Duolingo Q1 2025 Earnings Report

Duolingo EPS Results

• Actual EPS: $0.72
• Consensus EPS: $0.52
• Beat/Miss: Beat by +$0.20
• One Year Ago EPS: N/A

Duolingo Revenue Results

• Actual Revenue: $230.74 million
• Expected Revenue: $223.15 million
• Beat/Miss: Beat by +$7.60 million
• YoY Revenue Growth: +37.60%

Duolingo Announcement Details

• Quarter: Q1 2025
• Date: 5/1/2025
• Time: After Market Closes
• Conference Call Date: Thursday, May 1, 2025
• Conference Call Time: 5:30PM ET

Duolingo (NASDAQ:DUOL) (NASDAQ:DUOL) is a technology-driven education company that operates a widely used language-learning platform. Founded in 2011 by Luis von Ahn and Severin Hacker, Duolingo offers a freemium service featuring bite-sized lessons, gamified exercises and adaptive learning algorithms. The company’s core product is its mobile and web application, which supports instruction in more than 40 languages, ranging from widely spoken tongues such as English and Spanish to lesser-taught options including Irish and Swahili.

In addition to its flagship language courses, Duolingo has expanded its product suite to include the Duolingo English Test, an on-demand, computer-based English proficiency exam designed for academic and professional admissions. The company also launched Duolingo ABC, a free app designed to help young children develop foundational literacy skills in English. Both products leverage Duolingo’s data-driven approach to personalize content and assess learner progress in real time.

Duolingo serves a global audience, with tens of millions of monthly active users across the Americas, Europe, Asia and Africa. Its freemium model combines advertising and optional subscription revenue—through Duolingo Plus—to monetize a portion of its user base while maintaining free access for casual learners. The platform’s broad reach and engaging user interface have positioned it as one of the leading digital-native education brands worldwide.

The company is headquartered in Pittsburgh, Pennsylvania, and maintains additional offices to support product development, marketing and customer service. Under the leadership of co-founder and Chief Executive Officer Luis von Ahn, Duolingo has continued to invest in research and development, including machine-learning innovations to enhance course efficacy and user retention. As a publicly traded company since its 2021 initial public offering, Duolingo remains focused on scaling its offerings and expanding its role in the evolving online education landscape.

Duolingo Q1 2025 Earnings Call Transcript

Key Takeaways

• Duolingo reported 49% year-over-year growth in daily active users, with all regions—including mature markets—growing strongly thanks to ongoing product optimizations and viral marketing campaigns.
• The company leveraged generative AI to produce 48 new language courses in about one year (vs. 100 over 12 years), automating nearly all content creation to speed up development and reduce costs.
• Duolingo is expanding beyond language learning, soon launching chess alongside its existing math and music offerings, all monetized via its standard ad-free subscription model.
• The Duo Max tier now represents about 7% of subscribers and remains accretive to gross profit dollars, with ongoing AI-driven cost optimizations expected to improve its gross margin over time.
• For full-year 2025, Duolingo expects a ~150 bp year-over-year gross margin decline, with Q1 outperforming plan, a 50 bp sequential dip in Q2, and margin recovery through Q3/Q4 to end the year flat vs. last December.

Presentation

[Deborah Belevan, VP of Investor Relations at Duolingo]

Good evening, everyone, and welcome to Duolingo's first quarter twenty twenty five earnings webcast. Today, after market close, we released this quarter shareholder letter, a copy of which you can find on our IR website at investors.duolingo.com. On today's call, we have Luis Von Ahn, our cofounder and CEO, and Matt Skarupa, our CFO. They'll begin with some brief remarks before opening the call to questions. Analysts will be able to ask a question by using the raise hand feature.

[Deborah Belevan, VP of Investor Relations at Duolingo]

And please note this event is being recorded, and all attendees are in listen only mode. Just a reminder, we'll make forward looking statements regarding future events and financial performance, which are subject to material risks and uncertainties. Some of these risks have been set forth in the risk factors in our filings with the SEC. These forward looking statements are based on assumptions we believe to be reasonable as of today, and we have no obligation to update these statements as a result of new information or future events. Additionally, we'll present both GAAP and non GAAP financial measures on today's call.

[Deborah Belevan, VP of Investor Relations at Duolingo]

These non GAAP measures are not intended to be considered in isolation from, a substitute for, or superior to our GAAP results, and we encourage you to consider all measures when analyzing our performance. And now I will hand it over to Luis.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Thank you, Debbie. Normally, we start this call with prepared remarks, which in this case probably would have included the term AI, like, 17 times. But as I'm sure you've read in our shareholder letter, things are going great, so we're gonna get right into questions. Shoot.

[Deborah Belevan, VP of Investor Relations at Duolingo]

Alright. Thanks, Louise. Now I'll pass it over to the moderator who will begin the q and a portion of the call.

[Operator]

We will now move to our question and answer session. At this time, if you would like to ask a question, please click on the raise hand button, which can be found at the bottom of the black bar at the bottom of your screen. You may remove yourself from the queue at any time by lowering your hand. When it is your turn, you will receive a message on your screen asking to be promoted to panelist. Please accept, wait a moment, and once you have been promoted, you will hear your name called, and you may unmute your video and audio and ask your question.

[Operator]

Analysts are only allowed one relevant follow-up from their main question. We will now pause a moment to gather the team and allow the queue to assemble. Just a moment as our first question is connecting. That will come from Curtis Nagle with Bank of America. Please unmute your audio and ask your question.

[Curtis Nagle, Director - Senior US SMID Cap Internet Analyst at Bank of America]

Terrific. Thanks for taking the question. Maybe one first for Matt and then one for Luis. Matt, could you just talk through the cadence of the the gross margin for the year? Really nice outperformance on some of the max efficiencies.

[Curtis Nagle, Director - Senior US SMID Cap Internet Analyst at Bank of America]

I'm still expecting, you know, I think or expecting a 50 bit beep in two q and then ramping up in in two h. I guess not what you know, why not more of a benefit in the in the second quarter? And how should we think about kind of run rates going into next year in terms of gross margin?

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

Thanks, Chris. Appreciate the question. So we lay out in the shareholder letter, you know, the detailed gross margin guidance. So just to kind of reiterate what we we put in there, you're absolutely right. We continue to expect for the full year about a 150 basis point decline year over year.

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

We did see Q1 come in better than we expected. We expected about a 300 basis point decline, and we saw about a 200 basis point decline. For the most part in q one, max was on plan in terms of its impact on gross margin, and we saw a slight benefit on ads, which helped. But as we lay out in the the shareholder letter, we do expect q two to sequentially compared to q one decline 50 basis points, and then we'll see gross margin ramp up in q three and q four such that by the end of the year, we end roughly back to where we started the year at the end of q four of last year.

[Curtis Nagle, Director - Senior US SMID Cap Internet Analyst at Bank of America]

Okay. Awesome. That that's helpful. And then, Luis, for you, just maybe expectations in terms of, you know, the long the on language modules, chess, music, math. Right?

[Curtis Nagle, Director - Senior US SMID Cap Internet Analyst at Bank of America]

Or do we still sort of do these larger tools for, you know, engagement for streaks, adding value to existing users, or, you know, maybe increasingly so as potential monetization tools. What's what are your thoughts there?

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Yeah. Thanks for the question, Curtis. So we're we're very happy because just added chess. It's not quite yet live in the app, but it's gonna be live very soon. I should mention something amazing about the chess is that it really started with a team of two people, neither of whom knew how to program, so they were not programmers.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

And they basically made prototypes and did the whole curriculum of chess by just using AI. Also, neither of them knew how to play chess. And we started that for several months, and eventually, when they had a really good prototype, we had a a whole team to, you know, professionalize it and and put it in the app. So we're very happy with it. It this isn't this is, at the moment, mainly going to be to increase, you know, users who we think there's a huge demand for chess.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

There's hundreds of millions of people who wanna play chess. And the same is true for math and music. I mean, they're they're just they're growing really well. We are monetizing all of these subjects, by the way. The way the way you monetize them is the same way we monetize, language learning, which is, you know, if you wanna turn off ads, you can pay to subscribe.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

So we're monetizing them, already, but the compared to language learning, they're a lot smaller. But, yeah, we're we're very excited about it.

[Curtis Nagle, Director - Senior US SMID Cap Internet Analyst at Bank of America]

Okay. Thank you.

[Operator]

Our next question will come from Ralph Schackart with William Blair. Please unmute your audio video and ask your question.

[Ralph Schackart, Research Analyst - Technology, Media and Communications at William Blair]

Great. Thanks for, taking the question. Matt, maybe I'll start with you. Maybe kinda give us a sense of any, macro softness you may or may not be seeing. I think, you know, during the 2022 time frame after going public, you didn't see much there.

[Ralph Schackart, Research Analyst - Technology, Media and Communications at William Blair]

But just give us a sense there on the DAOs, kinda, you know, how broad based was that. And then, Luis, just on on GenAI, you know, not focused on Macs, but, obviously, you've been working with AI for a long time. Just give us a sense when you're testing now and developing products, what does GenAI allow you to do in terms of testing at scale and to develop products at scale? And then, you know, what how does that sort of inform your road map to, you know, really sort of leverage that to create, I guess, more products over time and potentially be able to roll them out faster? Thank you.

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

Yeah. Thanks, Ralph. So when it comes to, the broader environment, you know, you can see from our q one results, which were which were great, and the strength of our guide that we feel confident about the road map for 2025. We have a lot of exciting opportunities ahead of us, and so that's what you see in the guide. Far in q two, you know, we've been, you know, monitoring the metrics we always monitor, and we haven't seen any real change in the trends based on, you know, any macro environment.

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

So we feel good about that. I'd just remind you also that, you know, we're a global business. You know, majority of our bookings and revenue come from outside The US, and we offer a really attractive, in my view, you know, value to price relationship. Our, you know, average revenue per user is in the $6 range. So we feel we feel good about it, and that's what you see in the guide, Ralph.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

And in terms of of Gen AI, I mean, in general, Gen AI is allowing us there's there's three places where it's helping us. I mean, one is data creation. Teaching requires quite a bit of content. It used to be the case that, you know, a lot of this content was made by hand with some automation, but a lot of it by hand. By now, we're able to make the content for all of our subjects mostly close to a % automatically.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

So that allows us to just have a lot more content that is made a lot faster and much cheaper. So that's that's one place where it's helping us. Another place where it's helping us is just creating new features that were just not possible for, like video call with Lily. That was just impossible to practice conversation with a computer two years ago. And then the last place is it's just helping us with efficiencies everywhere in the company.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

And the fact that, for example, chess is a really good example. This is why I mentioned in the last answer. The fact that two people who were not engineers really were able to get to a pretty far in chess. I mean, they didn't make the production version of chess, but what they made is really, really good prototypes. And so this is really you know, this is showing what the future is gonna look like.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

We're gonna have a lot of people in the company that are playing around with new subjects or with new ideas, and I think that's gonna speed up the development of of, our features.

[Ralph Schackart, Research Analyst - Technology, Media and Communications at William Blair]

Great. Thanks, Luis. Thanks, Matt.

[Operator]

Our next question will come from Chris Kintarj with UBS. Please unmute your video, audio, and ask your question.

[Chris Kuntarich, Internet Equity Research at UBS Group]

For taking the question. Maybe the first would just be on the Mac side of things. Any update on retention trends for, Macs and percentage of overall subs? And just how should we be thinking about kind of where max retention is versus super at this point? And I guess my second question would really be on the 48 new language courses and kinda pushing on that thread a little bit more here.

[Chris Kuntarich, Internet Equity Research at UBS Group]

You said it took twelve years to add the the first hundred. I guess, is it more are we at the point now where we kind of reach saturation here as far as the available courses that you're looking to offer here, and it's about pushing deeper into certain markets? Or is there another hundred courses potentially that we could be looking here that'll be driving both, really driving the the funnel here? Thanks.

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

Yeah. So on the max retention rates, you know, we feel good about how max is progressing. You know, it's about 7% of subscribers at quarter end, which is an impressive set of growth, and, you know, it it helped to deliver a really strong q one for us, and it's, you know, going well. I think on the retention rates, it's kind of as expected. You know, it's early days, but we feel we feel confident that it's it's going well on the on the overall retention rates for Max's at this point.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Yeah. And in terms of the the language courses, you know, we added 148 new language courses. All of this content was done with AI, and it it really took us about about a year to add these 48 language courses. And like you mentioned, the the previous hundred ish courses took us about twelve years to make. So this is an incredible speed up.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Now to to clarify what what these courses are, these are not new languages. So these are the same languages that we were teaching but for other base languages. So for example, we used to if you were a Portuguese speaker, you you couldn't learn Korean, but now you can. So that's the type of thing we're basically filling in all the gaps that we had. At this point, you know, we're teaching all the major languages to the majority of the countries that we serve.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

So we're very happy with that. We're still going to add other languages likely, and there's demand for that, but there really is diminishing returns. I mean, in total, different languages, we only teach about 40 of them. And these 48 courses mainly pertain to about eight of our top languages that that are you know, now we're teaching in the different geographies. So, you know, there's not that much in terms of new courses to add, but we are going to continue improving the courses that we have and also getting them to teach to, more advanced levels.

[Operator]

Our next question will come from Brian Smilek with JPMorgan. Please unmute your audio video and ask your question.

[Bryan Smilek, Equity Research Associate at JP Morgan]

Great. Thanks for taking the questions. You know, on daily active users, I mean, continue to see such strong and impressive growth rates. I believe last quarter, had talked about mature regions, you know, growing still very strong. So just curious, you know, what are you seeing on the product optimization cycle that's driving better resurrected user growth?

[Bryan Smilek, Equity Research Associate at JP Morgan]

Anything that stands out, to keep in mind there? And then secondarily and kind of related as well, more on the English learning side, you know, still under indexing towards English language learning. You know, as you continue to scale course units published, add new content and efficacy over time. You know, how should we think about user growth across, you know, English language learning and the opportunity longer term? Thank you.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Yeah. Thank you, Brian. In terms of DAUs, it's a similar story to last quarter. I mean, we're getting very strong growth. I mean, we we just posted a 49% year over year growth on DAUs, which to remind you, that is lapping, you know, the same quarter, but the year before was doing 60% year over year growth.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

And before that, another 60% year over year growth. So it's really growing quite fast. The growth is is from all regions. So, of course, some regions are growing faster than others, but really all of them are growing. And the same thing is true as last time.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Some of our more mature markets are actually growing the fastest. So, you know, we're we're we're very happy with that. And what that tells us is that we really are not reaching the point of saturation in in really any market. And it's because there really are you know, there's the the the the total number of people learning a language in the world is about 2,000,000,000, you know, where we just posted a 30,000,000 active users. So there's a lot of room for that.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

In terms of what drives the growth, it's it's the same story as as has been. Two things drive our growth. One is product improvements, and the product improvements basically get improved retention of the product and also get people to tell their friends the word-of-mouth. And then the other thing that drives the growth is our excellent marketing campaigns. I mean, this last quarter, we you saw that we had this this campaign where DuoDao faked his own death.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

We, you know, we couldn't. We didn't know he was gonna do that. This is a, you know, kind of quirky guy that decides to do this type of stuff. And but that campaign, for example, got 1,700,000,000.0 doll 1,700,000,000 impressions, not dollars, 1 point 7 billion impressions. And, you know, the cost of that campaign really was essentially nothing.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

So that's that's what's generating the growth. In terms of English learners, we're very excited by it. We're still under indexed, as you rightly said. If you are if you look at language learning as a whole, 80% of the people that are learning a language are learning English. But on Duolingo, only you know, it's a little a little around 50%.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

That percentage is increasing, which is good. And because English learners, in general are growing faster than the rest of our the rest of our growth. So we see a lot of a lot of potential there. And just to remind everyone, the reason that English learners are are now growing faster is because we've added a lot content for them, in particular intermediate and advanced content. And that's really helping us grow.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Now one of the things that we've said last time and we're gonna continue saying here is, it's going to take some time for this adoption to happen for English learners because the word got around I mean, main way Duolingo grows is through word-of-mouth. And the word got around that we were mainly good for beginner English learners. And now that we have content for more intermediate and and advanced learners, the word has to get around. We're trying to speed that up with some marketing initiatives, but generally, we expect that most of this is gonna be word-of-mouth. And so, you know, it'll in in in some time, and I don't know what that time frame is, but it's not months, it's probably years, We do expect that English learners are gonna, you know, hopefully get to the 80%. But, you know, it's gonna take some time.

[Bryan Smilek, Equity Research Associate at JP Morgan]

Awesome. Thank you. And I guess just one quick follow-up on English learning.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Mhmm.

[Bryan Smilek, Equity Research Associate at JP Morgan]

You know, could you share any insights on just overall conversion rates and, I mean, right, like, how that would vary versus a Western world user? Anything would be super helpful. Thank you.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Yeah. I mean, English learners, they a lot of them are in regions that don't convert very well. Some of them are in regions that convert very well. For example, Japan. Japan converts very well.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

But if they are in in low GDP per capita countries, they don't convert super well. However, we are seeing something really awesome with Duolingo Max, and it is that they really have because because Max really helps you try to practice conversation a lot more, they're a lot more interested in it. So we're seeing more adoption of a video call with Lily by English learners than non English learners. And we're also, seeing that, you know, like we said, 7% of our subscribers are paying are are paying for Max. But actually, if you if you restrict to English learners, that number is actually higher than 7%.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

And non English learners, that's lower than 7%. So the average is seven, but English learners the the fraction of subscribers that are English learners that are max is is higher than for non English learners. So we we like that.

[Bryan Smilek, Equity Research Associate at JP Morgan]

Awesome. Thank you.

[Operator]

Our next question comes from Justin Patterson with KeyBanc. Please unmute your audio video and ask your question.

[Justin Patterson, Managing Director at KeyBanc Capital Markets]

Great. Thank you very much. It looks like cost optimizations are occurring faster than expected. You've got better line of sight on AI costs. How does that change just your, desire to make Duo Max more affordable or even just provide more features to some of those English learners?

[Justin Patterson, Managing Director at KeyBanc Capital Markets]

And then related to that, the three d Lily update for video call looks pretty interesting. Talk about how you think that's going to influence both engagement with Lily and conversion rates. Thank you.

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

I'll take it, Justin. I I can take the first part, and you can jump in on the next one. Sounds good. You know, Justin, on the, you know, on the optimizations, you know, it's actually, in our opinion, trending as we expected. So there were a little there were some smaller optimizations that we were able to kind of do in q one that were faster than we expected, but they were pretty small.

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

In general, the optimization of of video call and and max is is on trend with what we expected on the last call. And that's good news for us because it does lead to margin expansion in the back half of the year like we thought. And we also saw evidence in the first quarter that, you know, rates were coming down for for those type of API calls. So, you know, just in general, we feel confident with our the current course and speed of of those optimizations.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Yeah. And related to that max cost, I should say, it is still the case that max in certain countries, like India, India is a good example, is too expensive. We have not lowered the price. Max in India is about 70 US dollars per year. We we feel confident that over you know, in a probably in a few months, we'll be able to lower that price because, you know, prices are coming down.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

And and at that point, we're gonna see more adoption. But it's it's going to take a little bit of time. So that's Max. In terms of three d video call, we're super excited about it. It just if I mean, if if you have actually played with it, for some users already have it, not everybody has it.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

It's it's a lot more engaging. You now you can start asking Lily about her dog, which you can see it right there and everything. So it's I I think that's gonna increase engagement. And the good news about engagement is it increases a number of things. It increases word-of-mouth being, off max itself.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

So it basically people are like, you should get max. I know you're a Duolingo user, but you should get max because, you know, you can talk to Lily. It also, of course, increases retention. So it's just generally going to be good. I don't know exactly what the results are going to be, of the a b test.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

I mean, this is an a b test at the moment, but we're pretty excited about it.

[Operator]

Our next question will come from Nathan Feather with Morgan Stanley. Please unmute your audio video and ask your question.

[Nathan Feather, Equity Research Associate at Morgan Stanley]

Hey, everyone. Thanks so much for the question. Really encouraging results. It's exciting to see the expansion in additional language courses. But given that there is a diminishing returns as you add additional languages, do you help us think your relative prioritization list for new content production now between, you know, further language courses, more advanced content, new subjects?

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Yeah.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

In terms of relative prioritization, I mean, we're at the moment, of course, language learning is our largest business, and it is growing very fast. So the majority of our efforts still go into that. Now in terms of, you know, creating content there, we may not be adding new languages, but we're always improving the content for the languages that we have and, you know, making it more and more advanced. And and what's nice about this is because we now have this pipeline on on AI, we can actually regenerate the content super fast but in an improved manner. So you'll just see us improve things a lot, you know, and and it and it pays to do that.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

So for example, you'll see us improve our Spanish course, which is one of our largest courses. And and, you know, people all over the world will be able to learn Spanish faster. We are, of course, also investing in math and music and and chess. They are they are we're spending less effort on that because it's they're much smaller businesses than than language learning. But, you know, you'll see us, for example, for math, you'll see us vastly increase the content with because of AI within the next few months.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

It's probably the content's probably gonna quadruple that we have in math because of AI in in, call it, I don't know, a quarter or so.

[Nathan Feather, Equity Research Associate at Morgan Stanley]

Very helpful. Thank you.

[Operator]

Our next question will come from Arvind Ramnani with Piper Sandler. Please unmute your audio video and ask your question.

[Arvind Ramnani, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Hi. Hey. K. Thanks. Thanks, Luis. Thanks. Thanks, Mahed.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Good background.

[Arvind Ramnani, Managing Director & Senior Research Analyst at Piper Sandler Companies]

I love it too.

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

Well done.

[Arvind Ramnani, Managing Director & Senior Research Analyst at Piper Sandler Companies]

I use it for all my calls, all my Zoom calls.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Yes. I believe you.

[Arvind Ramnani, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Look. I mean, you know, you launched math and music back in 2023. Now you're launching chess. And, you know, I'm really trying to better understand your business strategy. I mean, I, you know, fully appreciate that, you know, the investment costs are minimal.

[Arvind Ramnani, Managing Director & Senior Research Analyst at Piper Sandler Companies]

You know, even with math, I believe it was with just a couple of engineers, and and I I I appreciate that that part of the equation. But also, you know, with the past couple of years, you've insisted that don't look at math and music, and I know chess is is gonna be free. Don't don't look at it as monetization level. But but there is clearly, like, a kind of a business strategy for expanding product. I'm just trying to get Kit Miller in understanding of that.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Yeah. To clarify one thing, all of our new subjects, math, music, and chess when it launches, which is going to happen in a few days, they all have monetization. They do make us money. And it's because you you know, the same subscription works for everything. And, you know, if you're not subscribed and you're doing math, you have to see ads at the end of a math lesson and, you know, all the standard, you know, things that get you to subscribe will get you to subscribe.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

So we do get subscriptions from people who are using math or people who are using music, and soon it'll be people who are using chess. But, you know, they're they're proportional to the number of daily active users that we have in those subjects, which is significantly smaller than language learning. Now they're growing. The good news is these new subjects are growing a lot faster than language learning, and and now they have millions of daily active users. So there is some monetization there.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

It's just we're not breaking it out yet. But in general, the strategy is really to become, you know, not just a language learning app, but an app that teaches you subjects that take a long time to learn and that and these are all gonna be subjects that hundreds of millions of people want to learn and that take a long time to learn and that are also good for the world. We believe that learn getting better at math, learn getting better at music, getting better at chess are all things that make people smarter and are good for the world. So that's that's the strategy at the moment, and and we're very excited. But we've known and you are right.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

We've been kinda cautioning people. We know that it takes a while to grow each of these subjects. Right. I mean, it took us, you know, ten years to grow language learning to a a a big scale. So it takes a while to grow these subjects, but but we're very happy with with the growth so far for them.

[Arvind Ramnani, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Perfect. And just a quick follow-up. You know, what's the sort of, like, common theme in learners? I mean, I I I I I listened to interview a couple of weeks back where you talked about you're looking for large markets and all of that. But is that common thread where, like, the person who learns math is also learning music or or learning learning what's the common thread?

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

There's definitely overlap in all of our subjects between between them. You know, the general common thread is people who want to improve themselves in one way or another and who used to probably a lot of these people used to spend all of their time on playing either mobile games or on, you know, doomscrolling on social media. And now they're spending some of that time improving themselves either by getting better at math or music or language or something. That's the common theme. And there's some overlap between them.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

It's not a % overlap. There's many many users only learn one thing, but quite a few users are learning, you know, multiple of our subjects, including multiple of our languages.

[Arvind Ramnani, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Perfect. Thank you.

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

Thanks, Aaron.

[Operator]

Our next question comes from Wyatt Swanson with DA Davidson. Please unmute your audio, video, and ask your question.

[Wyatt Swanson, Associate Vice President, Research Analyst at D.A. Davidson Companies]

Hey, guys. Just kinda following up on Chess here. Could you provide, you know, details around timeline and plans for rolling out the course to more users' devices? What point do you think it'll be widely available? And, you know, what are your plans around driving engagement and making it well known that you also teach chess?

[Wyatt Swanson, Associate Vice President, Research Analyst at D.A. Davidson Companies]

And then just looking out a little bit further, how do you expect it to contribute to engagement revenue, you know, twelve to eighteen months or even further down the line?

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Yeah. Thanks for the question. Okay. So, chess, I literally, a few minutes ago, promised the product manager of the chess team that I would not give a specific date, but it really is in the next, you know, next few weeks. It's, like, very soon.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

It'll be there. It'll first be on iPhones, and then soon after, it'll be on Android phones. You know, by the end of the year, this will be widely available to everybody. In terms of, you know, how we're gonna get the word across, it's kinda similar to Mathemusic. Most of it is word-of-mouth, but we're gonna speed it up with our marketing.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Certainly, you'll probably see a lot of, you know, kinda TikTok or, you know, Instagram videos of our owl mascot doing, you know, unhinged things related to chess. So that that's gonna get the the word out. We're probably going to you know, we're gonna test our different we're we're gonna we're gonna point our marketing engine towards this this, and including also towards math and music. So I think we're gonna, you know, we're gonna see quite a bit of growth from this for for these new subjects. In terms of the contribution of chess, it's it's similar to math and music.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

There is a business there as in already people are are going to be as soon as we launch it, people are gonna be able to pay for a subscription for chess, that removes the ads and and does all all the things that a subscription does. So there's gonna be a contribution there, but it it will depend on the daily active users. And and like I said in the previous answer, it takes time for daily active users of a given subject to grow from zero. So I don't I don't really know what the contribution is gonna be in twelve months, but compared to language learning, it's probably going to be small.

[Wyatt Swanson, Associate Vice President, Research Analyst at D.A. Davidson Companies]

Got it. Okay. Thank you, guys.

[Operator]

Our next question will come from Edison Kai with Citi. Please unmute your audio video and ask your question.

[Edison Kai, Analyst at CHINA CITIC BANK]

Oh, hi, Luis. It's great to, see such a strong performance given that it's really early in China right now, but a very good performance. And I do have, one question related marketing campaign and the market that you're diving into because that's what you talked about, how how your market campaign is shift shifting from growing the user base into a more like to to become a to to let the users know how your in-depth English content is growing. And now you are doing chess contents, which I think is another, like, a rocket giving that there are already mature provider use like, service providers like Chess.com. So how do you think that your market campaigning and user base growing is going to shift from current situation given you're diving into diving deeper into the market in both language learning and the new markets like chess playing, which is more competitive.

[Edison Kai, Analyst at CHINA CITIC BANK]

So, yeah, I would I'd like to know more about that.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Yeah.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Thanks for the question. Okay. So our marketing you know, what's what's amazing about our marketing is that it's incredibly efficient. I mean, most of our marketing efforts are, you know, social media efforts either on TikTok or Instagram or, you know, different social media, you know, sites, including Chinese sites. And we're we basically have have a really good playbook for doing this type of marketing on social media where we don't spend very much money.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

The majority of our efforts are going to continue in the same way that they've been so far, which is making content that goes viral. Almost every single day, some content related to Duolingo, either made by us or made by our audience, goes viral. And by that, I mean it gets millions of views. That will continue and we're not going to stop investing in that. Additionally, what I mentioned last quarter is if we are trying to get things like the word out that Duolingo is now good for more advanced English learners, we're probably going to do some things related to that.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

This includes things like influencers. And it also includes things in certain geographies. For example, in Japan, where we, you know, we ran a TV campaign that actually had video call with Lily. You'll see us do stuff like that, but the majority of our efforts will continue being, you know, kind of the owl doing unhinged things. And, you know, when it comes to things like chess, probably the owl will do unhinged things related to chess.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

And I think that'll get the word out that that we teach chess.

[Edison Kai, Analyst at CHINA CITIC BANK]

Got it. Thank you, Luis.

[Operator]

Our next question comes from Alex Sklar with Raymond James. Please unmute your audio video and ask your question.

[Alexander Sklar, Vice President at Raymond James Financial]

Great. Thank you all. Luis, just starting off on packaging across your tiers. You you've talked about testing pricing and also potentially moving some certain features across the tiers. What have you kinda learned so far this year from those tests?

[Alexander Sklar, Vice President at Raymond James Financial]

How are you thinking about, and any change in terms of new features still to come, including those in the premium version versus, wanting to put them in one of the paid plans?

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Yeah. A great question. I mean, you know, with packaging and pricing, the this is the same story that that has always been, which is we are testing a lot of things and we continue testing. I mean, for example, we've continued testing pricing in terms of, you know, geographically in different countries. We're testing different prices.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

This last quarter, we actually tested a price increase for new users and in fact increased the price for super duolingo for new users because of that. So you'll see us continue doing that going forward. We're always testing things. We have not moved things between packages. So for example, between between tiers at the moment, max still contains role play and video call and explain my answer, and super still contains what super has been, you know, has been having this whole time.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

You'll see us change a few thing I I mean, not change. Test a few things. I don't know what we'll end up launching. So far, nothing. No changes have launched, but you'll see us you'll see us doing that.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

It is likely that some of the Max features that are that are cheaper for us to give, we may bring them down to packages. For example, explain my answer is relatively cheap for us to do. That is not the core feature of Max. The core feature of Max is video call, but that's a feature that's in Max. We may try it on super or even free.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

So we'll try that, but at the moment, no nothing has changed.

[Alexander Sklar, Vice President at Raymond James Financial]

Okay. Great. And, Matt, maybe one follow-up for you. You've you've given some stats on annual and family plan penetration in the past. How how does that mix look for your max base versus the the other super base?

[Alexander Sklar, Vice President at Raymond James Financial]

Any difference in kind of annual or family plan adoption between those tiers?

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

Yeah. Sure. I think that, you know, the the theory of the case for us is providing the right package to the right user at the right time and servicing that. That's primarily how we drive Max and Super and family plan adoption. And right now, the mix is is different for max than, I would say, annual or family plan.

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

That'll evolve over time. Right? It's still very early days. It's 7% of subs is max. And so as we move features around and then decide how how and when to surface family plan for Max, to users, that'll evolve.

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

But it's it's too early to kind of, home in on on what that's gonna look like in the longer term.

[Alexander Sklar, Vice President at Raymond James Financial]

Alright. Great. Thank you both.

[Operator]

Our next question comes from Ryan MacDonald with Needham.

[Ryan Macdonald, Senior Analyst at Needham & Company]

Congrats on a great quarter. Two questions on AI. Luis, first for you. Can you talk about the level of urgency internally in terms of new generative AI features, particularly as we're seeing more funding going into the space for for Gen AI and language, whether it's speak or Preply, but then also the announcement that Google has some, you know, lightweight Gen AI language learning now. And then conversely on the cost side, Matt, you know, there's the there was this email obviously that that you published about internally sort of this new approach and evaluation of use of AI and as we incrementally hire, you know, let's see if we can automate things first.

[Ryan Macdonald, Senior Analyst at Needham & Company]

Can you just talk about sort of how quickly that approach can translate to improve the unit economics? And does this change your view on the long term sort of structural profitability of the business? Thanks.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Yeah. Thank thanks for the question. I mean, we're, you know, AI we believe that AI is really transformative for our business, and I think it's probably transformative for a lot of businesses. But we believe AI is very transformative for our business. It it helps us it helps us teach better.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

It helps us create content a lot faster. It helps us create content that that was just infeasible to do before. I mean, a good example is we just released a 48 language courses. We wouldn't have done that if it wasn't for AI. We are really going all in as a company on on AI because it's a technology that particularly applies to us.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Because, you know, the main improvement in AI the last couple of years is large language models, and language is what we teach. So it particularly applies to us. So you'll see us I mean, we really are you know, a lot of features are being developed that are that are related to AI. And you'll see us develop the right features for the user. So, you know, we're we really want to stay ahead with it and I we believe that we're far ahead of everybody else on this.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

I I should mention that in in terms of, you know, my email to everyone, I I I did say that, you know, we're gonna be AI first. We're gonna try to automate everything. In terms of cost, we're not changing and I'll let Matt talk a little bit about this. We're not changing our estimates because, yes, this is going to save us some costs on things that, you know, humans used to do that now AI can do. However, we're going to apply all of that.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

I mean, many of those same people, but we're going to apply not just with people but all of that to develop AI features. We think this is an amazing opportunity for us. So the cost savings are going to be offset by the fact that we're just investing a lot in making the right features. I don't know if Matt has more to say about that, but that's that's how we're seeing it.

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

No. Ryan, just to underline that last point, you know, we have done things because of AI that we wouldn't have been able to do before. So that's not taking the savings to the bottom line. That's investing in the enormous opportunity ahead of us, and that's what we're gonna continue to do. I think we, first and foremost, prioritize reinvesting to go tackle all of the opportunities, and that that's that's how we're going to use this.

[Ryan Macdonald, Senior Analyst at Needham & Company]

Excellent. Thanks again for the color.

[Operator]

Our next question comes from Andrew Boone with Citizens JMP. Please unmute your audio, video, ask your question.

[Andrew Boone, Managing Director at Citizens JMP]

Hi, guys. Thanks so much for taking the question. I wanted to ask about subscriber conversion rates. It's been a steady progression up kind of over the last four quarters, you know, call it 10 basis points a quarter if you look at kind of trailing twelve month MAU. Can you speak to the incrementality of max, though, as it affects that?

[Andrew Boone, Managing Director at Citizens JMP]

Should we expect kind of that step up as you guys do start to unlock maybe what is max in terms of a lower price or or connect that metric to max and incrementality of that subscription product. And then I wanted to add on to Ryan's question. Right? Like, Zuck just talked about this. He talked about the unlock of what is an AI engineer that's gonna be a mid level engineer that's coming in the next kind of year.

[Andrew Boone, Managing Director at Citizens JMP]

Luis, he dropped out of college. You have a PhD. Right? Help help us understand your view of the AI software developer, and how do we think about the efficiency of kind of your OpEx and workforce on a go forward basis?

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Matt, you wanna take the first part?

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

Hey. Do you wanna do you wanna start with the the second part first?

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Oh, sure. I'm happy to talk about the Come on, professor. I mean, look. In particular for engineering, AI is getting a lot better. Like, that that is just the case.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

So we're going to see a lot more efficiency from engineers. Alright? We're already seeing it. In terms of what it's good at and what it's bad at, I think, you know, AI coding is really good at creating something from scratch. It's not as good at taking a large code base, which is what we have on Duolingo, fully understanding it and making modification for it is is not as good at that.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

And that's gonna take some time to be really good at that. And so my sense is what's going to happen. I I truly do not believe that over the next, you know, at least the foreseeable future, it's gonna be the case that we're not gonna need engineers. In fact, if you look, you know, all of these companies, even the companies that are developing, you know, the AI are hiring engineers, and there's a reason for that. I think we're we're going to need them, and we're going to need them in part because they're gonna be so much more effective than they are inefficient than they are now.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

So I think that's what's gonna happen. We're just gonna see them be a lot more efficient. Another thing that is really exciting is that now also non engineers can do stuff, maybe not production code, but just kind of play around with things. One of our goals internally at at the company is that, you know, 100% of our employees and I'm not just talking about engineers. Really, 100 of our employees will have coded something with AI.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

We want everybody here to know how to automate things. And and I think just the whole workforce is going to get a a lot more efficient because of that.

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

Andrew, what sorry. Sorry. In that context, what was your first, part of your question?

[Andrew Boone, Managing Director at Citizens JMP]

So I I I wanna focus on the incrementality of Max. Right? So if I think about the the conversion rate of No.

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

Sorry. I was I was thinking about so when

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Matt was worried that he's gonna have to vibe code something himself.

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

Oh, I I love vibe coding. I I do it I do it most days. So when we think about the incrementality, Andrew, when we run our AB tests for Max, you know, again, we are not optimizing for in the in the very specific sense, we're not optimizing for a max subscriber or an ARPU or this or that. We are optimizing for platform LTV. And so when we run our AB tests, we have to take into account, you know, are these max subs incremental or not in figuring out the overall impact on platform LTV.

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

And that's why we launched Max is because we ran enough of the experiment to figure out that they were incremental. There were enough incrementality to it that it was platform LTV positive. And we still think that's true. And in fact, we think it'll become more true over time. And so that that's really my answer to your question is that, again, we are not trying to drive a max penetration rate.

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

We're not trying to drive a subscriber penetration rate. We are trying to drive platform LTV higher by driving mix shift to higher LTV plans. That's max. And we see also, you know, there's a lot of upgrades. Part of the q '1 outperformance was driven by the fact that super subscribers were converting up to max subscribers.

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

And that's what I said to the answer to another question, which was showing our current users, free and paid, the right plan at the right time to get to the right LTV. So we feel really good about the incrementality and and the overall platform LTV increase we're seeing from Max.

[Andrew Boone, Managing Director at Citizens JMP]

Thank you.

[Operator]

Our next question will come from Mark Mahaney with Evercore ISI. Please unmute your audio video and ask your question.

[Mark Mahaney, Senior Managing Director at Evercore ISI]

Okay. Thank you. I may have missed this, but I know you you disclosed the, max penetration, I guess, at 7%. Did you provide an update on math and music, adoption? And then you talked a little bit, Luis, I think about about pricing for super, and, you know, I think your your logic is kind of yeah.

[Mark Mahaney, Senior Managing Director at Evercore ISI]

Don't think you've changed pricing in super in quite some time. And as as you improve the product, you improve more the functionality, make it better and better that you you warrant. You you you create greater value so that can, you know, potentially ask people to pay more for it. So I've noticed this long way of answering, where are you, you know, are you thinking about raising prices kind of across the board on on super? And and then what would be the key factors that would make you decide to do that now versus, you know, never doing it or doing it next year? Thank you.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Thank you, Mark. You know, in terms of adoption for math and music, there's no update from last time that we talked about it. I mean, which we said we had about 3,000,000 daily active users learning either math or music. It is it it's it's higher now. It's growing.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

And math and music are growing faster than language learning, but compared to language learning, they're still small. Now in terms of prices, we're, you know, we we're just always testing different things. So at at the moment, we're testing prices in in different countries and everything. Sense is there will be increases, but I don't know what the what the AB test will tell us. And so, generally, we're just gonna be data driven on this.

[Mark Mahaney, Senior Managing Director at Evercore ISI]

Thank you.

[Operator]

Our next question will come from John Kolawantoni with Jefferies. Please unmute your audio video and ask your question.

[John Colantuoni, Equity Research Analyst, Internet at Jefferies]

Great. Thanks for taking my questions. First, I wanted to come back to the topic of incrementality of Max. Can you give us a sense for what portion of recent Max subscribers are new to Duolingo, and what portion are intermediate English learners? Just to give us a sense for that incrementality.

[John Colantuoni, Equity Research Analyst, Internet at Jefferies]

And second, turning to gross margins for Mac, you'd originally characterized the subscription tier as dilutive to gross margin but accretive to gross profit dollars. Has that changed as more cost effective AI models have been released since you first made those comments? Thanks.

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

Yeah.

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

Yeah. So we're seeing, like I mentioned to the to Andrew, you know, we're seeing good incrementality. We like the increase in platform LTV from Max. A lot of that comes from the fact that a lot of new to the platform into Max. So of total Max subscribers, a good chunk of those are coming from folks who currently are paying us and then start paying us more. So in general, the bookings and incrementality of Max is attractive, and, you know, we like how that's trending. In terms of the gross margin for Max, nothing that you mentioned has changed. It's still the same lower gross margin percent, highest gross higher gross profit dollars.

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

That will change over time as two things happen. One, as the price of the generative AI used for video call, for example, comes down. And we saw in q one new models released with lower pricing. And then we're also gonna run optimizations in the back half of the year. So we would expect, you know, the gross margin of Max to increase.

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

But, again, the the goal of Max is right now to drive incremental subscriptions and bookings and LTV and still make a really attractive gross profit dollar, return. We're on track, like we mentioned on the last call, to to do that better and better throughout the course of the year.

[John Colantuoni, Equity Research Analyst, Internet at Jefferies]

Thanks so much.

[Operator]

Our next question will come from Ross Sandler with Barclays. Please unmute your audio video and ask your question.

[Ross Sandler, Analyst at Barclays Capital]

Hey, guys. So I wanted to ask a question sort of for Machalupo, but maybe for Luis because we might need a PhD to answer this. But yesterday, Apple was finally dealt a fairly definitive blow on the injunction with Epic around, like, high quality developers like Fortnite or Duolingo redirecting users to to pay for subscriptions off the App Store billing. And it seems like you won't be discriminated against if you do that now. So I know 60% of bookings comes from in app payments, I think, is what it says in your filing.

[Ross Sandler, Analyst at Barclays Capital]

So, Luis, I guess, have you guys looked at testing the flow of directing people to the web? And, Matt, what percent of COGS does this represent? And, you know, kind of where do you guys see this going? Is this an opportunity to drive a little bit of leverage?

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Yeah. I mean, first of all, this this ruling is brand new. You know, obviously, we we saw it. The, you know, the the app stores, both both Apple and and Google, have been great partners to us. You know, one of the things that they really help with is just ease of payment.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

I mean, people's credit card is already in there, and it's usually just kinda like a double click that you have to do and you pay. So that that that's great, and that has really helped us. The my sense is that if we were to try to send people to the web, we, you know, we wouldn't have to pay Apple or Google, but we would see slightly fewer people actually converting because there's more friction. We're obviously going to test something here given the ruling. We're we're obviously going to test something and we'll see what happens.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

But at the moment, there's no I can't give you results. It's it's hard to know exactly how much this will this will help. It may help, but it's it's hard to know by how much.

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

Yeah.

[Matthew Skaruppa, Chief Financial Officer at Duolingo]

And then on the the gross margin of the COGS side, Ross, I mean, it's the majority well, over a majority of our COGS are are payments to to payment providers. And so to the extent that you would, take a a chunk out of those, it would be definitely accretive to gross margins. But as Louis said, it's early days for us, and we're gonna run AB tests and green machine any change we make so it would happen over time. And, you know, we would just have to wait and see. It certainly seems like it's, you know, potential optionality, but but, again, it's it's not something that, we've run experiments on given the recency of the news.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

We would be foolish not to test this.

[Ross Sandler, Analyst at Barclays Capital]

Thanks.

[Operator]

Our next question comes from Shweta Kajuria with Wolfe Research. Please unmute your audio video and ask your question.

[Shweta Khajuria, Managing Director at Wolfe Research LLC]

Hello. Thanks for taking my question. Luis, I have one for you.

[Shweta Khajuria, Managing Director at Wolfe Research LLC]

How do what is your vision for the video call feature? As it evolves over the next one, two, three years, what are you working towards? What's a good not end state, but close to an end state solution look like?

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Yeah. I mean, for video call, the main thing we want is to be able to get you to practice conversation. That's a very important part of language learning. And so the more time we get people to spend on practicing conversation, the better they'll get at the language that they're learning. We know that.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

So what we wanna do is just get people to spend more time on it. How do we do that? By making it a lot more engaging and by making it a lot snappier. So for example, right now, there's still a little bit of latency between when you say something and when Lily responds, we need to decrease that. It is still the case that, you know, sometimes she cuts you off a little too soon.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

We need to get better at she needs to get better at knowing when the conversation has faded out. Humans are actually really good at basically saying, I now know you're not so interested in talking to me, so I'm just gonna leave. Humans are very good at that. Lily is not very good at that. So, you know, there's there's that type of stuff we gotta get better at.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

And and then, you know, we're we're gonna have a whole world for her where where she's gonna be able to, you know, change her background immediately and start pretending that she's like, you know, your taxi driver or something. So we're we're really the idea is to practice as much language as as possible and and to increase engagement. And the more we increase the engagement, the more people will tell their friends that not only to use Duolingo, but if they are a Duolingo user, they should get Duolingo Max to be able to practice with Lilly.

[Shweta Khajuria, Managing Director at Wolfe Research LLC]

Thanks, Louis.

[Operator]

I'm showing no further questions. This concludes the question and answer session of the call. I would now like to turn the call back to the host for closing remarks.

[Luis von Ahn, CO-Founder, Chairman & CEO at Duolingo]

Just wanna say thank you. Thank you for the great questions. But more importantly, thank you to our excellent Duolingo employees for yet another great quarter. The team has is firing on all cylinders. So thank you, and thank you, everybody.

Participants

Executives

• Deborah Belevan, VP of Investor Relations
• Luis von Ahn, CO-Founder, Chairman & CEO
• Matthew Skaruppa, Chief Financial Officer

Analysts

• Curtis Nagle, Director - Senior US SMID Cap Internet Analyst at Bank of America
• Ralph Schackart, Research Analyst - Technology, Media and Communications at William Blair
• Chris Kuntarich, Internet Equity Research at UBS Group
• Bryan Smilek, Equity Research Associate at JP Morgan
• Justin Patterson, Managing Director at KeyBanc Capital Markets
• Nathan Feather, Equity Research Associate at Morgan Stanley
• Arvind Ramnani, Managing Director & Senior Research Analyst at Piper Sandler Companies
• Wyatt Swanson, Associate Vice President, Research Analyst at D.A. Davidson Companies
• Edison Kai, Analyst at CHINA CITIC BANK
• Alexander Sklar, Vice President at Raymond James Financial
• Ryan Macdonald, Senior Analyst at Needham & Company
• Andrew Boone, Managing Director at Citizens JMP
• Mark Mahaney, Senior Managing Director at Evercore ISI
• John Colantuoni, Equity Research Analyst, Internet at Jefferies
• Ross Sandler, Analyst at Barclays Capital
• Shweta Khajuria, Managing Director at Wolfe Research LLC