Duolingo (DUOL) 8 Nov 232023 Q3 Earnings call transcript

Good evening, everyone.

You haven't accidently tuned into a replay of Duocon. This is actually Duolingo's third quarter earnings webcast. Today after market closed, we released this quarter's shareholder letter, a copy of which you can find on our IR website at investor.duolingo.com.

On today's call, we have Luis von Ahn, our Co-Founder and CEO; and Matt Skaruppa, our CFO. some before with to the begin questions. will brief opening remarks call They Instructions]. [Operator this recorded. Please is note event that being [Operator Instructions] And subject just regarding and future a reminder, we'll and uncertainties. performance, make financial which are to risks events material forward-looking statements

statements and of to believe the factors a in future as to as SEC. forward-looking be in set on update based today, the risk statements with reasonable these are new risks we filings assumptions of Some obligation information been These events. forth these have have no our that result of we or

financial Additionally, it are we'll all measures present encourage over measures considered substitute both turn on our to our analyzing intended when superior call. GAAP in measures we And and GAAP non-GAAP or to from, now and I'll a non-GAAP to for you These consider be performance. isolation today's Luis. not to results,

Thank bookings our it you, surpassed the everyone. yet. and We welcome, X for quarter and expectations had Barbie had revenue Duocon quarter. fantastic with campaign and also We another Debbie, a fun and preparing impressive best growth. user, our was And

and guidance also shortly. bookings now adjusted We good coming year the which reflect outlook why Matt will our margin. very EBITDA on we're also full results our XX% details about is year-over-year materially we're our growth. raising year And quarter, raising feel to full more share

and fun, small Every to A run wins more time. up our engaging of effective. add over we these year, thousands experiments result that of lot products experiments in make

DAUs. of million had we action. had nearly In we you this the over quarter, back see look years, quarter, this In about And subscribers. evidence XXXX, XXXX, QX we past in at past million. had you QX million. X.X If this X XX we had In can XX million X of past

we see we then of also see gains. to small where way react doubling runs. exceptional running how home and users has process been our hit making some done through a down have this The changes, test We've

that marketing For hard for has example, the business our been to wins though are source even predict. of were fantastic extraordinary a they

with our movie. Dragon, and social of organic in of Think most trademark the of inclusion campaign House is recently, campaign Barbie "ding" social around built generated the XXX a Barbie our partnership for our which The impressions, record million us. the HBO's

create runs, every often, we To improvement open home bolder entirely both make experimentation. moves for the opportunity areas new and incremental up for that so

to earlier engagement, a home more and of example, monetization. and last give And redesigned our existing the efficacy to app For year, this the by multi-subject app. experiment to we screen year, course into set course we our with flagship us math app room out experience music integrating a new create

this even change, highlight. example app, did with learning and main experience. into an believe adding new in math we to rapidly that engaging the a good mechanics can quests We more we app. have so these the the leaderboards streaks, our effective been language This gamification give like scale main users adding to By more our is and app music to subjects new subjects

exceptional our to As drive further courses, which and user more their increase new our they'll It's users organic that by believe access growth. more growth. us, will to commitment as our these clear will recommend it is likely we be that working demonstrated platform strategy

product to but look the I've I'm very ongoing excited forward creative it's learners. that As to and with our expect marketing and efforts we can't forever, about improvements innovation that our all are year our energy gratifying explore, see new And our resonating brings. to accelerate

that, to And over it turn with I'll Matt.

I'll QX then year in detail, guidance. how and through and walk updated did Thanks, quarter we more Luis. this full provide our I'll

execution. strong expectations, our with we performance, extremely team's As thanks are this quarter's exceeded continued which shared, to pleased Luis our

with XX.X Our not XX% well. high XX.X from free-to-pay conversion only and XX% and but rapid with million. to as broad-based improving the continues DAU growth also increased be, quality year-over-year million, This increased to strong growth to around MAU world

XX% in bookings by and increased user respectively, constant million. X.X subscribers growth paid of XX% continued drove or and subscriber strength XX% to and This revenue and basis. XX% total currency on XX% a Our year-over-year, growth

to we coupled growth, We've tremendous see made Turning expanding as discipline. to strong the line profitability. cost top-line progress bottom in with continue very

year-ago compared quarter. totaled to of income in million net a $X.X net million Our loss $XX.X the

of This We a XX.X% $XX.X EBITDA a EBITDA adjusted also roughly is million or expansion posted an margin. XX-point adjusted year-over-year.

continue to we to This compared QX innovate last capitalized and quarter, year expenditures and Max additional on as math music. we R&D

EBITDA have would strong following points this we're year-over-year. Based feel we full-year results Excluding and raising QX outlook, XX far, the so about trends margin led the our about adjusted of to issuing seeing expansion confident our an guidance. on

of total For in million guiding QX adjusted margin XXXX, $XXX are $XXX $XXX we million XX.X% to XX.X%. an to to bookings, $XXX EBITDA in to revenue and million million

updating our are EBITDA full raising adjusted $XXX to million to million $XXX XX.X%. total range revenue, we in For we to the to XXXX, margin and guidance year are our million in $XXX million bookings, to $XXX XX.X%

for full and XX% year-over-year bookings Our calls midpoint. XX% revenue at the and guidance growth, year respectively,

because EBITDA last the our prevailing achieved foreign good XXX exchange significant raising versus basis only discounts our promotion feel offer leverage at rates seasonal Note points at than performance as bookings guidance of start a business, the a by our adjusted every the quarters. As this variance this QX annual guidance across year that reminder, we December, operating about we well. at full a margin our end current subscription. once that year other we've call. more And midpoint year, we has assumes promotion Since

and average some provide I'll per color share subscriber, count. Now revenue OpEx on

about range. per same higher-than-expected kept X% to mix non-U.S. X a shifts. impacts declined QX past exchange X% and average by driven revenue in the foreign saw in subscriber each the of Our combination for of countries, has change conversions by quarters, regional year-over-year that which

in coming improve the to ARPU quarters. in change year-over-year the expect We

as revenue to this of OpEx year, As to decrease we non-GAAP QX R&D points X percentage marketing to by and almost X.X expect non-GAAP sales to compared of and a by points. QX, decrease in

QX. flat with diluted X% the employees. a approximately And closing outstanding of year with percentage end We price. end roughly X.X% about dilution non-GAAP we shares fully in quarter quarter revenue as expect G&A to equity expect to using million XX.X to the the to We issued ended from be

as moments Finally, extraordinary ago, been few our a last said Luis business. years have the for

with compounding improvements, growth user mechanic. has improvements home benefited including product Our seen streak we've from like run our continuous

have marketing We to free in big have brand some Barbie also conversion large version. like seen from the had increases social-first moments we've movie, and and unlocked paid

feel But reminded so, already you, to unlikely to turn Luis. growth year. user this year. Luis some to our it as we we very Looking accelerate our next forever, strong feel may to about has of it our ahead, onetime hard good the good happened repeat margin. And be is continue have with about growth back and top-line that, long-term ability our that events towards I'll make Even progress and

manage want turn started. us, team Thanks, just Matt. and made the queue. work and we've to questions. take we just I'll hard it dedication. ahead only market in happy know all getting to their we're I to would And the be a opportunity now of We for to the dent Debbie thank back your massive tiny

Luis. first Thanks, Ralph And Instructions]. right. [Operator Blair. your from Schackart question William comes All at

you. start with I'll Luis, Maybe,

be some of for You've X couple I'm and helpful, or you've of is really top think, X, step the some And has after you for to Maybe and growth. that. isolate were I sure a X big a conservatism significant then back, if have the been that maybe seen taking investors. of kind that this years now, then this really have doing would really And based outperformance the extraordinary a driven outperformance, well. things follow-up I been and business public on obviously just

main Well, the great X you exceeded growth. grow thank have our honestly, we've us really made expectations. question. so Yes, things fast. had that And it's for a good The

The first every compound. we product I mean, and A/B they quarter, just hundreds one run tests is of improvements.

our X product better significantly years is was it just And than ago. so

the that's so thing. And biggest

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been I also hard combination the of -- very that So think happy, it's what mean, happened. we're I but forecast. has that's to

ARPU prepared you'll And years of going Matt, of some adjustments did the I improve. in to since the you on X give some be think on color And forward. maybe may maybe, talked about how Great. improve price then remarks, coming you just the Europe, in up ARPU potential

Yes. Thanks, Ralph.

by mentioned. thing that been has you regional ARPU But foreign hard That's was impacted the currency. So predict. other to the pricing

So was we That did that about ago. QX of XXXX. a year

quarter flowed that and forward through impacted that So has then revenue. going and in to bookings

So the on call. that last was mentioned we what expected, and that's

was In that free-to-paid terms driving we at conversion some there outside U.S. of effective quarter, really were experiments ran this the

range-bound this it that kept So quarter.

pricing over see of improvements one is a we to -- lot I to did our QX to is that the think the pricing, time. we've with And the that continue last and of continue reason product changes we year. we'll the philosophy pricing we lap experiment to also, think value added starting in

raising well. experiment as with over So we'll prices them

Next KeyBanc. Patterson question of comes from Justin

now app? expanded to I Luis, really about core out in QX north these just the how range pace test business of then within letter. the experiments music you've the in of really the remain attractive, to should of on the experiments for very appreciate the A/B XX% call margins the guide. products new the the on think and within app as and And incrementals we ramping of kind math, elements optimize Matt,

thinking XXXX that you're healthy really driving thinking investment you're keep this here about sitting as today key So going what are about forward? growth budgets, areas to the

Thank shirt. you, Justin, and excellent

you do math music what and to and asked about So that's our to going experiments.

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We tomorrow. to starting iOS haven't to be are even on launched going they all launched And them. technically, our users

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short So I in revenue the much expect term. would increase not too in

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that that's experimentation. So the of pace the is My slightly probably it'll idea. sense increase

basically And your so that question. answers

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in invest monetization. We

year. we effective. invest make in the next to going That's driving year, conversion. majority of it like And free-to-paid learning just up investment So more vast our this our app did then to make

incremental have top on add. that, of We we that layers

be just that want to we're in is into. fact I the We're that So But year, sight Max. make which core to momentum the we like lose and going in to growing next investing we're huge app, like investment music don't math a has market we're folks this of year going that growth great which investing still and mentioned. is

comes Needham. question MacDonald next And from Justin. of Thanks, Ryan

I'm Luis, think app? subscriber about and with do start you versus DAU moving based engagement how paid learner consistent quarter. to incentivizing moving the do the about to music experience the on moving curious, a a in the user MAU of how math on the core on and integration into for core you're forward music Congrats nice about And of you math the app, more over free forward, think time? that whether

Yes.

thank for Ryan. you So the question,

terms the for is way as in applies music. them it's All and now Really, monetization math and to another So about think were math if of language for that applies to courses they language music. course. to

are have free lesson, the to an do see user the Spanish a course, So you at you the for example, and end if ad. you of

that happens to course. that language to also premium see of an the that hearts happens on the similar if whenever happens in in math extra heart There's course, of our things basically you you're subscription. you lose working lesson, going at They're And monetize better a music, a to you make we're where in also the Similarly, the the you're and by notion that have ad. mistake, in offering the free in end trying a doing very continue user math, respect. users

may practice math have to -- music. be have things like just going things both we and -- where for extra the there certain like with languages, So things we're extra hub

you, there Now business of math grow math of the to still language which room I should -- great. about vast in to a and is lot should excited of future, majority remind music, foreseeable very questions We're but There's language the about learning. I -- learning. growth our is remind and music, are a lot for in

experimentation of there. So the majority the going is be still to

that. that's think I yes, So

maybe drove on this maybe Matt I'll and the and be or did helpful. could year this shareholder how paid experimentation That for you the in advertising That's about that And letter was Luis. XX% follow-up, interesting platform. differently bit more that did little drove sort users this notable year I'd color on what in increase of just increase. love the on a a hear Well, to a such you

or number we where a that position ads. a say we things. interesting we've are of out a And mean, better there in are lot to essentially world. just can app to have anything the every stuff. And have country that. with world. company are users We don't figuring has So in we licensing single any like deal country our in I to deal just the don't really at to like what the with We in things gotten music in also, serve a

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Research. Zach Morrissey question of Your comes from Wolfe next

things. just I growth on the wanted to, double-click of guess, user So I side

current and talked quarters, the rate. specifically prior retention in in years the user improvement You've about retention

we've year, growth impressive. kind this seen very you about obviously been of it's As think the

of come growth? in how think of of Can retention how improvement year, parse for through you look kind room kind that from we retention? kind has of improvement supporting user as much do of the kind in of about And next further kind we ahead

of the Obviously, of grabbed the competition. just to well. your to ability you posting obviously, execute last second, are But headlines Google, space. of then of month, kind guys And entering on some kind speaks kind growth kind

just kind technology, has landscape? Duolingo's which the larger talk if specifically, cetera. So could kind more kind platform And competitive views you moats of such relative last as how about on et of competitive can a scale, to evolving your kind of of Google, data,

Some great questions.

I we said, growth, our of a that affected but user helped in Like too, XXX%. would than one, the thing believe we Current is not For biggest the I that retention. only has main to had. move. has marketing It's that mean, free That's user improvements user not but say is rate probably the more is have retention. that growth retention I lot it's just user it. lever the lever improvements XX% biggest we've user it's in

improve. cannot of user us mean, to forever. expect just with still obviously, improve like We again, retention a room there for there's lot you I growth, user

cannot think You But also we with user there's improve room growth there, happy so that. we're still forever.

is a been start the I make they one ours. Google, has And In learning to actually to is of are time are They sending in people have we at to in spent the the terms users lot us. those spent made that better research years this that for A team a just -- small contact company the ecosystem. particular with that like was language Google. do want has admire. is headlines of trying there which search feature, -- headline about something of the is that's Google. of who feature couple experience do things to apps competition, us Google. that working at on course, all we team of The a

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become with users. particularly brand essentially younger language synonymous Our has with learning,

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that's So our kind of it. on view

James. comes Alex question Raymond Sklar, from Next

there a make Luis, launched better? level app? bit the it now footprint you that ] always primary content, within think Is you given a Is keep sense first choice ideal you for found? one kind as future it's organic the or think [ of the about will inorganic early this you, about course an in to of is it optimal And do just how to bit music. you content more always a you think Justin's do follow-up question, But of and main app?

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music et like or into more more or subjects, More things cetera. languages or math expansions

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they possibly say them. launched main are yet cannot we even successful you because the haven't app in So

them making So succeed. committed we're to very

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your I was part only the think of that question, right?

perfect. Yes. just there. maybe color No, a Great then And as follow-up.

app tracking kind of you of of cohort? of kind and see you usage after the at-risk the the kind of paid terms In of announced the month subscribers. in that did in in music terms What main math of

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very So wasn't a there probably change. big

question. don't answering to actually -- am know your I the answer Although here I

comes Next JMP. Andrew question Boone of from

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And Duolingo? a, that so tools evolve from just become Max to available? to as start what about, does of to talk coming these how us more prevents And

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just So provide color Max. to about

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kind So that's one of thing.

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which speech Your OpenAI. next is question was about basically text-to-speech, from synthesis

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on up follow follow-up use I'll that. my to

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Sorry, I'm not I understand. quite sure

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Oh, yes.

We that are definitely are features working to on related that.

You I with lot to next features experimenting on announce, anything will that, us that few feel see will in months -- us you'll you -- have start working don't mean, I definitely we like are them. see more the and but see will specific a

awesome from Piper at next Arvind question an comes And with the Andrew. Ramnani Zoom background. Thanks,

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shame no ask. in There's Yes. Yes. that

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Perfect.

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effort the Yes, and learning big is is an question. on, the language that believe category we We are, that only scratching leaders. -- core. a the The the business is into excellent are majority surface of we very where going

not yet category or the We education. math leaders music are for

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spending we're So that. majority effort of on the

That into putting about make main is music the and music. the what's immediately improve said, app of math changes a we lot the helped that and core that math nice to

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most product mean into of goes math And of XX, fraction you the music, working a to goes math like, math number the and the idea, music then and total on So small team. I an is, effort that but is whole core, of give our some people of into and music. just which

that's an So to idea. you just give

like, of there like or let's gating you it terms Matt's on balance, allow of are kind kind it like, the in Is the is -- a will Great. to both? strings say, keeping And I push of is hey investing? And like, any probability. get purse like factor guess, that people of trying it you're tight factors -- the to kind that what's of to bit of gating profitability more like, kind kind --

know The being kind this time, something Arvind. cannot of able takes faster. That's for factor see never product the up factor I the I've development why. where to like been it ends question, the I that this, don't gating a is, thing explain a make matter of is product. but gating great good funny goes X years truth to is any

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Great.

Next question Mark Evercore. from comes Mahaney at

Two questions, please.

First, I questions lot math music. a of had and you've on know

think and including about that just it something a more -- maybe an made to So interesting categories about what skill us appeal skilled in some about like there those chess, of article term, app? news the games -- somehow skill, there's that? is -- little Long is bit was There niche.

bookings -- super they're subs source of India? And subs, are could Is this us and perspective? just the record a getting color where China levels these from? and help new new from impressive. us from then these give secondly, what the you a from flood of is Just new max coming But geographic of levels of of this on and new people the or where is particularly realize record MAUs, kind coming MAUs MAUs these you in some growth sub almost growth MAU and

Yes.

see things -- adding chess, unlikely one, you're keep games, you're for do like terms content of Okay. like unlikely things to to in us Well, that.

we those For in next to the and than be the music math one, going adding term, not subjects more short in to other make -- we're want to again, succeed. medium really because

that Duolingo, the work just pure think lot in a at we're just a of people that's in term, education. and true But long me I interested more lot personally, for

to just probably games pure lot that. in love anything I we're so what kind or think it's see. education. more going play -- That's chess, interested wrong I a teaching chess with there's like of And that's -- but how nothing you're just I to love or that.

take let that I'll Matt second one. the For question,

Yes.

remarks, has So as I my been our of mentioned broad-based. in prepared Mark, growth beauty the

but are DAU growth past try the growing companies biggest user look kind of are around been above you with XX% growing U.S. that the or the to average, -- it's the close countries fast? then broad-based. you the other at has and So several around quarters, It's It's what's been see world, when Like, around is MAU average. has to DAU world. the growth the variation? there for growing And

that. -- user geographically about the is diverse, glad it's So we're and super growth really

it stack fundamentally quarters. countries terms In fluctuates of bit. our changed. mean, hasn't couple and the look at of the is growth of every of past it's But changed I every we rank little really subscriber so kind coming where from, subscribers, not over quarter,

good the been that's So user quality, we and broad-based we growth we high mentioned it. has about why like feel felt so

one just investments forward. maybe question then And on going level of the

is ramping That up sounds obviously a thing. fundamentally very aggressively. that You're good -- margins

Just have of any there that investment just -- but… know opportunities? sound kind like is that lack I of you addressed a right, risk doesn't the

No, no. I…

in you are of with ramping how balancing do next are you to balancing kind How whatever X that need profitability. X up years? you for -- for you're the invest like, to Duolingo the -- How

Yes.

math, at progress of it's the steady look kind mentioned jump it's think ones And great see that towards their in you pretty the respect that well. I think other that certainly thoughts has mechanics But their big companies I some the margin. tech of question. what That's we from a typically if and then -- call sure Luis as profitability, we last raw I'm year in expect. on real first follow, you they just long-term that they profit guys of margin. see we --

on it's said expect call. we call, this what we the As on last

year, the we've the business. towards been while product this in been increased path doing hiring, And and we've and this we've been investing profitability

good we So I profitability feel think about long-term over our balancing long-term time. with growth

product think gating anything Luis, of know, add to mentioned so our the last to journey. have not far I And the -- questions, investment so our don't else been I Luis that? you if cycle, factor one last has product in the on

I'm will anymore, Matt day lobster we're about not that. kidding. eat us every let and upset

We've cost it turns the in always discipline the adhered, business, out. with

don't because initiative I'm we we've kidding. we're do No, good -- done I never mean just think There's because can't been or don't a that the product we it at to we it, a we think have R&D. done really I been et generally, so people. hire idea that I in well, think we really because has -- been there cetera, keep not don't ready we it's think least investing haven't

Great.

question comes from at Curtis BofA. Nagle Next

kind terms So of conversion in thought of Luis, you free-to-paid an the some the made point of I regions. in interesting

was it think call, about drive very prices it talked be whatever that, to difficult to last trying do. I you you're whether or you're how can lower

So something changed. obviously,

So it'd egg hear success you to cracked I be some led about, quarter. and more bit to a just what in great just how little guess, that this

Yes.

-- be we've is around And bunch in conversion I'm the to the It's increase. one said the remarks. running actually going world not free-to-pay you're get that it's answer think to used that So who which understand one my one experiments how prepared thing. of hearing, is us a that been I to Curtis, can going that to

We around one many quarter. we're to "Would free the call to we super the kind world, that a markets the more across big win. But changed bunch optimize more bit, little the in it a was again, from local, language one that's says, internal Duolingo?" the quarter, made then colloquial, and hook you of a ad that what wins of things that of like we particular did to try was this the showing In how paid, of we so optimized go

X the really of anything know it over kind you So I X, don't months. that's if drove past have Luis, what else.

it. dedicated it's a people subscribe. teams exactly just I of we -- generally mean, to that's more a getting lot have Yes, to

Okay. Makes a just follow-up. sense. And Matt, quick then,

correctly, if X think heard So X.X. dilution, to I I

Right.

by that think I X. was down brought

I So what's delta? just, guess, the

people on down, probably a Yes, -- a couple to the hire of guided we fewer part the that this end our then plans that's range. But for made and is method. treasury X% we it's other year. because year hiring -- full We'll up when stock come in thing

the the down. share shares of as the course over we grant of year So goes the price amount goes up,

those the nothing crazy. factors, So are X

question Chris next Kuntarich, UBS. comes from Your

on asked a just bit of the follow-up on penetration. just Maybe regional a Great. there payer what was

of follow-up a some nascent some X% about markets. curious how more really this kind unknown needs what experimentation kind be maybe And payer that repeat of kind And about, to these just the penetration thinking in of of of a like it's these at we're we then versus of payer look earlier we Just of markets our should really be is rinse like, after. what are one penetration. curious basis advanced? how be of thinking how should versus really Like, on and on and across is the that going payer done market-by-market kind much to just penetration where is some more

I'm to bit happy I both. -- think it's a little of

versus in that better there find sometimes, talking we payer use is single that -- to That It's essentially world. And product a the help look, -- just experiments about a whole in language penetration true a in use that some difference payer we're not the of think that there. India. just big country help -- Duolingo, penetration are some country running said, in that's for better, for we like every wealthy true is it and like is a language U.S. I country. out this there's exact country every the

well, an but not I more you're so more some it's through It's markets, these are slight things maybe in-app of a some just example, think probably there already for that plan. to we through needed, just So or some the bit purchases know or we maybe of price, that decreasing there. just like, are sell the see do there That's things sell us we try because going differences both. done, family which we've are something,

a India. kind lot guess, my do lot a stuff -- that stuff. specific China specific. takes of more I market-specific sense countries market-specific of if do -- to We is to the going like the effort the My than stuff very may had market do It's and of we're global it large for of to --

see a is I that, smaller or Republic smaller, stuff of You significantly kind like, the countries Czech know, us won't country. for which do market-specific something like don't

Very around revenue quarter had talked Got And be last just I I that think flat. talking think sub helpful. would you're would on And be could effectively per as should it. provide improving, about as the follow-up you -- that now just Or any revenue far we're as more we would of digits single color per low assuming you down that that helpful. be subscriber? taking kind be yes,

Yes. it's the same general -- We trend.

quarter general or positive to so, because of probably still on subscription, year-over-year LTV ARPU decision. be right world other a X% decline been, as So that that fact the we we was delayed by the the call. it last this for same And that around a the The drove have would of less but lever slightly were that drove kind on happy mix U.S. the It it it but outside would the so And was year-over-year. trade-off lapping found a this make was thought trend growth or quarter, the trend. the it's we shift

showing questions. Great. any further not I'm

turn going to you, wrap to I'm So Luis, up. back to it

you, will for you great questions, you we and the and see everyone, next quarter. thank Thank