Duolingo had a notable first quarter in 2024 with significant growth in revenue, bookings, and daily active users (DAUs).
Financial Performance
Q1 2024 saw a 45% increase in revenue and a 41% increase in bookings.
Adjusted EBITDA margin reached a record 26% in Q1.
The company has raised its full-year guidance for 2024, expecting bookings and revenue growth of 31% and 38%, respectively, at the midpoint.
Adjusted EBITDA margin guidance for the full year has been raised to 23.5% at the midpoint.
Product and Strategy
Duolingo’s growth is attributed to a product-driven flywheel, word-of-mouth growth, and high engagement and subscriber conversion.
The company is focusing on optimizing subscription offerings, including the family plan and Duolingo Max, with Max now being rolled out more broadly.
Initiatives in improving the family plan and other monetization efforts contribute to the confidence in raising full-year guidance.
An English learner initiative aims to expand into the market of global language learners, representing a significant opportunity for user and monetization growth.
Market Opportunity
Duolingo sees a massive market opportunity, holding less than 1% of the estimated $115 billion language learning market by next year.
The company aims to sustain rapid growth for years to come by executing its strategy.
Q2 and Full Year 2024 Guidance
Q2 is expected to see similar bookings and revenue growth rates as the full year despite a strong Q2 the previous year.
Growth rates for Q3 and Q4 are anticipated to step down from Q2.
Full-year adjusted EBITDA margin is revised up, reflecting expected operating leverage across all expense categories.
Share Information
Approximately 49 million fully diluted shares were outstanding at the end of the quarter.
Expected net dilution from equity issued to employees in 2024 is about 1%, similar to 2023.
Leadership and Acknowledgments
Acknowledgment of Laela Sturdy’s contributions as a board member who is stepping back to focus on other priorities.
Question and Answer
Duolingo Max Subscription Tier Rollout and Features
Question
How is the rollout of the Duolingo Max subscription tier progressing, and what features are being considered for inclusion in the tier?
Answer
Duolingo Max, a third subscription tier with AI features, is currently being rolled out to a wider audience after successful experimentation.
The company plans to expand the availability of Duolingo Max to more countries, languages, and platforms, such as Android.
Experiments are being conducted to determine the best feature packaging, including potentially adding unlimited hearts to the Max tier.
By the end of the year, a finalized set of features and a strategy to migrate subscribers to the Max tier will be implemented.
Duolingo Max and ARPU Trends
Question
How might the introduction and adoption of the Duolingo Max subscription tier impact the company’s average revenue per user (ARPU) over time?
Answer
While the company does not directly control ARPU, the introduction of higher-tier plans like Family and Duolingo Max could potentially lead to ARPU growth, especially if there is a shift in the subscriber mix towards these higher-priced plans.
Advanced English Product and Market Potential
Question
Can you provide an update on the progress of the advanced English product and discuss its potential impact on the overall business if successful?
Answer
The company is excited about the advanced English product due to the significant market opportunity it presents.
Duolingo has invested in creating advanced English courses tailored to different base languages, with a focus on achieving higher proficiency levels.
The content for these courses has been completed, and efforts are now underway to improve user placement within the courses and market Duolingo as a strong option for learning intermediate to advanced English.
The company believes that the success of the advanced English product could be a significant contributor to the business in the medium term.
Family Plan Optimization and Value
Question
How does the company plan to optimize the Family Plan, and how might this impact the price-to-value ratio for subscribers?
Answer
The Family Plan has experienced organic growth and has proven to have higher retention compared to other subscription plans.
A new team has been established to focus on improving the Family Plan by addressing issues and adding features to enhance the user experience, such as social features and better family management.
The company will continue to experiment with the pricing of the Family Plan as it adds more value to the offering.
Duolingo Max Revenue Contribution and User Mix
Question
What is the expected ultimate revenue contribution and target mix for the Duolingo Max subscription tier, and how much of the subscriber mix is expected to be incremental versus cross-graders from other plans?
Answer
In the short term, the company does not yet have a clear picture of the ultimate mix and revenue contribution of Duolingo Max as it is still in the early stages of rollout.
The ultimate mix will depend on the final feature set and pricing structure of the Max tier.
Marketing and User Growth Drivers
Question
What are the main drivers of user growth, and how does marketing, including social media campaigns, contribute to this growth?
Answer
The primary driver of user growth is the continuous improvement of the Duolingo product, leading to organic word-of-mouth referrals and higher user retention.
Marketing, particularly brand marketing through social media platforms like TikTok, YouTube, and Instagram, also plays a significant role in raising awareness and attracting new users.
The company is excited about upcoming marketing initiatives and brand stunts planned for the rest of the year.
Duolingo Max Adoption and Subscription Model
Question
Can you share any early insights into the adoption of Duolingo Max, including the mix between individual and family subscriptions, as well as the distribution between monthly and annual plans?
Answer
Due to the early stage of the Duolingo Max rollout, the company does not yet have definitive data on the adoption and subscription mix.
These metrics are expected to evolve as the Max tier is introduced to a larger audience and the feature set and pricing are finalized.
Music and Math Course Learnings and Roadmap
Question
Can you provide an update on the learnings and product roadmap for the music and math courses, including any insights into user growth and engagement?
Answer
The company is pleased with the growth and engagement of the music and math courses since their introduction a few months ago.
Efforts are underway to expand the availability of these courses to more platforms and languages, increasing their accessibility to a wider audience.
The focus for both courses is on adding more content and making the learning experience more engaging, with plans for features like instrument integration in the future.
While the company is happy with the progress of music and math courses, it does not expect them to contribute significantly to revenue in the near term.
Subscription Bookings Guidance
Question
Can you provide more context on the subscription bookings guidance for the year, particularly the factors influencing the deceleration from Q1 levels?
Answer
The strength in the subscription business, with faster-than-expected growth in Q1, is a key factor driving the full-year guidance.
Subscription bookings are expected to continue growing, with subscriptions being the primary driver of growth in Q2.
Investment Requirements for English Content and Marketing
Question
Can you discuss the potential magnitude and timeframe of investments required for creating English content and marketing the English learning capabilities of Duolingo?
Answer
The content creation for advanced English courses is already completed, with the use of generative AI significantly reducing the time and cost compared to manual creation methods.
The company does not anticipate significant spending on content creation for English courses.
Marketing efforts for English learning are expected to focus on in-product marketing within the Duolingo app and leveraging the company’s strong social media presence, rather than large-scale paid advertising campaigns.
TikTok Marketing and Potential Ban
Question
Given the potential ban of TikTok, can you provide insights into the current reliance on TikTok for marketing, and what steps are being taken to diversify marketing channels?
Answer
The company has been diversifying its marketing channels away from TikTok for over a year, with investments in Instagram and YouTube shorts that have proven to be effective alternatives.
TikTok views in the U.S. account for a minority of overall TikTok views, and the company is not overly concerned about a potential ban in the U.S., as users are likely to migrate to other platforms where Duolingo already has a presence.
Sustainability of User Growth and Acquisition
Question
How sustainable is the current user growth, and at what point might growth become more limited by the company’s ability to acquire new users?
Answer
While DAU growth decelerated slightly in the recent quarter, the company views this as a natural progression after a period of accelerating growth.
The company expects DAU growth to stabilize around the current levels, with some variation from quarter to quarter.
The majority of user growth is driven by the continuous improvement of the product and organic word-of-mouth referrals, which are difficult to quantify precisely.
Subscriber Conversion and Cohort Strength
Question
Can you provide insights into the strength of the 2023 cohort and the factors contributing to the healthy subscriber conversion rate?
Answer
The company has observed improved cohort conversion rates across all cohorts from 2023, leading to healthy subscriber conversion and strong growth in subscription bookings.
The continuous improvement and appeal of subscription tiers, particularly the Family Plan, contribute to the positive subscriber conversion trends.
Margin Outlook and Investment Priorities
Question
Can you elaborate on the factors influencing the margin outlook and the potential for margin outperformance in the future?
Answer
The higher-than-expected incremental margin in Q1 was influenced by the timing of expenses and the capitalization of certain projects.
The company has a significant number of investment priorities, including English learning, math and music courses, and the core subscription business, which will drive margins closer to the long-term target of 35%.
Duolingo Max Rollout in Cost-Restricted Markets
Question
Are there any markets where the rollout of the Duolingo Max tier is currently restricted due to the costs associated with generative AI?
Answer
The company does not plan to roll out Duolingo Max in markets with low monetization potential, such as India, where the cost of generative AI is currently prohibitive.
The intent is to focus on higher GDP countries for the rollout of Duolingo Max in the near term, with the expectation that costs will decrease over time, enabling expansion to other markets.
LTV to CAC Dynamics for Duolingo Max
Question
How do the lifetime value (LTV) to customer acquisition cost (CAC) dynamics compare across the various subscription plans, including Duolingo Max, and what is the company’s approach to optimizing these ratios?
Answer
The company primarily focuses on the LTV side of the equation due to the significant contribution of organic word-of-mouth referrals to customer acquisition.
The Family Plan currently has a higher LTV than the Super Plan, and Duolingo Max is expected to have a higher LTV over the medium term as pricing and costs are refined.
The company is actively working to find the right feature set and pricing structure for Duolingo Max to ensure strong LTV to CAC ratios.
User Health and Macro Trends
Question
Are there any macro trends or indicators of consumer health that the company is observing, particularly regarding at-risk paid subscribers?
Answer
The company has not observed any concerning trends in user health or at-risk paid subscribers in 2024.
Factors Influencing Payer Ratio Fluctuations
Question
What factors contribute to fluctuations in the payer ratio, particularly across different geographic and language corridors?
Answer
The company clarifies that Q2 is typically a slower quarter due to seasonality and the absence of one-time promotional events that occur in other quarters.
These normal course variations in payer ratios and bookings are not driven by specific product changes but rather reflect the organic growth patterns of the business.
Duolingo’s India Market and Subscription Potential
Question
Can you provide insights into the dynamics of the Indian market, particularly regarding the potential for paid subscriptions, and whether there is a price point that could make subscriptions more appealing in India?
Answer
Duolingo has observed lower payer conversion rates in India, which is consistent with trends observed by other subscription-based companies in the region.
The company believes that the Indian market for digital subscriptions is still maturing and expects potential for growth in the medium to long term.
Margins and AI Investment by Cohort
Question
Can you discuss the margin profiles of different subscription cohorts, such as Max and Family Plans, and the impact of AI investment costs on these cohorts?
Answer
The introduction of Duolingo Max has led to a lower gross margin due to the incremental costs associated with generative AI.
However, the company expects the dollar margin on Duolingo Max to be positive, and it will continue to experiment with pricing and cost structures to optimize overall margins.
Leveraging Popular Events for Marketing
Question
Can the company leverage popular events and partnerships, similar to the Barbie movie collaboration, for marketing purposes in the current year?
Answer
The company expects to continue leveraging popular events and partnerships for marketing purposes, similar to the Barbie movie collaboration.
While the impact of these events can vary, the company believes they will continue to provide valuable marketing opportunities.
