billion and an annual recurring revenue (ARR) of $50 million, growing at 100% year-on-year [3][5] New Course Offerings - Duolingo is set to launch a chess course, capitalizing on the popularity of Chess.com, which has over 200 million users [2] - The introduction of new courses, including math and music, has already attracted millions of daily active users [2]

Investment Rating - The investment rating for the company is "Buy" [6] Core Views - The company reported Q1 2025 earnings that exceeded expectations, with revenue of $231 million, a year-over-year increase of 38%, and an adjusted EBITDA of $62.8 million, reflecting a margin of 27.2% [1][2] - The strong performance was driven by a successful marketing campaign and product updates, leading to significant user growth and engagement [2] - The company is implementing an "AI-first" strategy to enhance product innovation and operational efficiency, which is expected to accelerate revenue and profit growth [1][3] Summary by Sections Earnings Performance - Q1 2025 revenue was $231 million, surpassing the consensus estimate of $223 million, with a gross profit of $164 million and a gross margin of 71.1% [1] - The company provided guidance for Q2 2025 with a median revenue growth rate of 28.9%, exceeding the consensus estimate of 26% [1][2] User Growth and Engagement - The marketing campaign "Revive Duo" generated 1.7 billion impressions, significantly boosting user acquisition at minimal cost [2] - Monthly Active Users (MAU) and Daily Active Users (DAU) grew by 33% and 49% year-over-year, reaching 130 million and 46.6 million, respectively [2] Product Innovation and Efficiency - The company launched 148 new language courses, marking the largest content expansion in its history, completed in about one year using AI technology [3] - The "AI-first" strategy aims to replace outsourced labor with AI, which is expected to improve operational efficiency and reduce costs [3] Financial Projections - The revenue forecast for 2025-2027 has been revised upward to $1.013 billion, $1.269 billion, and $1.485 billion, reflecting increases of 35.48%, 25.22%, and 17.05%, respectively [5][11] - Non-GAAP net profit estimates for 2025-2027 have been adjusted to $302 million, $398 million, and $501 million, representing increases of 6.2%, 13.6%, and 17.2% [4][11] Valuation - The target price is set at $462.45, based on a PE ratio of 69.57x for 2025E, which aligns with the average of comparable companies [4][14] - The company's market capitalization is approximately $21 billion, with a closing price of $400 as of May 1 [7]

Financial Data and Key Metrics Changes - The company expects a full-year gross margin decline of approximately 150 basis points year-over-year, with Q1 showing a better-than-expected decline of 200 basis points compared to the anticipated 300 basis points [10] - The average revenue per user is around $6, indicating a strong value proposition in the global market [20] Business Line Data and Key Metrics Changes - The company added 48 new language courses, significantly increasing content production speed due to AI, which previously took about twelve years to add the first hundred courses [31][32] - Duolingo Max now accounts for about 7% of subscribers, showing strong growth and retention rates [29] Market Data and Key Metrics Changes - Daily active users (DAUs) grew by 49% year-over-year, indicating robust growth across all regions, with mature markets growing the fastest [36][38] - The company has a total of 30 million active users, with significant room for growth as the global language learning market is estimated at 2 billion people [38] Company Strategy and Development Direction - The company aims to expand beyond language learning into subjects like math, music, and chess, with a focus on creating content that is beneficial for users and society [77] - AI is central to the company's strategy, enabling faster content creation and feature development, which is expected to enhance user engagement and retention [21][110] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the roadmap for 2025, noting no significant changes in trends due to macroeconomic factors [18][20] - The company is committed to being AI-first, focusing on automating processes and developing new features to enhance user experience [112][114] Other Important Information - The company plans to lower subscription prices in certain markets, such as India, to increase adoption [55] - Marketing efforts will continue to leverage social media for viral content, which has proven effective in user acquisition [94] Q&A Session Summary Question: Can you discuss the cadence of gross margin for the year? - The company expects a 150 basis point decline for the full year, with Q1 showing a better performance than anticipated [10] Question: What are the expectations for new language modules? - The company is excited about the addition of chess and other subjects, which are expected to increase user engagement [12][13] Question: Are there any macroeconomic impacts observed? - Management has not seen any significant changes in trends due to macroeconomic factors, maintaining confidence in growth [18][20] Question: How is the company leveraging generative AI? - AI is being used to create content more efficiently, allowing for rapid development of new features and courses [21][110] Question: What is the strategy for pricing and packaging? - The company is testing various pricing strategies and may adjust features across different subscription tiers [100][102] Question: How does the company view the competition in the AI space? - The company believes it is ahead of competitors in leveraging AI for language learning and content creation [111] Question: What is the outlook for subscriber conversion rates? - The company sees positive incrementality from Duolingo Max, contributing to overall platform lifetime value [127]