Q2 2025 Earnings Call Transcript

Good evening, everyone, and welcome to Duolingo's Second Quarter 2025 Earnings Webcast. Today, after market closed, we released this quarter's 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 Co-Founder and CEO; and Matt Skaruppa, our CFO. They'll begin with some brief remarks before opening the call to questions. [Operator Instructions] 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 that we believe to be reasonable as of today, and we have no obligation to update those 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.

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

Hi, everyone, and thanks for joining us today. We had another great quarter: record profitability, strong top line growth and solid performance across all subscription tiers. As a result, we're raising our full year guidance again, while still investing in both our core business and exciting new areas like Chess, Math and Music that we believe will drive long-term growth. All of this brings us one step closer to our mission, which is to develop the best education in the world and make it universally available.

And now we'll take your questions.

We will now move to our question-and-answer session. [Operator Instructions] Our first question comes from Nathan Feather with Morgan Stanley.

Congrats on the strong quarter. Two from my end. First, DAU growth was still really strong, but moderated a touch in 2Q. I guess can you break down the primary drivers behind that and how we should think about the shape of user growth kind of through the year and into the back half?

And then I also want to touch on the Chinese market. Can you provide some color on what you're seeing in that region? Any recent product improvements that are resonating, and when we might see Video Call out there?

Yes. Thank you, Nathan, for your questions. Okay, so for DAUs, we just posted 40% year-over-year growth in Q2, and that's lapping Q2 from last year which was 60% year-over-year growth, which is lapping in turn Q2 of 2023 which was also 60% year-over-year growth. So we've had really tremendous growth over the last several years.

Last time we guided to we were going to say our DAU growth was going to be somewhere between 40% and 45%. And we normally don't guide to DAU growth, but we decided to do that last time because we had a really strong Q1, in particular because of our dead Duo campaign. And also we had a really strong Q2 of last year. So we knew that this was going to be somewhere between 40% and 45%.

We came in at 40%, which is slightly on the lower end of what we thought. Everything is -- we feel very strong about this. The reason we came towards the lower end was because I said some stuff about AI, and this was -- I didn't give enough context. And because of that, we got, particularly in our social media, we got some backlash on it.

And what that did is that the most important thing is we wanted to make our -- the sentiment on our social media became negative. So we wanted to make the sentiment positive. So we stopped posting edgy posts on our social media and we started posting things that we thought would get our sentiment more positive. And that has actually worked.

By now, the sentiment on our social media channels is all very positive. But we still are not posting the extremely edgy things that go -- that are more likely to go viral. So that's probably what had us come in slightly the lower end. I should say, the effect of that was essentially all in the United States.

And when I say United States, that includes Canada and stuff like that. But it's essentially all in the United States, and among young audiences. But this is something that we think is -- that impact is in the past. We typically only guide to DAU whenever there's going to be a big change.

This time, we're not guiding to DAU. So that just should tell you that kind of, at least for next quarter, we're not expecting a big change from where we are now. And your next question was about China. We feel really good about China.

It's our fastest-growing market. We've been growing a lot. We had a really incredible partnership, this time around with Luckin Coffee, where, for a couple of weeks -- Luckin is like their Starbucks. It's essentially everywhere.

For a couple of weeks, a lot of their stores were basically decorated with Duolingo and had Duolingo cups, and there were drinks named after Duolingo and everything. And that was a pretty big boom for us. Our product feels really good in China. The one thing is we do not have Max in China yet.

And that is because of regulations, we cannot use LLMs other than local LLMs. And after you choose a local LLM, which we have, you need approval from the government. And that's completely outside of our control, we don't have one yet, approval from the government. But at some point soon, we'll have Max.

I cannot give you a time line on that because I myself don't know it.

Our next question comes from Alex Sklar from Raymond James.

I wanted to ask about the paid conversion. You spoke to increase on the Super side and good traction on the Max side. Can you update us on where Max stands today? And any 1 or 2 changes that you put into place that drove that particular increase in conversion this quarter?

Yes. So we feel very good about Max and Super. Both are growing and both are growing nicely. The percentage of subscribers that are Max subscribers has gone -- a couple of quarters ago, it was 5%, then last quarter it was 7%, and then in Q2 it was 8%.

So it's been growing. It actually grew a little less than we expected. But part of the reason for that is because Super grew even more. So it's just a fraction between those 2. Super just is kind of performing even better than we expected while Max is performing a little less than we expected.

The reason for Max not growing as fast as Super, or not growing as fast as we expected that, is because for more beginner users -- the main feature for Max is Video Call, and it's something that allows you to practice your conversation. For more beginner users, this feature is just a little too difficult. And so we're going to be working on that, of course. One of the problems for that feature is that, at the moment, it is entirely monolingual, so it is entirely in the language that you're learning.

But when you're just a beginner and you only know like 20 words, it's pretty hard to have a conversation entirely in that language. So one of the things we're going to be experimenting with is having a conversation that is bilingual. So if you're an English speaker learning Spanish, some of it is going to be in English, some of it is going to be in Spanish, to kind of ease you in. So that's the type of stuff we're going to be seeing there.

We're also going to be working on making the conversations more engaging. If you play with Video Call, you will see that now Lily has backgrounds, so she's like in different places and she can talk about that. That's a really good conversation topic. So this -- we're doing a bunch of things to improve that one feature that is the killer feature for Max.

Great color there. And maybe one follow-up, probably for you, Luis. But last quarter you kind of talked about testing, taking payments directly, maybe bypassing the App Store, at least from tests. Can you just update us where those tests stand today and any early learnings so far?

Yes, we're testing it. And there's a couple of things to say about that. So this is on iPhones or an iOS, on iOS in general. At least till the end of the year, we are able to have a web purchase flow, so something that takes you to a website to pay instead of paying through the Apple purchase flow, in the United States.

That is the ruling, not in other countries. We don't know if this ruling is going to stand. So we really only know towards the end of the year for this -- next year. Who knows what will happen?

But so far, the testing shows that we can send people to a web purchase flow, minimally lose bookings -- we do lose some bookings by sending people to an external purchase flow because there's more friction. But it really significantly increases our profit because we don't have to pay. Instead of having to pay Apple, for the first time subscription fee you pay them 30%. In this case, we only pay, whichever provider we're using, like Stripe, we only pay like 2%, I mean, or some small fractions.

So this -- it's good, it's a good change. We have not done the full push to all our users on that. But you'll likely see us do that. I should say the impact on that -- even though we're very happy with that.

But the impact on that, because of GAAP, the impact on that is not going to be felt all that much this year. By the way, all of this is in our guide. It's not going to be felt all that much this year because whenever you get a subscription, the main thing we sell is 12-month subscriptions, you kind of have to amortize this over the 12 months and the rest of this year. By the time we push this out to all our users, it's only going to be about 3 of the 12 months there.

So the impact this year on our finance is not going to be huge. But it is something that we're pretty excited about, especially if it holds past the end of the year.

Thanks for the color. We'll be on the lookout.

Our next question comes from Ralph Schackart from William Blair.

Great. Two questions if I could. I assume you could hear me, Luis?

Yes, Ralph.

Just maybe first, Matt, just on looking at the MAUs, it looked like they declined sequentially. Was that related to the social campaign? And then maybe just a broader question, Luis. Typically, when you roll out new products like Math or Music, you sort of play them down and say it's not going to really impact the business, at least historically, but you called it out in the Shareholder Letter.

So I'm asking. You highlighted Chess as sort of contributing earlier. Maybe kind of speak to what you're seeing with this product versus the other products. And it seems like there's some excitement there.

Could that contribute to the platform earlier perhaps than some of the other products?

Ralph, I'll start with MAU and just give my best Luis impression on MAU, which is, in general, we don't have a team focused on MAU growth. We have a team focused on DAU growth. Because language learning is a daily practice and so we're more focused on that metric. But as you said, MAU growth did come down.

It was a set of factors. And if you look at the trend, I don't think that trend line was all that different than it was kind of in Q1 from Q4, et cetera. So we are not worried about MAU growth and that trend. And we think, if anything, it's following the DAU growth trend.

I should also say, it is an important -- when you look at Q1 versus Q2. In Q1, we had this amazing dead Duo campaign. So the comparison between Q1 and Q2, you're going to see a little bit of a drop from that. And in terms of Math, Music and Chess, yes, we're very excited about -- actually, we're very excited about all 3, Math, Music and Chess. We specifically called out Chess in the Shareholder Letter.

It's just grown a lot. And it's a project that has gone really fast. I mean 1 year ago, exactly 1 year ago, we had not even written a single line of code for Chess in our app, like this project had not started. And within a year -- or less than a year, we launched it and it's there on iPhones now and it's been growing.

And when you restrict only to iPhones and only to English user interface, already Chess has surpassed Math and Music. So we're seeing a lot of demand for that and we're very happy with that. But that also does not mean that we're not excited about Math and Music. I mean you saw -- or maybe you didn't see.

I mean we just acquired a team for Music, and we're super excited about that, that has made some really amazing Music games. So we're very excited about all these subjects. Now in terms of you said we downplay it a lot. The thing that we do is we just we want to be cautious about particularly investors getting very excited about the amount of revenue that these courses are going to provide.

Because at the moment, we're just selling everything under the same subscription and we're not even trying to optimize revenue for Math, Music or even Chess. So we're very excited. We think this is really going to help us grow the TAM because it's going to get way more people to want to use our product. But at the moment, we just don't have much to say in terms of this is going to contribute to a certain percentage of our revenue, et cetera.

We don't have much to say on that. This is going to take a few years for it to be very meaningful.

Our next question comes from Chris Kuntarich from UBS.

I just wanted to go back to Max for a second, and specifically around retention. What are you seeing with some of your earlier larger cohorts as they're coming up for renewal? What are kind of the key drivers here of churn that you're seeing and kind of what are your -- how is this really kind of comparing to what Super churn is at this point?

Yes. No, I'm happy to jump in there. I think it's early -- if you think about the kind of killer feature for Max, it's Video Call with Lily, that feature didn't really start to scale out to the majority of folks until Q3 or Q4 of last year. So we haven't seen those cohorts yet.

The early renewal signs in Max, like I think we said on the last call, look attractive. Relative to Super, again, we think it's too early to kind of really parse that too finely because we haven't seen these cohorts. We'll know more about that in Q3 and Q4. But to just back up just one step, the overall thing we're optimizing for on the platform with Super, Max and these questions around mix is LTV for the platform. And because of Max's price point, the LTV is the highest of any subscription offering we have, and so as we -- as Max gain share as a percentage of subscribers, our LTV is going up.

So I think we'll have more to say on the kind of specifics on the renewal rates as we get more data on it. But in general, we like how Max is growing overall.

Got it. No, that's helpful. Maybe just one follow-up, on gross margin. And just can you help us think about the back half of the year, kind of benefits from AI cost savings versus potentially any of that -- any of the web-based checkout flowing through the gross margin?

Yes. I think I'll take the last one first, I think it's easiest. I don't think the web-based checkout will drive very much change in gross margin in the back half of the year. Just as Luis said, that's going to be an effect that takes time to feather in just given how the accounting works.

So I don't think that will be a big driver. I think the drivers that we saw in Q2, which were we outperformed our expectations on gross margin because AI costs overall did come down, a driver of that, which was lower API calls, token costs, we've got a lot of data now from the first 2 quarters of the year that says that the trend we expected to see, which was lowering of those unit costs, coming down, we think that trend is likely to stay intact. And so that's reflected in the guide as we laid it out. I think the Q2 performance was also helped a little bit by ad pricing.

That remains to be seen over the course of the year.

Our next question comes from Justin Patterson from KeyBanc. [Operator Instructions]

Sorry that took a second. Right there with you, Luis.

I like that. I like that.

Yes. So does Matt from our last fireside together. But I'd like to touch on Energy actually. I thought it was really interesting that you brought up how it's uniquely moved 3 metrics.

It's pretty rare for a feature to do that. So would love to hear about just some of the early learnings from Energy and how you hope to iterate that -- on that more over time. And then maybe thinking just bigger picture in there. If I look at the app today, there's about 4 different modalities for education featured.

So as you consider jumping into some new areas over time, how do you prevent the consumer from getting too confused or overwhelmed by that experience as you're launching the new courses?

No. It makes sense.

Okay. Thank you for asking these questions. These are excellent. Okay.

So Energy, we're very excited about Energy. Just to give context what it is, is it's a different pacing mechanic for free users. So historically, we had this mechanic that we called Hearts. I mean it's basically -- you started with 5 hearts.

If you made a mistake, you lost a heart. And if you run out of hearts, you basically could not continue unless you watch something like a rewarded video or something to gain some hearts. That was the Hearts mechanic. Energy is different.

You start with a larger amount of energy. So you start with like 25 units of energy. And you spend 1 unit every time you do an exercise, whether you got it right or wrong. So we do not -- before we used to penalize you for getting something wrong, now we don't penalize you for getting anything wrong.

But if you get 5 in a row correct, we actually give you energy back, like a random reward back. So what's really nice about it is that, for the average user at least, we've substituted a carrot for a stick. So it used to be the case that every time you made a mistake, you lost something. Now if you don't make mistakes, you gain something.

So that's actually quite rewarding. And what we have seen when we're rolling this out is that this increases revenue, our bookings, and both. It increases daily active users. And it increases the median time spent using the app.

So we're really happy with this. We've been rolling it out. You'll see us -- it's taking some time to roll out and it will continue to take some time. But my sense is that, significantly before the end of the year, we will have switched all of our users from Hearts to Energy, all of our free users, from Hearts to Energy.

This does not affect paid users really. And we're very happy with what this is going to do for our users. And you asked about some subjects being -- you said, well, we now teach 4 different things. We teach Languages, we teach Math, we teach Music and we teach Chess.

How is it not confusing to users? Yes, I mean that's something we think a lot about. And we'll probably add more subjects. By the way, I'm not announcing new subjects.

We are not working on any new subjects at the moment or anything. But we'll probably, at some point, it just stands to reason that we'll probably add more subjects at some point. So yes, this is something we think a lot about. We're going to be working on the multi-subject experience too.

Because we're noticing that a lot of the people that use Duolingo, they're not just learning one thing anymore. They're learning -- it's like they're learning Italian and Chess. And I think we need to do a better job with that. But I think at the moment, we're not seeing a lot of user confusion on that.

But the main thing that we want to work on is just making people, for example, switching from one subject to another much easier, giving rewards for learning multiple subjects and stuff like that.

Our next question comes from Wyatt Swanson from D.A. Davidson.

I just have another quick one on the Energy system. I realize that you're seeing positive changes in DAUs, time spent, subscriber conversion and all that. But I've just observed some feedback from users on social media, Reddit, stuff of that sort, and they don't seem to really like the change. Have you seen any negative impacts to any cohorts or demographics or anything like that as a result of that switch?

Yes. I mean this is something that we knew would happen. Whenever we do a major switch to a mechanic on Duolingo, there's a number of people that don't like the change. One of the things that happens is that Duolingo is a habit-building app.

We build a habit to use Duolingo every single day. And the thing about habits is you want them to be the same every single day. That's what people like. But of course, we would like to continue improving the app.

So there is some change aversion that we see. So that this -- we saw this exactly happen about 2 years ago when we switched our home screen. We used to have a tree and we changed it to this linear path. There was a lot of backlash for that, even though our metrics showed that this was actually good.

In that case, that particular change for switching from a path to a tree was not about revenue, it's about simplifying the app. But our metrics were good. In this case, the metrics are really good, both for daily active users, revenue, median time spent learning. So we listen to the metrics.

We did expect some people would not like it. And one cohort that would not like it is there is a group of people that had gotten really good at, A, not paying, and B, not making many mistakes. So they could use the app for a while, whereas with Energy, you basically get capped. If you're going to use -- you're going to do a lot of lessons and not pay us, you're going to end up getting capped.

This affects only a minority of users, but essentially these are the people that are complaining because they are now -- can't do as many lessons as they did when they had managed to find a way to not make that many mistakes.

Got it. Okay. That makes sense. And then I just had another quick one on active users. It looks like the DAU-to-MAU ratio improved pretty substantially sequentially and we saw that step-down in MAU growth. Was that driven by the MAU step-down, or is it DAUs getting more engaged? Could you kind of just walk us through what happened there?

Yes. It's probably a little bit of both. I mean the reality is if you look at our DAU-to-MAU trend, the trend of that ratio, that has been, I don't know if it's 100% monotonically, but essentially monotonically increasing almost every quarter -- I think it's every quarter actually, for the last several years. I mean a few years ago, it was 20%, and then it just kind of has been creeping up to, at this point, it's something like 37%.

And we like that. I mean the reality is that the healthiest consumer products out there have high DAU-to-MAU ratios. So we like the fact that we are -- that that keeps going up. For this particular quarter, it was a little bit of both.

I mean we increased our retention of DAUs. So the DAU-to-MAU ratio gets better when your DAUs retain better. So we increased our retention of DAUs. That is one of the reasons why that got better.

And also it's the case that MAUs went down a little bit when compared to the previous quarter. But the main reason they went down a little bit when compared to previous quarter is, you got to remember, in Q1, we had this crazy campaign of that dead Duo. That kind of slightly inflated MAUs that may not have been DAUs because it got a lot of people that may not have been very committed to just come in. And so we're kind of past that effect, and this is one of the reasons why the DAU-to- MAU ratio went up.

Yes. And Wyatt, just to put numbers to that, I was looking it up for Ralph's question on the MAU trends, and Q1 went up by about 1.5 points on year-over-year growth rate versus Q4 for MAU growth, and then went down from there to the 24% in Q2. What Luis is saying is that up was higher than it otherwise would have been. And so that otherwise trend probably looks more normalized. So I think that is part of the math.

Our next question comes from Ryan MacDonald from Needham & Company.

Congrats on a great quarter. Maybe to start, Luis, I know one of the goals early on with Max and Video Call was really to continue to try to bring on and attract English learners to the platform. Just curious, as you are seeing sort of Video Call and Max mature over the last nearly a year, are you starting to see that pick up on the non-English -- or the English learners coming to the platform? Or is it more of a mix of sort of upgrades from the existing base?

Yes. We're definitely seeing growth in English learners that is outpacing the growth overall of learners of other languages in particular. So we're very happy with that. We're also seeing the case that people who are learning English are using Video Call more.

Also intermediate learners are using Video Call more, and those are typically English learners. And also in Asia, we're seeing a pickup of not only using Video Call more, but also a slightly higher propensity to buy Max when compared to the rest of the world, because of Video Call. So we're very happy with the early signals. I mean I should say, we're still early in this, but I mean, so far, we're very happy with what we're seeing.

And it's exactly what we expected.

And maybe to follow up on sort of the DAU commentary and sort of the slowdown with the AI comments. One, is there a potential impact where if this goes beyond DAU growth slowdown into actual churn of subscribers and sort of any concerns about sort of a knock-on effect of that as we get to the end of the year? And Luis, not trying to get you in trouble on social media again, but does this change your view in terms of the rate of internal adoption of AI within the company?

On advice of counsel, I'm not saying anything. I'm kidding. Okay. So first of all, you saw what happened with the quarter.

I mean we beat bookings by -- we beat booking pretty healthily. And the rest of what we expect is on our guide. We just don't believe that the effect of this is very material in terms of when you're looking at actual financial metrics. We do expect a little bit of -- if you're to look at kind of what our guide includes, there are some positives, some good things that includes, and there are some things that are kind of not as positive.

So the things that it includes that are positives are Super is doing really well, so that's in there. Energy is another positive. Ads and IAPs are positive. So those are the positives.

Bringing it down are things like Max are -- it's just not growing as fast as we expected. This is what I mentioned already. The Duolingo English Test, we think that the main audience for the Duolingo English Test, the main consumers are international students applying for universities here in the U.S. or in the U.K. And given the macro trends, we're seeing that there's just much fewer people applying to universities internationally because of that.

So the Duolingo English Test, we're going to be -- is lower than expected. And then there's something that we're putting in there, which is about our social media at the moment is not in full force, because we are -- we've recovered sentiment, but we are not taking as many risks because, honestly, we're skittish about it. But I think over the next few weeks, I don't know exactly how many weeks, weeks/months, we're going to be recovering or posting more edgy things that are more likely to go viral. And that does help booking some.

But everything should be in our guide.

Yes. Ryan, I would just round that out for Luis, to kind of remind everyone that the impact of what you're asking about was really concentrated in the U.S. And the U.S., we talk about this on almost every earnings call, how the U.S. grows slower than the average because the rest of the world grows above the average, DAU growth rate. And then the U.S. growth rate decelerated a bit over the course of the quarter.

And now we think that we're past that and it's stable. And once we go back on social media in an edgy way, we expect things to go back. All of that does have an impact, as Luis said, on the guide, and that's all in there. I think I would just point out that we beat by 9% on bookings.

A couple of points of that is FX, so that's just if you mark that down. A couple of points of it was ads. My point is that when you're not doing edgy things on social media, the chance for a viral breakout hit, like a dead Duo, goes down. So the chance for like a real surprise to the upside also goes down.

So that beat should not be carried forward as an expectation.

Our next question comes from Ross Sandler from Barclays.

Great. Luis, so we've seen pretty rapid improvement in model capability and latency -- lower latency from a lot of these AI companies. So as that improves, how does that kind of change your thinking around how you evolve your service to take advantage of those improvements? And the follow-up to that would be, it sounds like the Video Call feature in Max is getting better engagement.

Are there things that you're doing behind the scenes to kind of improve the way that the interaction happens with the Video Call to then make it a better experience to then drive higher Max adoption? Can you just talk about that, please?

Yes. So AI models are getting better. I mean that is happening. In some cases, that helps us.

In some, it kind of doesn't do all that much. It depends on the use case. We have multiple use cases. One of our biggest use cases is just in generation of content.

Our language learning content, improvements in models or latency or all of that doesn't help all that much for a language learning content. It helps some, but it's not all that much. Because the models are already pretty good at language and have been for a while. For example, for generating content for Math, the improvements in the models actually helps because if you remember kind of a year ago, the models simply couldn't do math.

Today the models can do math. So we're able to generate more Math content. In a case like -- in the case of Video Call, latency certainly helps, improvements in latency certainly help. But also improvements in the model, one of the things that really helps us is, whenever a new model comes out, what happens is that the previous one, they just lower the price.

And so that helps us a lot. So maybe that we don't use the latest one, but we are using still the same one but the price just came down. So it helps with that. Now in terms of Video Call, what we're doing, we're doing a number of things to make it more engaging.

I mean for example, we are training our own -- fine-tuning our own models to make it more engaging. And so what you'll see, the types of things you'll see, it may not look all that different than the product when you use it. The one change is Lily now has background. So that looks different.

But most of it, it's not going to look all that different. It's just the conversations are going to flow a lot better and they're going to adapt to your level a lot better. And that, we're seeing basically changes kind of on a weekly basis on that. The other thing that I'll say with Video Call is, early on, we didn't really have a metric that we were optimizing for Video Call.

We just kind of wanted people to use it more. Now we have a really good metric that we're optimizing for, which is average number of words spoken per Max subscriber. And it's a really good metric because we can move it and because it exactly captures what we want people to do, which is to speak more. And ever since we started optimizing that, I think our Video Calls just started getting better and better in the sense that they -- that now the models are starting to learn that it is better to do things to keep you engaged.

So asking more questions, et cetera, to keep you engaged, and also asking you open-ended questions as opposed to yes/no questions to get you to practice more. So that's the type of stuff that we're doing, and I'm very happy with the progress.

Our next question comes from Shweta Khajuria from Wolfe Research.

I guess my -- I have a follow-up to the prior question. So where do you think the product experience is for voice on Duolingo versus perhaps some of the other AI-based voice translations? Because if we look through Reddit, there's some feedback that it's maybe a bit slower. So where are you with that?

And is that a fair comparison? That's the first question. And then second is just on downloads. So I know it's not a metric you report, but did you see any particular trends in the U.S. or abroad on how your ad downloads are tracking?

Yes. In terms of how -- I'm not entirely sure I understand your question. I mean there are translation apps that are -- I mean, you mentioned translation, there are translation apps that are really good for kind of voice-to-voice translation, et cetera. We do teaching.

And in that case, we feel really good about our offering with Video Call. The most important thing is that it is engaging, and we feel really good about that. In terms of downloads, I honestly don't know the answer to that. I don't even look at that.

So I don't know if Matt does, but I don't know.

No. I was just thinking, shoot, I'm sorry, I don't actually know the trend in downloads.

That tells you how much we look at this.

Well, as you may know, intra-quarter there was some growing fear around engagement, not only around DAUs and MAUs, but also downloads. And so if that's not something that you care about, that's fine. And so if I could do a quick follow-up on DAUs. Anything in particular that you saw across geographies on engagement? So how did U.S. trend versus certain other geographies on engagement?

Yes. In terms of -- okay. So our DAUs are growing very nicely, 40% year-over-year. And again that laps a year that was 60%, which laps a year that was 60% also.

So we're very happy with the DAU growth. Not all countries are growing equally. I mean some countries obviously are growing faster than others. The U.S. has been growing below our overall average for a few quarters.

And it has actually kind of have been -- the year-over-year growth of the U.S. has kind of been slowing down over time. We think the main reason for that is because the U.S. is unique when compared to every other country that we operate in. We don't spend any marketing money in the U.S., or historically, we have not spent any marketing money in the U.S. In every other country that we -- at least the ones that are kind of larger enough markets, we actually spend money with performance marketing, with influencers, some brand, et cetera.

In the U.S., because our internal thought was, well, we're growing really nicely in the U.S., historically, we've been growing really nicely in the U.S. -- and it's so expensive to market in the U.S. that we're like, "We're just going to not spend money there and we'll spend money everywhere else." And so we think that that is contributing to kind of the slowdown in growth. And we're comparing it a lot with the situation of Mexico. For a while, we were also not spending at all in Mexico. We were entirely relying on our social media.

And we've noticed that in Mexico, DAU growth -- I mean, it's always been growing, but DAU growth was also slowing down. And it had gotten pretty low at some point. And then we decided to start spending in Mexico. And it's not a large spend.

I mean you see how much spend we have in our filings. We don't spend a lot on marketing. But we started spending a little bit on performance marketing and a little bit of influencers. And that made it so that year-over-year growth in Mexico.

At this point, Mexico is significantly above average, because we spend some amounts. So what we think we're going to be doing in the U.S., you'll see us start spending some in the U.S. Again, we're not going to be spending $100 million in the U.S. or anything like that. These are small amounts.

But we believe that that helps because it just helps you reach different audiences. So that's kind of how we see it in the U.S.

Our next questions come from Bryan Smilek from JPMorgan.

Great. Luis, I guess just to start, a few quarters ago, you had mentioned that north of 2 million daily actives were intermediate or advanced English learners on the platform. Just curious what are the investments that's needed to drive deeper efficacy and just overall broader engagement and adoption of English learners on the platform, just given it is the vast majority of the TAM? And conversely, as well on monetization, Matt, how do you think about overall pricing of Max in some of these international markets as the cost of compute comes down and Max approaches potential gross margin accretion over time?

Yes. I mean English learners are very important. I mean we've been talking about them for a while. And yes, English learners, not just advanced but all English learners, including also beginner English learners, that's the largest TAM.

So we've been working on that. We've been adding -- not only adding, but also improving a lot of our content for English learning. And we're going to continue doing that. Most of our features for learning, we spend a lot of the effort on the English.

And we're seeing that 2 million number is now a lot higher. I don't know if we report on that, but it is now a lot higher than 2 million. And so we're very happy with that progress. I'll let Matt talk about the pricing experimentation.

Yes. So I mean, Bryan, it's a great question because I think it allows us to talk about 2 -- well, 3 concepts. The 3 concepts are LTV optimization, relative pricing of our subscription offerings and then the cost of compute. So we'll take the last one first.

Cost of compute is coming down, as we've talked about, I think is widely expected to continue not just by us. And the good news about that is it gives us options to do more experiments with pricing of Max, to put more Max features that maybe use less compute in different tiers. It gives us options basically. And so we're going to experiment with that over time as those costs come down, being mindful of not only gross margin but ultimately that LTV.

Because again, I just want to reiterate what we're doing with Max and the Family Plan in particular, people ask ARPU and bookings, and those things are important, but what we're trying to do is optimize LTV. And so the pricing of Max not only matters about the cost of compute and its gross margin accretion or dilution; it matters on how does it help us relative to our other tiers. So one of the things Luis said was it was growing a little slower than we expected. And that was partially offset because Super experiments were growing faster than we expected.

And again, that is not independent. Like when you show a Max price and a Super price, you get some relative comparative value, math going on in the consumer's head. So this is all a long-winded way of introducing 3 concepts just to say that, as compute comes down, we have now more options to experiment. Experimenting is our sweet spot.

And so I would expect us to run some experiments around relative pricing for Max and Super, for Family Plan. And geographically, again, if costs come way down, it does open up a couple of really interesting markets for us that right now we're not really offering Max in. And so that could be interesting down the line.

Our next question comes from Mark Mahaney from Evercore.

All right. Let me throw 2 questions. One, Matt, you talked about the pricing on Super. And so just bring us up to date.

I know you did some experimentation with Super pricing in the March quarter. I think you rolled it out globally. So just talk about what kind of response you saw to that. And then, Luis, I want to ask you a question, and maybe it's a little bit rude but I'll ask it to you anyway, which is, what have you drawn, what kind of lessons in terms of leadership lessons have you drawn from what happened in the controversy?

Do you think the messaging was bad? The message was bad? Like how do you learn from that? And how do you improve going forward?

And then I also want to ask you, at the same time, just address other concerns. Is the growth somehow a reflection of maturation or saturation of end markets? Or are there much greater competitive pressures in the market? So I'm throwing a lot by you, Luis, but I know you can answer them.

Yes. Those are good questions for Luis. I will answer the easy one, Mark, on pricing, which is we ran some pricing experiments earlier in the year. The way our pricing experiments work, like I just mentioned, is we're testing volume, price and trying to calculate and get a sense of LTV, although it's not perfect.

And they were beneficial to bookings. They increased bookings. So we raised prices. And that had a small impact.

It wasn't a very large part of the movement you saw in Q2. And just to point out that our ARPU has gone up really nicely. I think Q2 ARPU, I think it was up around 5% or 6%. Most of that didn't come from this price change, right? It either came from FX or plan mix shift to higher-priced plans.

And just again, I can't control FX, but what we can try to control is more Family Plan and Max over time. That will be the larger driver of ARPU, not price point increases. And now over to Luis for the other questions.

Yes. So Mark, what I've learned as a leadership is just don't post on LinkedIn. I'm kidding. Look, I think ultimately, I did not give enough context on our post.

Internally, this was -- when I sent that e-mail to the company, this was not controversial. I mean we know internally that we've always been, since the beginning of this company, this is many years ago, many years before LLMs were a thing, we have decided that what we're going to do is we're going to teach people with a computer. And that ultimately means we're using AI. And the goal for us to use AI is to teach better and to reach more users and have more content.

That is the goal. And I think I did not give enough context to say that that is the goal. And what people understood from my message, which is not the intention, is that, oh, we just wanted to fire all our employees, which is not what we did and not what we want to do. We love our employees.

So I've learned that I need to be a lot more careful when talking externally versus internally, and give enough context. Sometimes it's just the external world thinks about things very differently than the internals of just us and other tech companies. So that's my sense. In the case of maturation, we're not worried about this.

I mean if you look at our DAU growth, some of our most penetrated markets are actually the ones that are growing fastest. So we don't see that like, oh, we've reached the level of penetration that allows us -- that makes us so that we're going to grow slow everywhere. We don't see that. I mean there are some countries that are growing faster than others, but the penetration is not something we're worried about.

And I just want to remind you, I mean, we have -- there are 2 billion people learning a language in the world. We have about 130 million active users, give or take. And so there's a lot of room there. And now we're also adding other subjects.

I mean there's hundreds of millions of people that are interested or already playing Chess. The same is true for Math, the same is true for Music. So I just don't think that we're anywhere near our full TAM.

Our next question comes from Andrew Boone from Citizens.

I wanted to go back to Max and talk about incrementality. Matt, you've kind of talked about it in a couple of ways in terms of helping for LTV. But how do we think about your ability to actually increase conversion given Max's offering, especially with more advanced learners and some of the testing that you guys have put out that shows it's efficacious, is that the right word?

Yes. That's right.

And then very specifically in terms of the guide and thinking through the numbers, ARPU has continued to go up. Matt, can you break that down a little bit further than just kind of FX and some of the stuff that you talked about? And then how do we think about that going forward in terms of relating it to the guide for the back half of the year?

Luis, do you want to start with the Max, how we think about conversion, or do you want me to jump in on ARPU first?

You can jump in on ARPU.

Yes. So Andrew, I think the way to think about it for the guide on ARPU is that we were up around 6% this quarter. Again, I keep -- I think it's around 5% or 6%. And again, that came from mix shift of plans.

And I don't really think that that ARPU number is -- it's certainly not going back down. I think it's going to stay in that range, consistently low single-digit positive, because we have a good visibility into some of the revenue that came from bookings in the past that flows through, and then we hope to continue to mix shift it up. On the guide, I would say that FX has been a nice tailwind, as you can tell in the report from Q2, right? We had a nice tailwind to bookings from FX.

And that's certainly driving a meaningful part of the guide. The majority or vast majority of the guide for the back half is we have a nice FX tailwind. So I think that's how we're thinking about FX playing out through the guide and then peppering in through ARPU. But that takes more time.

The ARPU impact of FX is spread out over 4 quarters, so.

Yes. And in terms of Max and our different plans, I think the way we think about it, we now have a bunch of different plants to offer people. I mean there's the free plan, of course, but then there's Super, there's Super Family, there's Max, there's Max Family. And we need to -- we're always trying to figure out what is the right plan to offer to the right person or at the right time.

And of course, it is best for us if people go all the way to Max Family. That's kind of what's best for us because...

That's my favorite, everyone to do that.

Yes, that's Matt's favorite. But there is just some users for whom Super is probably a better thing, or Super Family or something. And we're always experimenting about what actually increases platform LTV. And that's the driving factor here.

Our next question comes from Curtis Nagle from Bank of America.

Awesome. Great. Matt, maybe just a few. First, just kind of going back to DAUs. I think the conclusion was you're not expecting a big change from 3Q to 2Q. Could you elaborate on this? Is this on a sequential basis, is it year-over-year, and in line with the 40% in 2Q? Just some clarification on that would be helpful. And then I have a question for Luis.

Yes. So I mean what we're basically telling you is that, in general, we try not and haven't historically guided to DAU. Last quarter we did because we had this amazing in Q1, 49% year-over-year.

51%, no?

Oh, yes. Around 50% DAU growth in Q1. And then we knew, because of that peak from dead Duo and the tough comps Luis already mentioned, that it was going to be in the 40% to 45% range. So we told you that because we didn't want anyone to get surprised. And so when it's a change of that scale and size and there's clear predictability about it, we want to tell you about it.

When there's not something like that, we're not going to opine on the exact numbers. And so that's what Luis mentioned earlier. That you can take it as year-over-year growth rate sequentially, is that framework that we just laid out for you.

Yes. I meant year-over-year growth sequentially, we don't expect a big change.

Okay. That's helpful. And then maybe just going back to the switch from Energy to Hearts and the higher revenue. In terms of what's driving that, Luis, is it that cohort of the high usage, not mistaking users who just were -- didn't want to pay, and they're converting?

Or is there something else going on? And when is the Energy feature fully rolling out? I don't think that I have a picture in mind, so yes, just some thoughts on that would be great.

Yes. What's going on is the following. It's internally we just had a belief, and this is executing on that belief, is that if you use Duolingo a lot and you are able to pay, for example, if you use Duolingo a lot and you pay for Netflix, you should pay us. That is how we see it.

And Energy basically accomplishes that. So it used to be the case that there's the type of person that is always going to pay, never mind. They pay with whatever, they just don't like ads, et cetera. But the pacing mechanic, I mean, Energy bias towards -- if you make a lot of mistakes, you have to pay us, whereas this just biases to, if you use it a lot, it would be good if you paid us.

And so that's what we're seeing. And sorry, what else? Oh, and rollout. We're rolling it out.

It's more than half rolled out on iOS now, as in more than half of daily active users of iOS have Energy. Android is less than half. So Android is behind iOS. I don't know exactly when we'll be done, but it will be a couple of months, give or take, we'll essentially be done.

Our next question comes from Hanyi Cai from CITIC.

It's another strong quarter. Congratulations on the result. And I have this nice notebook, your collaboration with Luckin in China.

Nice. We love that collaboration. It was awesome.

Yes, it was awesome. And I do want to know more about the regional mix that you mentioned on prior questions, that it is you can see the fast-growing country right now is in China. But in China, you haven't rolled out Max. So is that part of the reason why you're thinking that the Max is behind your expectation, because you are expanding new users in a new market, lower penetrated market, and they are not Max users yet?

And my second question is related to your investment, because as we can see, in the first half you have an adjusted EBITDA ratio, if I'm calculating correctly, 29%. And your guidance for the full year is around like 28.5% to 29%. So I want to know more like what you're investing in the next half of the year and if it will be related to new content or it will be related to the new features in AI?

Okay. I'll take the first question, and then, Matt, you can take the EBITDA question. So we're -- like I said, we're very happy with our growth in all of Asia really. Asia is growing -- it's the fastest-growing region.

China was a positive surprise this quarter. It grew faster than we expected. Part of that was the partnership with Luckin. For people who are in the U.S., I don't think -- it's hard to explain the prevalence of Luckin in China.

So that grew faster than expected. Probably some of that has to do with Super growing even faster than Max because of that. My sense is that's probably a small amount. My sense is that the reality is just that Super has been -- we've just been doing a better job with Super than with Max.

And yes, that's my sense.

Yes. And then on the investment side, again, we feel very happy about the fact that we're able to grow so quickly, expand margins and reinvest. In the back half of the year, we're doing what we think is the most important thing for the long-term growth of the business, which is investing back in the products, which is mainly we do a bunch of hiring. We have a bunch of new grads who'll start in Q3. We also are bringing on a group of people who we're really excited about who are going to help us grow our Music road map.

I'm extremely excited about that group of people, and I'm going to go have drinks with them very soon.

Yes. So we're doing those things to invest back in the product. That's a big chunk of it. And then as Luis already mentioned, we're going to spend a small amount of money incrementally on marketing in the back half of the year.

I think the overall thing I would say is if you look at the trend in our guide around EBITDA margin by quarter, the guide lines up very closely with what happened last year in actuality in terms of the shape of that curve. So I think this is kind of more normal course as you'd expect. Last year Q2 was our highest quarterly EBITDA margin, and I think that's what we're implying is going to be the case this year.

I am showing no further questions. This concludes the Q&A section of the call. I would now like to turn the call back to Luis for closing remarks.

Thank you, everyone, for tuning in and thank you to all the analysts for their questions. And we'll see you next time.