Duolingo, Inc. Q3 FY2024 earnings call

• Q3 was a strong quarter with DAU, bookings, and revenue growth. - Duolingo Max feature with video call with Lily is a key focus, and the company executed well in rolling it out faster than expected. - Product improvements and social marketing have contributed to performance. - Generative AI and automation are being invested in to make products more efficient and launch faster. - English learner initiative is a major opportunity with intermediate and advanced content now available, and growth expected through word-of-mouth. - International growth is strong with country marketing managers in various countries, and every region is seeing growth. - Resurrected users (those returning after a long hiatus) are a significant growth opportunity, with more than half of top-of-funnel users being resurrected users.

In Q3, Daily Active Users (DAU) grew 54% year-over-year. Bookings and revenue grew 38% and 40% year-over-year respectively. Duolingo Max, the highest subscription tier including the new AI-powered video call feature with Lily, is available to roughly half of DAU and expected to increase to ~60-70% by year-end. Family Plan has grown to 21% of subs compared to 18% at the end of last year.

• Raising full year guidance for bookings and revenue growth to about 36% and 40% respectively. - Q4 guide accounts for the estimated impact of video call and New Year's promotion. - Q4 gross margin expected to have a ~100 basis points sequential decline due to higher gen AI and amortization costs related to scaling Max. - Adjusted EBITDA margin guidance raised to 25.5% at the midpoint, aiming towards the long-term target range of 30%-35%.

Q: Justin Patterson asks about adding the next 10 million subs and how to achieve it.

A: Luis von Ahn responds that they'll continue current strategies of growing users, making product more engaging, social marketing, and leveraging Max, especially the video call feature for English learners.

Q: Ryan MacDonald asks about progress in intermediate English learning and regions.

A: Luis von Ahn explains that English learners are a major opportunity, they have intermediate/advanced content now, and growth is via word-of-mouth with work on placing users correctly.

Q: Aaron Kessler asks about marketing strategy for intermediate English and international growth.

A: Luis von Ahn mentions using influencers and word-of-mouth for intermediate English, and international growth is strong with country marketing managers in various countries driving growth.

Q: Bryan Smilek asks about Max conversion cycle and DAU growth building blocks.

A: Luis von Ahn talks about Max being bought by first-time subscribers and Super subscribers upgrading, and DAU growth from all regions including more English growth in 2025.

Q: Andrew Boone asks about product testing pace.

A: Luis von Ahn says they're running more tests per quarter with about 50% success rate, and Matt Skaruppa adds teams are speeding up experimental frequency.

Q: Curtis Nagle asks about family plan and resurrected users.

A: Luis von Ahn says family plan growth is from making it more visible, and resurrected users are a major opportunity with more than half of top-of-funnel being resurrected users.

Q: Wyatt Swanson asks about subscriber retention.

A: Luis von Ahn says overall retention is stable, but enough data on Max retention isn't available yet.

Q: Arvind Ramnani asks about DAU growth relationship with revenue and Duocon metrics.

A: Luis von Ahn and Matt Skaruppa discuss various levers for growth and Duocon having higher live views than previous years.

Q: Alex Sklar asks about video call data and holiday promotion.

A: Luis von Ahn talks about positive video call usage metrics, and Matt Skaruppa says holiday promotion plans are incorporated into guidance.

Q: Shweta Khajuria asks about international marketing managers and social media marketing.

A: Luis von Ahn says international marketing managers are adding in countries like France, Italy, Turkey, and social media marketing is mostly organic with low cost.

Q: Mark Mahaney asks about US market growth, Max traction, and ARPU.

A: Luis von Ahn says US growth is similar to global, Max has good traction with video call feature, and Matt Skaruppa discusses ARPU trends with mix of plans and foreign currencies.

Q: Chris Kuntarich asks about Max paying ratio and New Year's discount.

A: Luis von Ahn talks about Max paying ratio uncertainty by country, and Matt Skaruppa says New Year's promotion experiments are incorporated into guidance.

Q: Crystal Li asks about Max paying ratio and competition.

A: Luis von Ahn says Max paying ratio uncertainty depends on country and prices, and Duolingo stands out with freemium model, gamification, and large scale for data collection.