Ann Berry (00:00):
Hello everyone. I am Ann Berry and welcome back to After Earnings. Katie is out today, but will be joining us again next week. Today we spoke to Matthew Skaruppa Chief Financial Officer of Duolingo, the world's most downloaded education app. We covered the latest earnings and the company's growing subscriber base, new products on the Duolingo platform and how that little Green Owl mascot came to be. So let's get right into it. So Matt, welcome. Vil common bien. Nu, I feel like you need to bust out all of the languages here. I've got to start by asking you how many languages do you speak?
Matt Skaruppa (00:36):
I probably speak 1.1 languages. Yeah, I have 170 some day streak on Spanish, but I'll give myself a little bit of credit for it, but not too much.
Ann Berry (00:46):
And you're learning that on Duolingo?
Matt Skaruppa (00:48):
Yep, that's right.
Ann Berry (00:49):
Well, Duolingo is the world's most downloaded education app and a leader in language learning. Matt, the company's 13 years old this year. It's been around for a while yet still pretty young and innovating in this world of online education. Give us a brief overview, if you don't mind, of Duolingo journey. How's the company evolved over the years and since you've joined especially?
Matt Skaruppa (01:11):
Yeah, you got all that right. So it was founded in 2011 and since then we've grown incredibly, so much so that in this most recent quarter we passed a hundred million monthly active users and 34 million daily active users for the most downloaded and top grossing language learning app there is. That's in service of our mission, which is to build the best education in the world and making universally available. And that mission is very broad, meaning that the users of Duolingo span from recently resettled refugees all the way to the world's rich people. And while we've been doing that and building that business, we've also become the category leader in language learning and synonymous with it and that means penetrated the zeitgeist. Last year our ding was featured in the Barbie movie. We've got multiple SNL appearances to our name, and so we continue to grow really nicely along those 13 years. And since I've joined through word of mouth growth, people telling their friends that it's a great fun and effective app, and that's really the journey that we're on is we're constantly experimenting with and innovating in ways to make learning a language more fun and engaging because we find that's the hardest part. If we can keep you coming back over time, you'll learn a language and have a lot of fun doing it and tell your friends.
Ann Berry (02:28):
Matt, can I ask you a slightly tough question out of the gate, which is this sort of existential question around whether language learning needs to exist, and here's the sort of parallel I'd throw out there. If you think about weight loss, it used to be exercise hard, maybe do Weight Watchers and now we've got the injectables of the world shortcutting. That process for people with the likes of Google Translate able to simultaneously translate human language. Do people need to learn languages anymore? Which is a long way of saying does Duolingo need to exist?
Matt Skaruppa (03:00):
Yeah, absolutely we do and I'm excited about the future because those parallels don't quite apply to us. So the most important thing to remember is that there's a lot of reasons people give for learning a language. When we ask our users, they say they're using it for economic advancement, for school, for an upcoming trip and travel all of these reasons, but it boils down to our users and we think most of the people in the world learning language are ultimately learning language to build connection. And when they use Duolingo, they're also feeling better about themselves, bettering themselves and feeling better about how they're spending their time on their phone. So for all of those reasons, we think that people are going to want to connect in the future as well. Plus there's some other facts. You've been able to learn a language without an app like Duolingo, since printed books have come into existence, you've always been able to pull up a Spanish to English or English to Spanish textbook and figure that out yourself. The problem isn't that it's hard to do that, it's that you need to stay motivated and stay engaged and that's what we feel like we figured out. And on the translation side, you're absolutely right, Google translate and these other translate rules have been, they've been making a ton of progress, but they've been really, really good for about 10 years. And over those 10 years, we've basically built almost our entire business. And so we feel really good about the prospects for us and people learning language into the future.
Ann Berry (04:28):
Let's talk Matt about the way in which the technology duo Lingo has developed, has changed the way that people learn. And specifically with respect to how you guys are innovating in using AI in that language journey. Talk to us about the user experience there.
Matt Skaruppa (04:43):
AI is an amazing tool for us. When Luis founded Duolingo in many ways, he wanted to make our app on your phone as effective as teaching you a language, as interacting with a human tutor. And we think AI will ultimately allow us to get closer and closer to that, to scale our high quality education and share it with everyone in the world because AI helps us replicate what a good teacher does. A good teacher helps you learn material, stay engaged, know where your weaknesses are, where your gaps are so that you can focus on those things and get better. And that's how we plan to use AI in our learning app. We use it for placement, so figuring out where you need to go to learn more personalization, making your lessons just the right amount of difficulty that it keeps you learning but keeps you coming back. And things like interactive conversational experiences, we use it to create speech of our characters and we use it for our notifications, which are quite famous and infamous for their passive aggressivity. So we use it all over the place and we think that it's going to continue to help us and be a tailwind us. And with the advent of generative ai, we've now incorporated that into our most premium subscription dual Ando Max, and we think that that has a ton of potential and room to run.
Ann Berry (06:10):
Let's talk about some of your characters. Matt, before we dig into the numbers, let's talk about Lily, one of the characters. You've got a lot of coverage on your earnings call. Talk to us about what she's doing.
Matt Skaruppa (06:19):
Oh, right now she's probably just being angry at someone and not really telling them to their face that she is. That's what Lily's doing right now. Lily is just an example of our characters and the universe that we've created. Again, it's all in service of bringing people back to the app and making it fun. So when you're learning a language and you're interacting with Lily who is sardonic and sarcastic and just all of the things Lily is, that's just way more engaging than if she weren't there. My favorite character is all staff the bear. It's kind of a grumpy bear and kind of associate with that, so it's just a fun way for people to interact with the app and make sure they keep coming back and building the streaks.
Ann Berry (07:00):
Let's talk a little bit too about some of the, I think misconceptions about Duolingo. Matt, when we look at your user base, you are listed in the US, right? You, US equity, but English is one of the most popular languages being learned on Duolingo. Tell us about where your users are actually geographically located and how that's changed over time.
Matt Skaruppa (07:20):
It's a great question. The user base does vary. We have users in every country, almost every country in the world, and you're absolutely right that a lot of them are learning English. We think that we have a lot of potential to grow our English learners because the vast majority of the people, as you say around the world, you can various estimates, but probably a billion and a half people learning English around the world and we have a very, very small share of them, no matter how many currently use our app. So we think there's a ton of ability to grow our app in English learning countries, which is to say most countries in the world by making our English content and courses even better for those users, for those folks. And so I would expect that to be a big part of our growth story over the next five years because as we've said in our shareholder letters this year, and Luis says it whenever he's out speaking in public as well, it's a strategic priority for us is to continue to improve how we teach English. And that's why we launched a course this year that didn't require translation from one language to another. It's a way to learn English from English because that allows users who aren't in a country with a language pair that we teach to learn English and it allows us to put in place more advanced content so folks who've reached the end of the normal course on Duolingo can even advance their content more. So feel very excited about the potential growth in English learners around the world.
Ann Berry (09:00):
Let's unpack that in terms of numbers, Matt, and link that to your recent earnings results. You guys did talk about surpassing a hundred million monthly active users, 8 million paying subscribers. Let's compare that to only three years ago when you went public from the time of your IPO 38 million monthly averages then just under 2 million subscribers then. So that's nearly a fourfold increase in your subscriber base in a relatively short period of time. Talk to us about how you achieved that.
Matt Skaruppa (09:28):
Yeah, it is quite extraordinary performance and part of the growth has come from what we see is just us being early in the market when we went public, part of the investor questions were all as they often are about how big is the market? And we would continually show up and say it's billions of people and I think now we've proven to folks that it is a very large market and we can grow really rapidly into it. The way we do that is primarily through what we've talked about in the course of this conversation, making the app more engaging. How do we do that? We run hundreds of AB tests or experiments where we segment our users, give some portion of them a change in the app and the other portion we leave the app the same and we see if it drives more engagement, more use.
(10:21)
And if it does, we roll out that change more broadly and if it doesn't, we don't. So it's hard to describe exactly what one experiment that drove it, but it's the relentless innovation along the lines of that experimentation that drives tons of incremental gains over the course of time and drives our user base higher. The other core way we do it is we have always been an organic growth story, which means that the app is really fun. People like using it, they like talking about Lilly and they tell their friends and when they tell their friends, their friends use the app and we grow by word of mouth conversation. We've been able to supplement that with a really innovative social first media strategy, which is through content that we create. We attach dual lingo in some way to the zeitgeist, to some cultural moment, and we put it on TikTok or Instagram reels or YouTube shorts and have people talking about Duolingo in the context of what's going on in the brighter world without trying to sell Duolingo. None of those advertisements say, download our app or buy Duolingo. And so those two things together, that word of mouth growth and then this social first strategy has really unlocked just the extraordinary user growth. And then the numbers bear it out like you just referenced,
Ann Berry (11:47):
I'm having flashbacks, Matt to your green owl, the Duolingo mascot turning up on the red carpet. I think it was the Barbie premier. I mean, I've got to ask you this, not since the Geico gecko has a little green animal captured the imagination as a company mascot coming. How did you guys land on the green? Now you got to give us
Matt Skaruppa (12:08):
That. Oh, I'm happy to give you that story because it's fantastic. Well, first let's start with the color and I like how you framed it. It's the first green little green animal that's very funny. The color is green. And it started because when they were picking the colors back in 2011 for Duolingo, it was a small team. Then Luis, our co-founder and CEO and Severn, our other co-founder, and I assumed someone else in the room was talking and Luis said, well, what color should our colors be? And Severn said, I don't really care, but just as long as it's not green. And Luis said, well, green it is. And so that was how it became green, and then owl is associated with knowledge and learning throughout the world and so thus was born a green owl, but that again is not all of it. Then the owl becomes oddly passive aggressive over time because we ran an experiment that said that people like unhinged notifications or passive aggressive notifications such as we see these lessons don't seem to be working we'll stop sending notifications and that really gets people back into the app. And so then a passive aggressive unhinged owl was born.
Ann Berry (13:23):
Well, I'm not going to be passive aggressive in my next question, Matt, so I've given you fair wording. The numbers that you guys reported in your earnings cool, were very impressive. Your share prices responded in a really positive way since then, but when you look at some of the street research on you, I took a look at the Goldman Sachs report, upgraded duo lingo from Sell to Neutral, for example. Folks are buying into the idea that you can do something very special with ai. They're not completely there yet in terms of your monetization strategy. So what would you say to them in terms of your ad revenue plan? What would you say to them in terms of other ways that you guys are going to continue to build on your EBITDA margin trajectory?
Matt Skaruppa (14:02):
We have a lot of room to run, and so I think those reports are highlighting a lot of the things that we are highlighting in our shareholder communications and those things haven't really changed all that much At the beginning of this year, in our first shareholder letter, we said that our growth for monetization in particular was going to come from three things in this order. They were going to come from just continuing to innovate and expand on our core mechanics to drive free to pay conversion. What I mean by that is we have over 90% of the people who use Duolingo don't pay us a subscription fee.
Ann Berry (14:37):
I'm one of them, by the way.
Matt Skaruppa (14:38):
Well, can I use this moment to suggest that you subscribe? You can become our 8000000th and one subscriber. Got it. Because people get value out of it. And so we find ways to show that value and that's our experiments and we drive increased free to paid conversion over time. We think there's tons of room to do that, and we have two levers for that. You grow users which are growing nicely and then you convert more of them to paid. That's going to continue to be our core monetization strategy for some time. To that, we've added two really exciting vectors. The first one is the family plan. So if you don't want to personally subscribe, maybe you and some friends can join subscribers at the same time because people love the family plan and they join it with friends and family and it keeps them motivated, engaged in the app.
(15:24)
And that's been a really important growth driver for monetization over the past couple of years, and it's now up to 20% of our subscribers are on a family plan. And then the third thing is this AI max or AI tier called dual and Go Max, which we think is pretty exciting and we've just now started rolling it out more broadly around the world, so we will have more data for investors and for analysts over the coming six to 12 months on just how effective that is at driving monetization. We're personally excited and hopeful about it in particular because as we talked about in this conversation, one of the things we're focused on as English learners, a lot of people around the world, English learners and others want to practice conversation, and the AI tier really enables that in a way that we haven't enabled it before. So we're excited about all of those ways to drive the top line forward for quite some time.
Ann Berry (16:20):
Matt, I was really fascinated to read in preparing for this in your 10 K in the annual report that as of December 23rd, more than 4,000 higher education programs around the world actually accept the Duolingo English test results as proof of language proficiency for international student admissions, and these include for top undergraduate programs in the US like Yale, Stanford, MIT, and I feel as though this was a sort of a nugget information that is not only testimony to the acceptance of Duolingo ISS teaching, but is that something that could be monetized is an additional revenue stream we should look out
Matt Skaruppa (16:55):
For? Well, no, it's a great question and I have to say that I am incredibly impressed that you read the 10 k. I think you're the one then. I'm the one that's fantastic. Thank you for doing that. That's great. It's a lot of work and we appreciate you doing that. As to the DET, yes, it is a revenue stream now. It's grown incredibly over the past several years. It's grown in the order of 30 to 40 x since pre covid, and part of that is because it's an incredible product that offers amazing access around the world to people who want to prove their English proficiency. It's a high stakes test. They take it so that they can show universities around the world that they speak English well enough to go to university, and so we've been able to build this incredible technology where they can take it on their laptop or their computer without having to go into a testing center like they used to have to go into.
(17:48)
And because it's built with technology, we're able to offer it at a much lower price to further expand the number of people around the world who can take this test. And so we feel really proud about that. It's certainly mission aligned and it's providing revenue today, but there's also a bigger strategic reason we do it, which is we want to be known as the one-stop shop for language learning. We want to teach you language and we want to help you show everyone what you know to be the standard for how people communicate about their language proficiency, and the DET is one way that we're doing that and by showing students, learners, potential users, current users around the world, that you can use Duolingo to learn a language and that you can take the DET to prove your English proficiency. We think that's a really interesting strategic plan for those two products that will take time to work together, but it's a fascinating growth avenue for us over time. I
Ann Berry (18:46):
Can't let you go, Matt, without acknowledging you've got a big date coming up for the company, September 24th. Duo Con, give us the highlights what's going to be happening at Duo Con and any preview. Feel free to share with us.
Matt Skaruppa (18:59):
Okay. Well, one thing we are excited about revealing is a new feature we've built to help learn is practice conversations with ai. It's really going to help improve their speaking and listening skills, which are the two hardest parts of language learning that we get feedback on. We're also going to share some updates to music and math of course, but I can't say much more than that. I'm sorry. You'll have to tune in to find
Ann Berry (19:23):
Out going to have two music and math, two verticals. I know that you are moving into in Duolingo building on that core language capability mats. I can't wait to hear more about it. Thank you so much for joining.
Matt Skaruppa (19:34):
Thank you.
Ann Berry (19:34):
A lot covered there. To understand how Duolingo fueled its rapid growth to a hundred million users, of which about 8% are actually subscribing, still a little bit of room to grow there and seeing a lot of growth, especially in English language learners overseas. One of the things that struck me there was how Duolingo is using technology to change the English language proficiency testing landscape so that applicants wherever in the world they may be, get to test and show their proficiency for some of the best schools in the world. Also talked a lot about the benefits of learning a language. While Duolingo does look at AI and thinks about how to use it, doesn't feel that they've threatened by AI to people's desire to learn a language. Instead focusing on the fact that from their perspective at least people want to learn a language because of self-confidence, sense of accomplishment, maybe a way to learn something new, a new skill with family and friends.
(20:30)
Instead of that focusing on how AI can be used and incorporated into their product to make the language learning process a lot more fun. The questions still out there on the street though, is how this translates into greater revenue and into greater margin. Thanks for listening. My name is Ann Berry, and this was After Earnings the show brought to you by Morning Brew and Stakeholder Labs. Every week we bring you up close and personal with the executives behind the world's most interesting companies. Take a look at our par shows to hear from c-suite execs from companies like Carver, elf Beauty monday.com, ServiceNow tool rate, and dozens more. You can sign up for alerts@afterearnings.com. See you next time.
