Q2 2024 Earnings Summary
- Strong DAU growth and user engagement: Duolingo reported 59% year-over-year DAU growth in Q2 and expects to maintain around 50% growth for the foreseeable future, demonstrating robust user adoption and engagement. Additionally, 20% of users have streaks longer than 365 days, totaling about 7 million daily active users, up from 3 million 1.5 years ago, highlighting high user retention and stickiness.
- Accelerated content creation using AI: By leveraging AI, Duolingo has significantly increased the speed of content creation, enabling the development of engaging content and new features much faster than before. For example, a feature that previously would have taken 5 years to develop can now be created in a matter of months, enhancing user experience and potentially reducing costs.
- Expansion of Duolingo Max and AI features: The rollout of Duolingo Max, which includes AI-enabled features, is progressing rapidly and is expected to be available to the majority of users by year-end. New features like AI-powered conversational practice are anticipated to resonate with learners, potentially boosting monetization and user engagement.
- The company expects daily active user growth to decelerate to about 50% in the second half of the year due to lapping exceptional tailwinds from last year, such as the brand boost from the Barbie movie, indicating potential slowing growth momentum. ,
- Gross margins are expected to decrease slightly in the back half of the year due to increased amortization and AI costs associated with the rollout of Duolingo Max, as well as increased hiring in R&D and higher sales and marketing expenses, which may impact profitability. , ,
- The monetization of new initiatives like Duolingo Max and advanced English content is anticipated to happen over the medium to long term, suggesting that these investments may not contribute significantly to revenue in the near term, potentially leading to slower revenue growth. , ,
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User Growth and Guidance
Q: How sustainable is your high DAU growth?
A: We feel good about our growth. In Q2, we saw 59% DAU growth year-over-year. We expect this to stay at around 50% for a while, which is exponential growth. -
Subscription Monetization and Max Rollout
Q: When will Max impact revenues, and how is adoption?
A: Duolingo Max is now available to 15% of our DAUs in 27 countries and 5 courses. We expect to roll it out to the majority of users by year-end. We're seeing uptake from both free users and current paying subscribers. We feel good about Max and are adding new features like conversational practice with Lily. -
AI Integration and Content Creation
Q: How is AI improving your product and content?
A: We're extremely excited about what AI can do for us. Over the last 1.5 years, we've seen an amazing acceleration in content creation, much of it due to AI. AI allows us to create engaging content faster, enabling features that were previously prohibitive. We're using AI for live interaction, such as practicing conversations with characters like Lily, which is a magical experience. -
Margin and Profitability Outlook
Q: How are your incremental margins and investment plans evolving?
A: In 2022, our adjusted EBITDA margin was 4%, and now we're guiding to 24.5% for the full year—an increase of 20 percentage points in two years. In Q2, we had about 52% incremental margin; adjusted for time shifts, it's about 45%. We believe we can continue investing in R&D to drive organic growth while maintaining strong margins. -
International Expansion and Japan Strategy
Q: How successful is your international expansion, like in Japan?
A: We now have a playbook for international markets that has worked well in countries like Japan, Germany, and France. In Japan, we started investing about 2.5 years ago, and it takes about a year to get our act together in a country. Our approach includes performance marketing, hiring local marketing managers, and adapting social content to each country. -
Family Plan Growth
Q: What's the outlook for your Family Plan subscribers?
A: Currently, about 20% of our paying subscribers are on the Family Plan. We expect that number to continue growing. We're adding more features where families can engage with each other and making the Family Plan more well-known among our subscribers. -
Resurrected Users and Monetization
Q: How are you engaging and monetizing returning users?
A: We're shifting more work towards users we've seen before because many lapse for six months and then come back. We're spending effort on monetizing them better and enhancing their returning experience. Historically, we've spent more time optimizing new users, but we're now focusing more on resurrected users. -
AI's Impact on Language Learning
Q: Will AI replace the need to learn languages?
A: We are not particularly worried about AI replacing language learning. While language translation technology has been good for 10 years, most of our users are hobbyists or need to learn languages for work or life purposes. These users are unlikely to rely solely on translation apps, so we don't see AI diminishing the need to learn languages. -
Response to Macro Environment
Q: How is economic uncertainty affecting your business?
A: Despite external uncertainty, we are not seeing any impact on our numbers. In past situations with uncertainty, our consumers didn't react much. Because we have a strong free tier, those who might cut spending continue using Duolingo for free, while paying users typically find $6 a month affordable. -
Math and Music Course Expansion
Q: How are your new verticals like Math and Music performing?
A: We feel very good about the growth in Math and Music, though they are still small compared to languages. They're currently only on iOS but will be on Android in the next couple of months. We're working on adding more content and making them more engaging.