Duolingo, Inc.

Crap, it's 11.59. I'm going to lose my streak. What are you doing? Be quiet. I can't lose my streak. I'm on day 67. Is that duolingo? This is not the time for that. It is absolutely the time. This is my new language. You should practice a little bit every day. I think most people would agree that this would be an exception to that rule.

Can you at least silence it?

Are you serious right now? If I'm gonna become conversational, I have to practice my listening skills. That's part of it. Oh, my God. Oh, no. Duolingo. Crap. What time is it? It just hit midnight. No. My streak. I know. I had like 90 days. I know. You gotta stand tall for it. I was just telling her.

We hope you enjoyed that fun TikTok. It's one of the many examples of organic learner-generated content that goes viral every day without any involvement from us. And we love to see the creativity and enthusiasm of creators like this, which continues to drive our brand awareness and word of mouth growth. And now let's get on with today's call. Good afternoon and welcome to Duolingo's fourth quarter and full year 2022 earnings webcast. All attendees are in listen-only mode. Today, after market close, we released our year-end shareholder letter with our Q4 and 2022 results and commentary, which you can find on our IR website at investors.duolingo.com. On today's call, we have Luis Fanon, our co-founder and CEO, and Matt Scarupa, our CFO. They will 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. And please note this event is being recorded. Just a reminder that 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 our risk factors of our filings with the SEC. These forward-looking statements are based on assumptions that 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 will present both GAAP and non-GAAP financial measures on today's call. 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 turn it over to Luis.

Thank you, Debbie, and welcome, everyone. I'm pleased to report that we finished 2022 with a record quarter, achieving our highest ever number of DAUs and subscribers. We ended Q4 with 16.3 million DAUs, which is 62% year-over-year growth. And we ended 2022 with 4.2 million paying subscribers, which is 67% year-over-year growth. These metrics led 2022 to be our best year ever in terms of bookings and revenue, which grew 46% and 47% respectively. It was a fantastic year. Our DAU to MAU ratio, which is an indicator of user engagement, improved to 27% this past quarter, up from about 24% a year before. We have also seen the number of learners with long streaks grow immensely. To remind you, a streak is the number of consecutive days that a user learns with our app. This mechanic has proven to be an efficient tool for encouraging engagement and helping us grow DAUs. 63% of our DAUs now have a streak of seven days or greater, which is up from 53% last year. What's even more impressive is that we now have over 3 million DAUs with a streak of over one year. That means that more than 3 million people use Duolingo every single day for the last year or longer. It's also impressive that it took us eight years to reach one million DAUs with a year-long streak and only 21 months to get from one to three million. This is one example of the compounding effect of our product improvements. Our user growth was strong in every region of the world. We also have users of nearly all ages, of all socioeconomic statuses, and who have a variety of motivations to learn, including work, school, and travel. The result is a diversified business that has been largely uncorrelated with macro and geographic trends. Our investments in monetization have also shown the power of compounding. Over the past two years, we've seen conversion increase across nearly all cohorts. Users who are new to the app have converted more readily to our paid subscription, and users who have been on the app for longer periods, like multiple years, have also seen an increase in their conversion rates from free to paid. And now I'd like to discuss what you should expect from us this year. In a lot of ways, we expect 2023 to look similar to 2022. We expect users and bookings to grow nicely. We still have a massive $60 billion addressable market that we have only barely penetrated, and we have strong organic growth on our side. And I want to remind you that currently our subscribers make up about 8% of our monthly active users, so we have plenty of room to further monetize our current user base. We also have an attractive opportunity to increase bookings from a la carte in-app purchases like we did in 2022. But I do want to point out again that you should not expect any bookings from our math or literacy apps this year. As to where we'll invest, the majority of our engineers, designers, and product managers will continue to build on the success we've had in growth, efficacy, and monetization. That means they will continue to run experiments to increase DAUs and engagement, improve how we teach, and optimize how we convert free users to paid. And in our shareholder letter, I discussed the two additional areas we're focused on in 2023. The first is generative AI, which will power a higher tier Duolingo Mac subscription, as well as help us reduce content creation costs. And the second is improving how we teach and monetize English learners. I'd like to emphasize that we are excited about these initiatives, but they are still in the early stages. And I also want to touch on profitability. Coming off a strong 2022, we are well positioned to grow users and bookings rapidly while also delivering higher profitability. We plan to continue to compound the returns we've seen from our past R&D investments, so we don't plan to hire as many people as we did last year. Just to remind you, we've never gone nuts with hiring, and in fact, we've grown revenue at about twice the rate of headcount in the past four years. This year, we plan to show operating leverage across all costs, R&D, sales and marketing, and G&A. Given those strengths, we're guiding to a 10% to 12% adjusted EBITDA margin for the year, up from about 4% in 2022. And with that, I'll turn it over to Matt to talk more about our financial outlook.

Thanks, Luis. To quickly recap the highlights of our impressive Q4 and full year 2022 results, in the fourth quarter, we delivered 39% bookings growth year over year, which was about 46% on a constant currency basis. We saw 42% revenue growth year over year, which was 47% on a constant currency basis. We had a net loss of $13.9 million compared to a net loss of $17.5 million in the year-ago quarter. We posted our highest quarterly adjusted EBITDA of $5 million, which was a 5% adjusted EBITDA margin. And we had a free cash flow margin of about 11%. For the full year, we delivered 46% bookings growth year over year, which was about 52% on a constant currency basis. We saw 47% revenue growth, which was about 51% in constant currency. We had a net loss of $59.6 million compared to a net loss of $60.1 million last year. We saw adjusted EBITDA positive $15.5 million compared to an adjusted EBITDA loss of $1 million last year. And we had a free cash flow margin of about 12.5%. In 2023, we expect to continue delivering strong bookings growth, and we will do so while making progress towards our long-term profitability goal of an adjusted EBITDA margin of 30 to 35%. For the full year of 2023, we are guiding to $530 to $542 million in total bookings, $486 to $498 million in revenue, and an adjusted EBITDA margin of 10 to 12%, which translates to about a 32% incremental margin at the midpoint. And for Q1 2023, we're guiding to $127.5 to $130.5 million in total bookings, $111 to $114 million in revenue, and an adjusted EBITDA margin of 9% to 10%. Our guidance assumes current prevailing foreign exchange rates. As a reminder, roughly half of our revenue comes from outside the U.S., so every 1% increase or decrease in the value of the dollar versus our basket of currencies has about a $2 million headwind or tailwind, respectively, on four-year total bookings. At the prevailing exchange rates we've used in our guidance, foreign exchange is expected to be a 3 percentage point headwind to Q1 2023 year-over-year bookings growth. In terms of the quarterly cadence of our bookings for the remainder of the year, we expect our year-over-year growth for total bookings in Q2 to be about the same as Q1. We expect Q3 year-over-year growth rate to be slightly higher, and we expect Q4 to be our biggest quarter in terms of dollar bookings. Given our outperformance in Q4 of this year, it'll be a slightly lower growth rate. As to pricing in 2022, we lowered prices in several countries to get our prices more in line with each country's GDP per capita. This initiative and our intentional mix shift from monthly to annual plans was to increase the overall LTV of our platform. And that drove down subscription revenue per paid sub. But we're done for the most part with lowering prices globally. And in fact, based on strong conversion trends, we believe we have the opportunity to raise prices in some places and are experimenting with pricing as we speak. We have not included any material amount of bookings or revenue from Duolingo Max in our guidance since we've only just started testing it, but we'll provide you with an update when we report Q1 results. I'd like to emphasize that we are focused on managing the business so that we achieve our full year adjusted EBITDA margin of 10 to 12%. We'll be making spending decisions throughout the year based on our revenue and gross margin trends to ensure that we are in this range for the full year. Also to remind you, given the seasonality of our revenue, our Q2 and Q3 margins will be slightly lower than Q1 and Q4 will be higher. We will continue to run the business with discipline and prudently manage our expenses. Starting in Q1, we expect to see meaningful leverage in total non-gap OPEX compared to the fourth quarter of last year. And in 2023, we expect to achieve about seven to nine percentage points of operating leverage in total non-gap OPEX. For both periods, the improvement is mostly in sales and marketing and GNA and to a lesser extent in R&D. We ended the year with approximately 48 million fully diluted shares outstanding using the year-end closing price. In 2023, we expect to end the year with about 2% dilution from equity issued to employees, which is less than the roughly 3% dilution we had in 22. And with that, I'll turn it back to Luis.

Thank you, Matt. Before we get into Q&A, I'd like to thank our very talented team of duos who continue to find new ways to innovate and delight our learners. And now we would be happy to take your questions. I'm going to turn it back to Debbie to manage the queue. And here we go.

Okay. Thanks, Louise. And as I mentioned earlier, if you have a question, you can just use the raise hand feature. And the first question comes from Ralph Shackert of William Blair.

Good afternoon. Thanks for taking the question. The first question, the shareholder letter, I think he called it a quote, super end of 2022. I think that may incorporate some of the beginning of the year campaign that you run to attract new users. Just curious, what drove the really strong performance into year end? And then how does or how does your New Year's campaign compare to expectations? And I have a follow up.

Thank you. This is a great question. So, yes, we had a great Q4, great year end. The main reason there's two main reasons. The first one is just our compounding product improvements. I mean, we've just been getting better and better at making our products stickier and attracting more users. We have a very high performing growth team that does that. So that's one thing. And then another one is some of our marketing campaigns were just did really well. A good example of that was our year in review campaign where, you know, towards around December 14 or so, or December 10th to December 14, all the users get a summary of what they, you know, what they did throughout the whole year and they're expected, you know, well, they're encouraged to share it. We got a lot of shares, millions and millions of shares. and we hit top trending topics on Twitter and stuff like that by just having people share their Duolingo stats over several days. So stuff like that really helped us do the outperformance. In terms of the New Year's campaign, just for reference, we start a New Year's campaign on December 28th, usually every year, and it goes all the way to January. So for this quarter, there's about, you know, three, three days ish of campaign and, uh, you know, they perform better than we expected. Um, and, and, and the reason for that outperformance just has to do with the fact that every year we take the learnings from the previous year of the campaign and, uh, we just get a little better. So every year we run a few AB tests to try to make that campaign more effective and we take those learnings for the next year. So that, that worked out pretty well for us.

Great. Thanks, Luis. Maybe just a quick follow up. Um, Just in terms of DAOs, I think you reaccelerated for six consecutive quarters, which is pretty tough to do. But just maybe some color, what's driving the strong acceleration and growth? I think in the prepared remarks, you talked about sort of broad base, but were there any sort of one or two regions that saw stronger growth than others? Thank you.

Yeah, it's a great question, too. So in terms of regions, it really is growing in every single region in the world. If you want to know stronger regions, the US is particularly strong. Asia is particularly strong and Western Europe is particularly strong. in terms of growing DAUs. And in terms of why it is, I mean, it's again, the same two reasons. It is continuous product, continual product improvements that just compound over time. The product is just better and stickier. And then we just get better and better at figuring out what, you know, strikes a chord with marketing. So things like our social media campaigns, like our TikTok campaigns and our Twitter campaigns, and also some of the influencer work that we do. And some of the stuff is stuff we don't even do. For example, you just saw this video at the beginning of this call that these are entirely organic videos that other people make. It's almost every single day. I don't know if it is a fact that every single day in the world, but almost every single day, there is an organic video that goes viral that mentions Duolingo. So all of that just keeps getting, you know, keeps growing our users. Great.

Thanks, Luis. Appreciate it.

All right, thanks, Ralph. And the next question comes from Justin Patterson of KeyBank.

Great. Thank you very much. Luis, recently there was a really interesting post on the Duolingo blog about just using data science to optimize DAUs. I think current user retention rate was the metric you've been optimizing the past few years. I would love to hear more about just how you're using a lot of these top-down, statistical models to really drive DAU growth, link the product team together. And then, you know, now that you've gone pretty far with the current metric, how you're thinking about tailoring that to, you know, individual cohorts. So more of a bottoms up approach to take advantage of things like, say, Gen Z having much shorter attention spans and making sure they're still having healthy engagement. Thank you.

Well, I'm glad you read that blog post. We're very proud of our growth model. You know, over the years, we've just gotten significantly more sophisticated at analyzing our user base and making changes that improve certain cohorts. In this post, we mentioned what has been, I would say, the single most important metric for this company over the last several years, which is something we call CUR, or current user retention rate. And what that is, it is the The rate of people that if they were here today and they were here over the last one other time, at least over the last seven days, what is the probability they're going to come back tomorrow? That's current user retention rate. That number is around 80% right now. And we've increased it over the last two, three years. We've increased that number from about 65% to about 80%. And every 1% increase increases our DAUs by a lot. And so, you know, that model has been, you know, really helped us. And we keep getting more and more sophisticated. You are right. We're starting to, you know, this was a model, you know, at first, when you're just, you know, before this growth model, we would just treat all our users in one cohort. Then we started getting more sophisticated and we treat kind of new users, current users, et cetera. Now we're getting even more sophisticated than that. I don't think we have a specific thing for Gen Z that we do, but we are, you know, relatedly, we are making our sessions shorter and shorter because, you know, like you said, they have a shorter and shorter attention spans.

Thank you. Great. And the next question comes from Andrew Boone of JMP.

Great. Thanks for taking my questions. Can we start off with just any learnings from in-app purchases? I saw that it doubled this last quarter. Can you talk about what successes are there and then how we should think about that for 2023? And then secondly, on profitability, Matt talked about real contribution margin, kind of especially in the back half of this year. Is there any reason to think that that steps down as we think about kind of a three-year plan or something beyond this upcoming year? Thanks so much.

I can take the IAP question, Matt, and then you can take the next one. So for in-app purchases, yeah, we have a very high-performing team behind this that is just making in-app purchases more and more prominent and more and more successful in the app. As you saw, they've been growing very rapidly. We expect them to continue growing rapidly this year. And in terms of learnings, you know, the main way we do in-app purchases, by the way, is by selling gems. So there's this in-app currency called gems that you can either earn by doing stuff on, you know, on the app or you can also buy them. And then you can use gems to buy other stuff, you know, kind of power ups in the app. One of the main power ups that we use in the app is these timer boosts. that help for certain time lessons. So we have these, you know, most lessons on Duolingo are not timed, but there are some lessons that you can do, some practice lessons that are timed. And the idea is that if you're not very fast, you run out of time, but you can buy these timer boosts with gems. And there's, you know, those timer boosts get a lot of people to spend on in-app purchases. This is the type of stuff you're going to get to see us do. So in general for us, for in-app purchases, we're not going to be selling content with in-app purchases, but mainly we're going to be selling gamification things that people really like. And so far that strategy has been working pretty well.

Great. And then on profitability. So, Andrew, the profitability increased in 2022 by about 450 basis points from 2021 on an adjusted EBITDA basis, which was good progress towards our long term profitability goal of that 30 to 35 percent. This year, we're guiding to 600 to 800 basis point improvement over that. And so as we look out, you know, kind of into the longer term, our goal hasn't changed. We want to be at a 30% to 35% adjusted EBITDA margin. And between last year and what we're guiding to this year, we think we're showing, you know, the right progress towards that goal.

Okay. Thank you. Thanks.

And then the next question comes from Ryan McDonald of Needham.

Thanks for taking my questions and congrats on a strong close to the year. Louis, so I'll start with you on the Duolingo English test. There was recently a ban in China from the government on online degrees that if a Chinese citizen essentially is taking a fully online degree from an international university, they're no longer recognizing that degree and It seems like this is going to start creating sort of a shift in a inflection point and more Chinese learners looking to go in person overseas. You know, I'm just curious if you've seen any impacts of this thus far on sort of applications or signups for the dual English test and how you think or what your expectations for that are in the 2023 year.

Well, thank you for the question. We have not seen any impact based on this. And I think there's many reasons. I mean, for one, yes, China is a relatively large chunk of the Duolingo English test takers, but we really have test takers all over the world. The other thing is, the reasons for taking the tests are very varied. You know, some of them as people who are applying for international undergraduate admissions, there's also graduate admissions, there's transnational education, there's all kinds of different pockets. And, you know, maybe one pocket, you know, has some sort of policy implications to it. But in general, the pockets are pretty healthy. That's kind of one thing. The other thing is, we are still, you know, we're not the leader in this market. We are the in We're coming into this market with an online test and it is a market that usually has had all these offline tests. So given that we are still in the kind of growth phase of this, it doesn't affect us too much when there's something that changes the full volume of it because we're coming in. with whatever percentage of tests we have, which is significantly under 25%, we're still growing quite a bit and pretty fast. So this is not something that we're seeing yet.

That's helpful. Appreciate it. And then maybe as a follow-up, you talked a lot about generative AI and the use of that. And I'm very curious around the content creation. You mentioned an increased focus on sort of more advanced English content. for nine English speakers or basic English speakers, how quickly do you think that the generative AI can compress your content creation timeline? And how do you manage for quality in that? And then for Matt, are you assuming any within the leverage that you're showing this year on the profit margin side? Are you assuming any leverage from that content creation from generative AI? Thanks.

Yeah, thank you for the question. So we're very excited about generative AI. And just to put things into context, at Duolingo, we've always leaned into AI from the beginning. I mean, a lot of our products are built based on AI, etc. Over the last couple of years, generative AI has become significantly better, and we're definitely going to lean into this as well. You mentioned content creation. That's one of the places where we think that it can help us a lot and speed things up quite a bit. It's a bit early for me to give you a precise estimate of how much you can speed it up, but we are certain. I mean, it's already happening. We're already speeding things up and also lowering costs. One of the places where we're using that is to be able to create much more English learning content. So you'll see us create a lot more of that. In terms of quality assurance, we're still going to have humans go over it. But the time frame, you know, it used to be the case that all of this was almost entirely generated by humans. By now, it just has to be reviewed by humans, and it's a lot quicker to review than to generate content. So in terms of timeframe, we're going to get a massive increase in that, and I assume it's the same for cost. So yeah, so this is something we're very excited about. And the other thing I should mention about generative AI, so content creation is one of them, and we're going to definitely use that. But it also is going to help us just create better experiences to our users, kind of more online conversational practice that we're going to be able to do. And that's the type of stuff that we're putting into our new higher tier subscription, Duolingo Max. So this is something we're very excited about as a company. We've partnered with OpenAI and we're going to be working very hard on this.

Yeah, and Ryan, Luis answered the question for the guide. I mean, we only included in the guide things we have direct line of sight into. It's not, you know, generative value is so new. We don't have a ton of line of sight into direct savings yet. But as Luis said, you know, over time, that's probably the way to bet.

Thanks, Ryan. And the next question comes from Aaron Kessler of Raymond James.

Great. Thank you. A couple of questions. Maybe for Matt, on the paid conversion rate was very strong in Q4. Can you just talk about that? Was that family plans a part of that? And then how should we think about paid conversion in 2023? And then maybe any updates, I think you've been testing maybe kind of human tutoring as well. Just any kind of thoughts on that direction as well, especially as maybe as it relates to Duolingo Max, how are you thinking about integrating that as well?

For sure. Yeah, I'll let Luis answer that last part. For the payer penetration, we had mentioned, I think, throughout most of last year that we expected a 1% to 2% increase each quarter, year over year, in that metric. And that's coming from all of the things that Luis has described before, that all the product improvements that compound over time to make our free-to-pay conversion go up in general. It wasn't any one particular metric. item like family plan or this or that. It was all of them compounding over time. I think going forward, as we mentioned on, I think it was either the Q2 or Q3 call last year, given the growth in MAU, so that denominator of that number is just growing really, really nicely. And the retention trends, we would expect it to actually, instead of adding one or two points every quarter year over year, be closer to, you know, one this year. Just because, again, that denominator is growing really nicely. So it will ultimately turn into subscribers over time. But in the short term, it'll be about, you know, one point. And then you want to talk about Macs and tutors?

Yeah. And human tutoring. I mean, the first question was about human tutoring or the second question was about human tutoring. This is over the years we've waffled on human tutoring. At first, we launched Duolingo with no humans involved. Then we tried it. We tried putting it in. We tried. And over the last year, we've made the the the. the decision that I think is the right decision that we are not going to get into human tutoring at all. We've tried it. We are out. There's a number of reasons for that. There's nothing, it's not like we have anything against human tutors. It's just on our end, we are a technology company and that's what we excel at. And in addition to that, if you look at it, you know, human tutors are great, but they're not getting any better. They're just there. Whereas technology, in particular AI, and in particular, a lot of the stuff coming from generative AI is just getting better and better every year. So we're going to bet on that much in the same way, you know, like 10 years ago, we were told we could not teach a language with synthesized computerized voices. We bet on that, even though 10 years ago, synthesized computerized voices still sounded kind of robotic. Today, they sound excellent. We feel the same with AI that, you know, in five years, I don't know, have five, 10 years, we will be very happy that we'll have bet on technology rather than humans. Great. Thank you.

And next question comes from Nat Schindler from Bank of America.

Yes, thank you. I actually want to just go a little deeper on some of the questions you had before, really about how the users have changed. You saw a dramatic acceleration in both users and paid subscribers over this year versus the prior year. Has there been a real change in the demographics of those? Is there anything substantially different about users this year than there were last year?

It's a great question. If there has been, it's small. Generally, our user base is very wide. We have users from every single country in the world. Every single country in the world is represented. We have users from every single socioeconomic status from all ages, as long as they know how to read. So it's kind of from six years to about 100 years. We just really have users from all over the place, and it's a very wide user base. So it hasn't changed too much. The one thing we've noticed is it has gotten ever so slightly younger, and that probably has to do with a lot of our prominence on social media like TikTok. But that's it. So we haven't really noticed too much of a change.

And as those changes towards going slightly younger, is that happened in both free users and paid?

The honest answer is I don't know. I know that it's free users is getting slightly younger. I don't know for paid. Maybe I don't know.

Yeah, I'd have to go back and double check, Nat, on the paid. I think what we've seen on paid is that the conversion trends haven't really changed. Some have accelerated, for example, just overall conversion of customers. Kind of cohorts across the board has has increased over the course of last year. So folks who are new to the platform in the first couple of months, they converted more rapidly than in 2021. Folks have been on the platform for long periods of time. They converted a little bit faster than they had in the past. We've always seen that people who use the app more convert more. you know, that stayed the same or got a little bit better. So, yeah, it was kind of a broad base, just like our users grew around the world, you know, in a pretty broad based way. It was the same trend on the free to pay conversion.

Thank you very much. And once again, very impressive. Thank you.

Thanks, Nat. And next question comes from Mark Mahaney of Evercore.

Two questions. You had this line in the release about how the number of returning users is roughly the same as the number of brand new users. I would just have assumed that that was always been the case or, you know, it's been the case for a while. But is that something new that's happened? Because I get your point about how, you know, people will use it and then, you know, they'll either come back to it when they realize the importance of learning a new language or there'll be another opportunity. Maybe they're traveling to a different country. So is that a new trend or not? What's the so what out of that? And just real quickly, DuoMatho, you know, that math product just Where is that? Are you still tweaking it? Is it far from being where you want it to be? Just talk about kind of adoption, how much interest you've really seen in that.

Thanks. For your first question, this is not a new thing. It's been a while since returning users are the same as new users. I'm going to assume at the very early of Duolingo that was not the case. But it's been a while that it's been like that. And you're right. It's because it is rare for us to see a user that uses Duolingo goes away and never comes back. That is rare. Usually people may even go away for two years and then come back. It's just because there's such little friction. So we see that. And, you know, the reason we put that there is mainly to emphasize that it is not right to think of our users as coming, having churned and been gone forever. That is rare. It's more that they come, they stay for a few months or something, then they take a break for a couple of months and they come back or something. So something like that. in terms of math we're very happy with the progress it's growing rapidly we're happy with that just to remind you of the plan we are right now the goal is to grow our math product organically for it to grow by itself once we get to a pretty decent number of users call it a million daily active users you know this is kind of It doesn't have to be exactly a million. Once we get there, we're going to say, okay, great. We have good product market fit. It is time to start monetizing. We're not there yet, but it is growing pretty nicely. And so we're happy with the results. In terms of tweaking, yes, we're working very hard on tweaking the app. We're adding a lot of the features that we know work well on the main Duolingo app to the math product. So improvements to the streak, uh, you know, we're thinking of adding things like leaderboards, uh, better notifications. So a lot of the stuff that we've learned over the last 10 years on Duolingo and, uh, and that we have the code for, we're starting to add to the math app to get it, you know, to have higher retention. We're also adding more content to it. Um, you know, one of the, one of the things that happens with the math app right now is that people actually run out of content because. You know, if you're very happy, it turns out we have some very heavy users. that use the whole thing, and then they kind of run out of content. So we're adding more content to it. So you'll see us over the next year just make that product better and better. And because of that, it'll continue growing. Okay. Thank you, Luis. Thanks, Mark.

Next question comes from Eric Sheridan of Goldman Sachs.

Great. Thank you. Maybe first question would be following up on something that was implied in Mark's first question. Travel's obviously been a big tailwind and the shift to services over goods has been a big tailwind in the macroeconomic environment. Can you talk a little bit about what you've seen with travel potentially as a catalyst for usage, both top of the funnel and bottom of the funnel, as that's continued to build momentum and how maybe as a result of cross-border travel continuing to return to That could be a nice tailwind for the business going forward over 2023 and beyond. And then the second dynamic would be you talked a lot about virality and TikTok. Can you talk a little bit about where you are excited to experiment and think about marketing or building virality on platforms on either the content side or the distribution platform side, maybe even away from TikTok and how we should be thinking about that building in the years ahead? Thanks so much.

Great, great question, Eric. Let's see. In terms of travel, we don't see in our metrics that more and more people are using Duolingo for travel. We did see a very temporary dip in the height of COVID a couple of years ago, like a fewer, slightly fewer. Since then, it's been about the same. And we just, you know, travel is interesting for a lot of people like us that are, you know, to be honest, from the worldwide perspective, pretty wealthy. I think travel is like a big motivation for using Duolingo, but for a lot of our users, you know, they're using it to learn English or as a hobby or something. So we don't see these things that's like, oh my God, travel has opened up and therefore Duolingo is exploding. We just haven't seen much of that. We do ask when people sign up why they're using Duolingo and some fraction tell us they're using it for travel. I don't know the number off the top of my head. I'm going to assume it's something like 15% tell us that they're using it for travel. But it's just not something that we look too much to. In terms of your second question about virality, so far we have experimented with a few social media platforms to get our word out, by the way. And this is mainly organic. We don't pay for this stuff. We just make really good content. TikTok has been really good for us. Not just TikTok in the US, we've actually localized our TikTok to Portuguese and Spanish and other languages. So one of the things that we're excited about is TikTok accounts in the other languages. They're actually growing really fast and it's actually amazing how, by the way, this is this amazing thing about Brazil. Anything you do with social in Brazil does well. And so as soon as we put, you know, TikTok in Portuguese, it just kind of went nuts. And if you if you go see those videos, they're amazing. We just had a duo dressed up as Wednesday from the Netflix show Wednesday. And it, you know, it got I don't know how many 10 million views or something. So we're excited about platforms like TikTok and actually also Twitter. We're doing pretty well on Twitter. Now, when you ask about virality in general, another thing that we're doing is we're just adding a lot more things inside the product. This is not social media or anything. Inside the product, we get more people to share things. And we now have a team behind it. It's a really good team too. And they are able to get a lot more people to share things. One of the main things that people share, there's now a way to share sentences much more easily. One of the main thing people share are weird sentences that they see on Duolingo. So some of the courses, for one reason or another, have very weird sentences. You know, I don't know if I can think of one of them. Like the German course has something like, the sentence says something like, right next to the bed lay the body of the husband or something like really weird stuff that people share. And that, you know, that just gets a lot of people. So we're working on getting people to share like that. And it's working out pretty well.

Great. Thank you.

I want to say Matt probably wrote that question about the, that sentence about the husband, but okay.

All right. Next question comes from Mario Liu of Barclays.

Great. Thanks for taking the question. So the first one's on app store fees. I'm just curious your thought on the recent trend of apps bypassing the app store. For example, games like Fortnite and apps like Spotify and Netflix have done this for a while. But more recently, more traditional mobile games are implementing a direct-to-consumer payment method. I'm just curious your thoughts on any initiatives that you guys have on your end.

We're not currently working on that. For us, we love the app stores. Obviously, it's hard to say that we wouldn't love it if they decreased their fees. Of course, we would. But we do really well with the app stores. They're an amazing distribution mechanism. And the thing when you go off app stores is that it's harder to distribute your product, and also it adds quite a bit of friction. One of the amazing things about the app stores is that people already have the credit card in there, and they just have to tap once, and it gets to there. So you may be able to lower your fees, but you add so much friction to your users. But it's not clear to us that we would make that much more money. It's something that we're always thinking about and may eventually do it, but it's not something that we're currently working on too much.

Yeah, and remember, Mario, we did get a quite significant bump from Google lowering their App Store fees last year, so...

Got it. Helpful. And then second one is just on kind of changes to the Duolingo app itself. I believe, you know, past few quarters, you talked about the change to the single learning track being at parity. Any updates to that? And just in general, how do you balance between kind of optimizing for learning and versus having a more casual app that kind of attracts the masses? So I think just user feedback could be like a loud minority, but the removal of like things like oral prompts or type answers, I believe got some negative feedback. So just want to hear your thoughts there. Thanks.

Mario, you read Reddit. I do. Yeah. So it's, it's a great question about the, the, the, the changes to the app. So we've made, we made some pretty significant changes. We're always making the app better. I mean, this is what we work on. This is what, why we spend so much on R and D we're literally always making the app better. Over the last year, we made this large change to our home screen, going from giving a lot of choice about what to learn next to this linear path. The main reason we did that linear path, by the way, was to teach better. We noticed when we were giving people so much choice, what was going on was a significant fraction of them were just coming in to extend their streak with really easy lessons that were not actually getting them to learn. Whereas now with the linear path, we've encouraged a significantly larger fraction of users to whenever they come to increase their streak, they actually also learn something. So the main reason we did that was actually to teach better and also to simplify our product, which has really helped us. But that was actually to teach better. You know, the way we think of it is. When we're making changes, we look at, we have three things that we're improving. We're improving how well we teach. We're improving how engaging the app is. So basically, how much time people spend on it, how retention, et cetera. And we're improving how well we monetize. And we have large teams behind each one of these kind of group of metrics. And what happens is that each team, for example, there's the monetization team. What they're trying to do is get more people to subscribe. Whenever they run a test to try to get more people to subscribe, what we enforce is that they cannot screw up the other metrics. So yes, you can get more people to subscribe, but you cannot decrease our number of DAUs. You cannot decrease the time people spend learning, or you cannot decrease the learning outcomes. Similarly, when we get the group of people that is dedicated to teach better, We tell them, okay, you can make changes that teach better, but you cannot screw up the monetization or you cannot screw up the user engagement. That's how we balance it. And we found that that works pretty well. And most every change in the app, you can actually trace it down. That change was made by the group or by the team of people that is trying to make us grow faster or make us make more money, et cetera. And so that's how we do it. Hopefully that gives you some color.

Yeah, very helpful. Thank you.

And next question comes from Arvin Ramnani from Piper Sandler.

You're muted, Arvin.

You're still muted. Yeah, I still can't hear you. Oh, sorry. Can you hear me now? Yeah. Yes.

Oh. Perfect. Yeah, so I guess my first question is, you know, among the management team, who has the longest streak in terms of usage? But let me not ask that.

I don't know the answer to that question, but I'm willing to bet it's me. I'm willing to bet it's me, but I don't know the answer to that question.

It's Luis. I mean, we can be pretty sure about that.

All right.

Yeah, yeah. You know, really good metrics with user engagement and, you know, kind of the revenue growth and bookings. But I know there's a whole lot of other metrics you track that beyond what you'll share with us. You know, so can you conceptually, if you're not able to share your hard numbers, able to conceptually share a bit more underneath on some of the metrics that's giving you confidence in kind of the shape of the growth for this year?

Yeah, I mean, I don't know if we can share precise numbers of, you know, there's certain things that we share this stuff that we don't share, but we do track a lot of metrics. In general, as I was saying before, there are three groups of metrics. There is what we call the growth metrics, which is just usually, you know, our entire user base. You know, are they are they using the product more? Do we have more DAUs, et cetera? There is the monetization metrics, which is, you know, how much money we make, basically. And then there's the metrics about how well we teach. In each one of them, we have a ton of metrics. In terms of growth, some of the things that at least I look at, I look at time spent learning. I look at DAU to MAU ratio. I look at resurrection rates, so, you know, kind of number of people that are being resurrected. I look at the retention of resurrected users. I look at the retention of current users. I look at the retention of new users. So that's the type of stuff in monetization. The types of stuff we look at are things like You know, conversion from free to paid, LTV, retention of paying users, daily bookings is something we look at a lot, number of users or fraction of users that have an IAP or do a purchase on an IAP. In learning, we look at a number of things, but one of the main things we look at is difficulty of the content that we're able to give out without scaring users away. So, you know, there's a lot of metrics that we track and, you know, I don't even know all of them off the top of my head.

Yeah, yeah, that's helpful. And then, you know, kind of bookings growth, you know, kind of sitting externally in some sense is a bit of a black box. But, you know, are you able to share like when you project for bookings growth, what are the inputs that go into kind of coming up with like projections for bookings growth? I mean, we don't even know the specific numbers, but just conceptually, what goes into predicting user growth?

Yeah.

We just take a ruler and go up like that. We just take a ruler and go up like that, and it works pretty well. I'm kidding. Matt has a much better answer than that.

Well, you know, maybe not. I mean, the main thing to think about with bookings growth is that, you know, there's just the two dimensions. There's new bookings growth, new subscribers, and then there's renewals. And so on the subscription side, and then you can add in ads, obviously, and IAP. On the new users, Luis basically talked about how we have a really complicated system model, a Markov model. If you want to read our blog post on our growth model, how we predict users and input into that is new users. And that's a combination of organic growth and marketing spend. So we predict new users that flows into some element of new bookings. And then we're just basically doing cohort math for our cohorts of new users over time to see what we think they will convert into. And then we're adding into that for the subscription business, the renewal cohorts, which we have really good data on at this point. I feel pretty confident about. So you add that together, you get your subscription bookings. Add-in ads and IAP, which, again, are a bit, you know, less detailed. And, you know, the cohorts make a little less sense for that. And then you've got bookings. It's really that simple, Arvind.

Perfect. That's super helpful. Thank you.

Great. Well, that's all we have for questions. So I'm going to turn it back over to Luis.

Just thank you for all the excellent questions. And please, please, I beg you, do your Duolingo lesson.