Duolingo(DUOL)2024-11-07 00:37Financial Data and Key Metrics - Daily Active Users (DAU) grew by 54% year-over-year, building on last year's 60%+ growth [6][9] - Bookings and revenue grew 38% and 40% year-over-year, respectively, despite tougher comparisons [9] - Adjusted EBITDA margin for Q3 was 24.7%, with full-year guidance raised to 25.5% at the midpoint [9][13] - Family Plan subscriptions grew to 21% of total subscriptions, up from 18% at the end of last year [6] - Duolingo Max, the highest subscription tier, now includes an AI-powered video call feature and is available to roughly 50% of DAU, with plans to expand to 60-70% by year-end [10][11] Business Line Performance - Duolingo Max is driving significant growth, with early signs of strong demand for the video call feature, particularly among English learners [11][33] - The company is investing heavily in generative AI and automation to improve product efficiency and speed up feature launches [7][8] - The company is seeing a mix of new subscribers directly opting for Max and existing Super subscribers upgrading to Max [49] Market Performance - Growth is broad-based across all regions, with no single country growing significantly slower than others [39][40] - The company is expanding its international presence by adding country marketing managers in France, Korea, Italy, and Turkey [40][105] - Android users, who typically monetize less than iPhone users, are showing strong interest in Max, particularly for English learning [32][33] Strategic Direction and Industry Competition - The company is focusing on expanding its English learning offerings, particularly for intermediate and advanced learners, which represents a significant market opportunity [24][25] - Duolingo is leveraging generative AI to enhance product features, such as the video call with Lily, and to automate internal processes like content creation [8][56] - The company is also exploring opportunities in other subjects like math and music, which are expected to contribute more to growth in the coming years [44] Management Commentary on Operating Environment and Future Outlook - Management is optimistic about continued strong DAU growth, driven by word-of-mouth and product improvements [28][84] - The company expects to see sustained revenue growth above 25% in various DAU environments, supported by multiple growth levers [86][87] - Management highlighted the importance of the freemium model and the company's ability to collect large amounts of data to improve engagement and teaching effectiveness [130][131] Other Important Information - The company is experimenting with pricing and promotional strategies, particularly around the New Year's promotion, which is expected to impact Q4 performance [12][101] - The company is seeing strong engagement with the video call feature, particularly among English learners and more advanced users [96][97] - The company is also focusing on resurrected users, who now make up more than half of the top-of-funnel growth [75][76] Q&A Summary Question: What are the key drivers for reaching 20 million subscribers? [16] - The company plans to continue growing its user base through product engagement and social marketing, with a focus on converting more users to paid subscriptions [17][18] - Duolingo Max is expected to play a significant role, particularly in geographies where English learners are interested in practicing conversation [20] Question: How is the company progressing with intermediate English learning? [22] - The company has made significant progress in developing intermediate and advanced English content and improving user placement within the app [25][26] - Growth in this segment is expected to be driven by word-of-mouth, with marketing efforts focused on influencers and user-generated content [28][37] Question: How is the uptake of new features on Android? [30] - Android users typically monetize less than iPhone users, but the company is seeing strong interest in Max features, particularly among English learners [32][33] Question: What is the marketing strategy for intermediate English learning? [34] - The company is leveraging influencers and user-generated content to promote its intermediate and advanced English courses [35][37] Question: How is the company managing macro risks? [43] - The company believes there is significant runway for growth in the language learning market, with 2 billion people globally learning languages and only 100 million monthly active users on Duolingo [44] Question: How is the company balancing scaling and reinvestment? [46] - The company is focused on scaling profitability while continuing to invest in R&D, with incremental margins above the long-term target of 30-35% [46] Question: What is the conversion cycle for Max subscribers? [47] - The company is seeing a mix of new subscribers directly opting for Max and existing Super subscribers upgrading to Max, with early signs of strong demand for the video call feature [49][50] Question: What are the building blocks of DAU growth for 2025? [52] - The company expects to see continued growth in both penetrated markets like the US and in English learning, driven by word-of-mouth and product improvements [53] Question: How is Max impacting margins? [55] - Max is accretive to gross profit dollars but has a lower gross margin percentage due to higher costs associated with generative AI and the video call feature [59][60] Question: What is the pace of product testing? [63] - The company is running more tests per quarter, with a success rate of around 50%, and expects to continue seeing improvements in engagement and monetization [64][65] Question: How is the family plan performing? [72] - The family plan has grown to 21% of subscriptions, driven by increased visibility and minor feature improvements [73][74] Question: How is the company addressing resurrected users? [75] - Resurrected users now make up more than half of the top-of-funnel growth, and the company is focusing on improving the experience for users returning after a hiatus [76][77] Question: How is subscriber retention trending? [78] - Overall retention has remained stable, with no significant changes in retention trends for Super or Max subscribers [79] Question: How should investors think about the relationship between DAU and revenue growth? [82] - The company expects strong DAU growth to continue, driven by word-of-mouth and product improvements, with revenue growth expected to remain above 25% [84][86] Question: How is Duolingo Max performing compared to Super? [91] - Max is currently positioned as a premium offering focused on conversation practice, while Super is focused on convenience features [93] Question: What is the early data on the video call feature? [95] - The video call feature is showing strong engagement, particularly among English learners and more advanced users, with plans to make the experience more realistic and engaging [96][97] Question: How is the company approaching the New Year's promotion? [100] - The company is running experiments around the New Year's promotion, with the impact already incorporated into Q4 guidance [101] Question: How is international growth tracking? [103] - The company is seeing strong growth in international markets, with recent additions of marketing managers in France and Korea, and plans to expand to Italy and Turkey [105][106] Question: How is the US market performing? [110] - The US market is growing at a similar rate to the global average, with no significant disparity between regions [112] Question: What is the traction for Max? [111] - The company is seeing strong traction for Max, particularly with the introduction of the video call feature, which has made it easier to market the product [113] Question: How is ARPU trending? [111] - ARPU has trended towards 0% year-over-year, with expectations for it to remain flat or increase slightly, driven by the mix of Super, Family, and Max plans [114][115] Question: How is Max adoption split between English and non-English learners? [119] - Max adoption is currently higher in wealthier countries, but the company expects this to shift as the product becomes available in more English-learning countries [120][121] Question: What is the long-term view on Max's paying ratio? [127] - The company does not yet know where Max's paying ratio will settle, but it expects it to vary by country and relative pricing [128] Question: How does Duolingo differentiate itself from competitors? [127] - The company differentiates itself through its freemium model, strong engagement features, and large-scale data collection, which allows for more effective teaching and marketing [129][130]