Duolingo, Inc. Q2 FY2025 earnings call

• Record profitability, strong top-line growth, and solid performance across all subscription tiers. • Raising full-year guidance while investing in core business and new areas like Chess, Math, and Music. • DAU growth moderated in 2Q due to social media sentiment backlash, but sentiment has since improved. • China is the fastest-growing market, with a strong partnership with Luckin Coffee, but Max not yet available in China due to regulatory hurdles. • Energy feature rollout increased revenue, bookings, DAUs, and median time spent using the app. • Positive metrics from Energy, including increased daily active users and revenue.

No specific product segments detailed by revenue contribution percentages. However, subscription tiers like Super and Max are mentioned. Super is growing well, with Max growing but slightly less than expected. New areas such as Chess, Math, and Music are being invested in but not detailed in financial performance terms.

• Raising full-year guidance again. • Not guiding to DAU growth next quarter as no big change expected. • Max growth slightly less than expected, but Super growing better. • Expecting to start spending in the U.S. on marketing. • FX had a positive tailwind on bookings, which is factored into the guide. • Duolingo English Test performance lower than expected due to macro trends.

• Social media sentiment backlash impacting DAU growth. • Regulatory challenges in China delaying Max availability. • Macro trends affecting demand for the Duolingo English Test. • Change aversion from users to new features like Energy.

Q: Congrats on the strong quarter. Can you break down DAU growth moderation drivers and China market color?

A: DAU growth moderated due to social media sentiment backlash from AI-related posts, but sentiment has improved. China is the fastest-growing market with a strong Luckin partnership, but Max not available in China yet due to regulations.

Q: Update on Max conversion and web checkout testing?

A: Max and Super are growing, Max subscriber percentage has increased but grew less than expected. Testing web purchase flow in the U.S. to reduce Apple fees, with minimal impact on GAAP this year.

Q: MAU decline and new products like Chess?

A: MAU decline related to Q1 campaign comparison and focus on DAU growth. Chess has grown rapidly, with excitement around it, but new products like Math and Music are still early and not expected to impact revenue soon.

Q: Max retention and gross margin?

A: Early renewal signs for Max look attractive, but cohorts not yet seen. Gross margin benefits from AI cost savings, with web checkout impact minimal in back half.

Q: Energy feature and new subjects?

A: Energy increases revenue, bookings, DAUs, and time spent. New subjects like Chess, Math, Music are exciting but TAM growth takes time. Energy rollout is more than half on iOS, less than half on Android.

Q: Energy user feedback and DAU-MAU ratio?

A: Some users dislike Energy, but metrics show positives. DAU-MAU ratio improved due to increased DAU retention and past Q1 campaign impact on MAU.

Q: Max for English learners and AI impact?

A: English learners using Max more, with positive early signals. AI model improvements help in some areas like Math content, but less so for language learning content.

Q: Voice experience and downloads?

A: Video Call in Max is improving, with efforts to enhance engagement. No specific trends on downloads reported.

Q: English learner investments and Max pricing?

A: Investments in English learning content, with 2 million+ intermediate/advanced English learners. Max pricing experimentation to continue as compute costs come down, focusing on LTV optimization.

Q: Super pricing and leadership lessons?

A: Super pricing experiments increased bookings, with ARPU driven by plan mix shift. Leadership lesson: need to provide more context in external communications to avoid misinterpretation.

Q: Max incrementality and ARPU?

A: Max conversion depends on plan mix optimization. ARPU growth from plan mix shift, with FX contributing to guide tailwind.

Q: Energy driving revenue and rollout?

A: Energy biases towards rewarding heavy users who may convert, with more than half of iOS users having Energy, Android behind. Rollout to continue over months.

Q: China market and investment?

A: China is a fast-growing market with Luckin partnership, Super growing better than Max. Back half investments include hiring and Music road map development, with small marketing spend in U.S.