Earnings Call Transcript - DUOL Q3 2022

Operator, Operator

Good afternoon and welcome to Duolingo's Third Quarter 2022 Earnings Webcast. All attendees are in a listen-only mode. Today after market close, we released our quarterly shareholder letter with our Q3 results and commentary 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; Matt Skaruppa, our CFO. They'll begin with some brief remarks before opening the call to questions. Please note that this event is being recorded. Just a reminder that we will 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 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. And 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, as a substitute for, or superior to our GAAP results, and we encourage you to consider all measures when analyzing our performance. And with that, I will turn the call over to Luis.

Luis von Ahn, CEO

Thank you, Debbie, and welcome, everyone. I'm pleased to report that we delivered another strong quarter, continuing the momentum we've seen all year. We saw accelerating user growth with daily active users increasing 51% year-over-year. We also saw bookings grow 41% year-over-year, which came from growth in conversion year-over-year and from steady retention rates. We're not seeing any signs of consumer softness in our subscription metrics, and as a result, we're raising our full year guidance again. I want to spend a little more time talking about our user growth because it's so important for our business. Daily and monthly active users continue to accelerate for the fifth quarter in a row, reaching all-time highs in this third quarter. Of course, we can't expect this acceleration to go on forever, but the trend this year is evidence that our focus on organic growth, coupled with modest and efficient marketing spend is an effective strategy. This is why we continue to invest in R&D to make our products even more fun and engaging, which is what drives word-of-mouth growth. And our strong user growth this year will also help drive bookings growth in the future because we have a great free product without a paywall. A good portion of the learners that have joined us this year will convert to paying subscribers in the coming quarters, providing a tailwind for subscription bookings. As to other parts of our business, you all know that the digital advertising market has faced headwinds this quarter. And while this impacted our ad revenue, the overall impact to our business has been small because ad monetization isn't a major focus for us. Rather than actively seeking to grow this revenue stream, ads have served more of a strategic purpose for us, which is to help give learners a reason to convert to paying subscribers. On the other hand, in-app purchase revenue is a priority for us as we believe it's a bigger opportunity than ad revenue. Today, IAPs or in-app purchases only make up about 5% of revenues, up from 3% last year. But we believe we have plenty of room to increase this as we experiment with new features that encourage learners to make à la carte in-app purchases. Overall, we continue to maintain our financial discipline and manage our costs prudently. While our headcount continues to grow, we have never gone overboard on hiring and because of that, we don't have to implement cost controls like layoffs or hiring freezes in order to achieve profitability. As I reflect on 2022, it's been a stellar three quarters for our business even as the macro situation has gotten more uncertain. And the fourth quarter is a busy and fun quarter for us. We have just launched our new home screen to most users, launched our new Math app, and we launched our New Year's promotion in late December. I'm excited about these efforts and look forward to all the energy and innovation that our new year brings. And with that, I'll turn it over to Matt to talk about our financial outlook.

Matthew Skaruppa, CFO

Thanks, Luis. We had another exceptional quarter, outperforming our expectations on the topline and on profitability. And given our outperformance, we are raising our full year guidance. During the third quarter, we delivered total bookings growth of 41% year-over-year. And as a reminder, over half of our revenue comes from outside the US. So, on a constant currency basis, bookings growth would have been nearly 50%. As to our guidance, for Q4 2022, we are guiding to $112 million to $115 million in total bookings, $98 million to $101 million in revenue and an adjusted EBITDA of negative $3 million to breakeven. For the full year 2022, we are increasing our guidance to $414 million to $417 million in total bookings, $364 million to $367 million in revenue and an adjusted EBITDA of positive $7 million to $10 million. Our full year bookings guidance reflects 41% to 42% year-over-year growth, up from the 37% to 39% year-over-year growth we guided to on our last earnings call. Our updated guidance assumes current foreign exchange rates and note that every 1% increase in the value of the dollar versus our basket of currencies has about a $0.5 million impact on bookings in the final quarter of the year. As Luis mentioned above, we continue to be disciplined in how we manage our expenses. In the fourth quarter, we expect non-GAAP R&D will increase as a percentage of revenue as we continue to invest in making our products more fun, engaging, and effective. Our non-GAAP sales and marketing expense as a percentage of revenue is expected to increase slightly and non-GAAP G&A should stay roughly flat. For the full year, we expect to achieve approximately two to three points of operating leverage compared to last year. We ended Q3 with approximately 47.6 million fully diluted shares outstanding using the average Q3 closing price, and we expect to end the year with approximately 3% dilution from equity issued to employees. We will provide our full year 2023 guidance on our fourth quarter earnings call. But in the meantime, I'd like to remind everyone that we believe we are still early in our monetization efforts and believe we have strong topline growth ahead of us. We will continue to invest in R&D to drive user growth and monetization and we will invest more in early-stage efforts like the Duolingo English Test, Duolingo ABC, and Duolingo Math. But even as we do that, we will stay focused on making measurable progress each year to our long-term profitability target of 30% to 35% adjusted EBITDA margins. And with that, I'll turn it back to Luis.

Luis von Ahn, CEO

Before we get into Q&A, I'd like to thank the entire team who continue to deliver excellence in everything they do, creating engaging apps that are fun and effective, helping our learners reach their goals and converting more subscribers who ultimately support our mission. And now, we would be happy to take your questions. I'll turn it back to Debbie to manage the queue.

Operator, Operator

Thanks, Luis. The first question comes from Andrew Boone at JMP Securities. Go ahead, Andrew.

Andrew Boone, Analyst

Hi guys. Thanks much for taking my question. I'd like to go to localized pricing. Bookings on our numbers was down 16% year-over-year bookings per sub, sorry, it was down 16% year-over-year. Can you just break that out versus FX versus the shift to localized pricing? And then just update us in terms of what you guys are seeing as you roll that out in terms of conversion benefits? And then secondly, as we think about profitability going forward, Matt, you mentioned this in your remarks in terms of driving towards those long-term margins. Is there any way you can help us think about that though is just there's been a greater shift towards a focused profitability, how you guys are thinking about just expanding margins and more of a steady cadence there? Thanks so much.

Luis von Ahn, CEO

Sure. Yes. So on your first question on regional pricing, just to remind everyone, we rolled out localized pricing starting last year, but really more broadly in Q2 of this year because we saw it as a first step towards better international monetization, getting the pricing more aligned with the purchasing power in the local markets. And when we did that, we were testing that thoroughly for a long period of time to make sure that the net impact of lowering the price was an increase in bookings and ultimately an increase in lifetime value of those subscribers. And we feel confident when we roll those out, and that was true. So, while that probably has an impact on our preferred metric of pricing, which is revenue per subscriber, not bookings, the ultimate impact will be a bigger LTV over time. This past quarter, to your point, our bookings per quarter and then flowing through to the revenue was impacted by FX. So, that was another headwind to revenue per subscriber. So, on that, we feel confident that we're making the right choices for the long-term LTV of the business even if pricing goes down in any particular quarter. As to your second point around profitability, the good news is it's actually not a shift in how we run the business. The business has forever been run disciplined so that we weren't burning through cash and so there really is no change. The fact of the matter is we're going to continue to increase revenue faster than expenses. That operating leverage will flow through to the bottom line and we will become more profitable over time.

Andrew Boone, Analyst

Thank you.

Operator, Operator

Thanks Andrew. And your next question comes from Ralph Schackart at William Blair.

Ralph Schackart, Analyst

Good evening. Thanks for taking the question. First question on macro, Luis, I know you said you haven't seen it or at least broadly, but just curious if you're seeing it even on the edges or any small signals. And I guess, maybe give us a sense of sort of the durability in the use case for the product that might be able to continue to help it grow. Should there be stiffening macro headwinds? And then I have a follow-up. Thanks.

Luis von Ahn, CEO

Yes, we are aware of the macro environment. We have been monitoring our subscriptions product and so far, we haven't observed any weaknesses in the numbers, even when looking at geographic trends. While we have noticed some minor changes in ad revenue, it remains a small aspect for us. Our focus is primarily on our subscription product, and we have not detected any signs of softness. We feel confident about our performance this year; we've seen strong user growth, which typically translates into substantial bookings growth in the upcoming quarters. Everything seems positive at the moment. That said, I want to acknowledge that we have not experienced a major recession as a company, so I can't predict what may happen in such an event, but for now, we are not seeing any signs of weakness.

Ralph Schackart, Analyst

Great. And then in terms of the in-app purchases, it seems like you're having some success there with, I think, Gems, you called out in the shareholder letter. Maybe give us a sense, is this sort of an added focus for the company? Are you merchandising more? Is this just Gems just sort of an exceptional product? Just give us a sense that would be helpful. Thank you.

Luis von Ahn, CEO

Yes, that's a great question. We are putting more effort into in-app purchases. Recently, we formed a team dedicated to this area. Currently, in-app purchases account for about 5% of our revenues. Some people question how much larger this could grow within our revenue stream, and honestly, I can't provide a specific answer. However, looking at similar companies, such as Tinder, which derives around 30% of its revenue from in-app purchases, we believe there is significant potential for growth from our current 5%. Our primary strategy for in-app purchases involves the Gem economy, a virtual currency for Duolingo. We plan to develop more features that encourage users to utilize their Gems, particularly through gamified elements, and you will see an increase in these features over the next several years.

Ralph Schackart, Analyst

Great. Thanks, Luis. Appreciate it.

Luis von Ahn, CEO

Thank you.

Operator, Operator

Thanks Ralph. And your next question comes from Ryan MacDonald at Needham.

Ryan MacDonald, Analyst

Hi. Thanks for taking my question and congrats on a nice quarter here. I want to start international. Obviously, that's been a big focal point for the business earlier this year we entered China. But I thought it was interesting as well that at Duocon, you talked about sort of two new launches, one Cantonese for Mandarin speakers and then English for Bengali speakers, which really unlocks two large learner populations in India and China. So, just curious what progress you're seeing internationally in the quarter and maybe how those new languages really drove that business or what's happening there?

Luis von Ahn, CEO

Thank you for the question, as this is an area where we are putting in significant effort. To remind everyone, we are primarily a subscription-based business, with about half of our revenue coming from English-speaking countries like the US and UK. We believe there is substantial potential for international growth. In the offline language learning market, most spending occurs internationally, especially for learning English. Our approach differs since we operate online as an app, and we still see significant revenue from the US and UK, while offline spending is predominantly international. We view this as a significant opportunity and will focus on it in the coming quarters. We are actively adding courses aimed at teaching English to various populations and are also expanding these courses to cater to more advanced users. We are dedicating considerable effort to this. In-app purchases will support us as certain regions prefer alternative payment methods over subscriptions, making one-time payments advantageous. Overall, I want to emphasize that this is a major focus for us, and we will continue to work on it for the next several years.

Ryan MacDonald, Analyst

That's really helpful. And maybe then on marketing and advertising campaigns, this is an area where you've been really efficient. It was great to see the nice progress you made off the Game of Thrones collaboration. But there's a major sporting event coming up at the end of the month that brings millions of people together from all different languages. It seems like a potential natural opportunity for Duolingo to maybe capitalize on that. Just curious, are you doing anything around this event? And perhaps previously when we look at Olympics or other major soccer tournaments, like have you seen sort of that as a catalyst to drive more learners to the platform? Thanks.

Luis von Ahn, CEO

Yes, it's a great question. We definitely have a lot of plans, particularly for our social media. If you've been following us, you know we're quite effective there and really connect with our audience. We have many initiatives planned, including our Mascot Duo engaging in fun activities on soccer fields. We are not planning to sponsor the entire World Cup, as we believe that wouldn’t be a very efficient marketing strategy. However, we think we can take advantage of this opportunity. We are also creating ways for people to send cheers or playful insults to teams in various languages. We have marketing campaigns like that on social media, which I find pretty exciting.

Ryan MacDonald, Analyst

Sounds great. Well congrats again. Thanks for the questions.

Operator, Operator

Thanks Ryan. And the next question comes from Mario Lu at Barclays.

Mario Lu, Analyst

Great. Thanks for taking questions. The first one is on in-app purchases. As you continue to build out these new features like Match Madness, how do you strike a balance between optimizing for learning efficiency and monetization?

Luis von Ahn, CEO

That's a great question. For every feature we develop, we focus on three key aspects: engagement, monetization, and education. Typically, each feature may excel in one area, but we ensure it does not negatively impact the others. In terms of in-app purchases, many of the features we create will primarily support monetization, but we want to ensure they do not detract from user engagement or learning. For example, even if a feature seems like a simple game such as Match Madness, it actually provides significant educational value, particularly in terms of reinforcing vocabulary. Our goal is to ensure that any new addition does not diminish learning outcomes.

Mario Lu, Analyst

Great. That makes sense. And then maybe one on the new year's promo, since we understand you guys are pretty excited about it at this time around, especially after last year's success. Anything to really look out for this time around that may be different that we should monitor?

Luis von Ahn, CEO

We've done the New Year's promotion several years in a row. We've gotten quite good at it. We know when to start it. We know which day to start, it's like basically December 28, that's the best day to start. We've A/B tested this extensively. So we're pretty excited because every year, it works out pretty well. You're going to see one thing, of course, it looks different than previous years because we changed the look and feel of our subscription. It used to be called Duolingo Plus, now it's called Super Duolingo with much better graphics. It's going to look different. And we're going to try a number of new A/B tests. For example, we're also going to be including the family plan, which we hadn't included in previous years. So, there's stuff like that. But generally, we're just excited because it is a really exciting time of growth for Duolingo. We see it every year during New Year. Not only do we get an influx of users because of New Year's resolutions, but the new year's promotion allows us to really capitalize in terms of revenue for that. So, we're pretty excited about it.

Mario Lu, Analyst

Great. Thank you.

Operator, Operator

And your next question comes from Mark Mahaney at Evercore. Go ahead Mark.

Mark Mahaney, Analyst

Okay. I think the one of the most interesting things in the print is this number of MAUs. I think 7 million, that’s a record high. So, could you tell us what the source of those MAUs were? And any early read into whether they are likely to convert into subscribers as well with the lifetime value of these record high MAUs is? Thanks.

Luis von Ahn, CEO

Thanks. This quarter, we have seen accelerated growth in both daily active users and monthly active users, which we are very pleased with. The primary source of this growth remains organic, driven by word of mouth. The process keeps improving because our product continues to enhance. We are retaining users better, and they are more likely to share with their friends as we add more social features. Regarding conversion likelihood, our conversion rates are stable or even improving over time, indicating that the new users are as likely to convert as previous ones. This excites us about user growth since it feeds into gaining more subscribers and ultimately increasing our revenue.

Mark Mahaney, Analyst

I have a couple of questions. First, could you share any interesting geographical insights regarding the source of the MAUs? For instance, is that figure of 6.5 million people from Beijing? It’s a significant number, so I’m curious about where those users originated. Secondly, I’d like to shift my focus to Duo Math. I’ve downloaded the app but haven’t used it extensively yet. Can you discuss the monetization strategy going forward? I’m not asking about the speed of monetization, but rather if you believe there’s a viable path to monetize it similarly to how you’ve monetized language learning. Math is a vital skill, and I noticed you offer content for both adults and early learners. It could arguably be even more essential than language. Could you elaborate on your approach to promoting and monetizing this app? Do you anticipate its growth will be as organic as that of Duolingo’s language app up to this point? Thank you.

Luis von Ahn, CEO

Sure. The first question is about the geography and the sources of our new monthly active users. Overall, we're experiencing growth in all regions, although some are performing better than others. Asia remains our fastest-growing area, particularly countries like India and Vietnam, rather than China. We're witnessing above-average growth in regions where we can monetize effectively, such as the US, UK, and Western Europe, all of which are exceeding our average DAU and MAU growth rates. While we're growing in every region, a few are showing stronger performance. Regarding our recent app launch, we introduced it two weeks ago and are very pleased with how it's performing. Everything has either met or exceeded our expectations, and we're satisfied with the product. We offer content for both adults and children. So far, the content is focused on third and fourth-grade math concepts like fractions, multiplication, angles, and area and perimeter of geometric shapes. Interestingly, we've noticed that there are more adult users than children using the math app at this point. While it's still early, I believe this app may be utilized more by adults. As for monetization, I'm optimistic that we can monetize this app similarly to Duolingo. Looking ahead, I envision placing ads at the end of lessons, along with a Super Duolingo subscription that will be available across our apps to enhance monetization. We believe that our family plan will contribute positively, but we also think that the math app will perform well on its own.

Mark Mahaney, Analyst

Okay. Thank you, Luis.

Luis von Ahn, CEO

Sure.

Operator, Operator

Thanks, Mark. And the next question comes from Eric Sheridan at Goldman Sachs.

Eric Sheridan, Analyst

Thanks so much for taking the question. Maybe I'll follow up on that discussion you just had with Mark about math, but broaden out a little bit. When you think about the long term and building more and more experiences and more and more apps and building out a platform, how should we be thinking about you utilizing the core Duolingo user today to potentially mine for additional use cases and additional platform strength and growth or leaning into virality, which you did with the original Duolingo app? How do we think about the platform strength building versus elements of putting more marketing there are individual use cases by apps? And then to bring Matt into the question as well, how should we think about that in terms of like what you had to invest in 2022 against the product more breadth and as we get into 2023 and 2024 and layer more monetization on top of those investments, how should we think about margin lift over the medium to long term? Thanks, guys.

Luis von Ahn, CEO

Thank you, Eric, for the question. First, I want to emphasize that for the foreseeable future, the majority of our business will continue to focus on language learning. We believe we have significant growth potential in this area and are still early in our monetization efforts. As you can see, the growth for our language learning app is actually accelerating. So, looking ahead to the next two to three years, it will primarily be about language learning. We are, of course, developing other apps, with the Math app being the first. We plan to release more in the future and will be working on cross-promotion to direct some of our users to these new apps. We aim to do this in a way that retains our Duolingo users. Essentially, we want them to remain on Duolingo while also engaging with the math app, creating a win-win situation. We see considerable potential for cross-promotion here, but it’s still early, and we will monitor how this evolves over the next year to a year and a half in terms of growth.

Matthew Skaruppa, CFO

Yes. Regarding the second part of your question about the investment, one of the remarkable aspects of the Duolingo platform is that we could launch math more quickly than we would have as a new app. The insights we've gained about creating an engaging and effective app for language learning translate well into math. When discussing our 2022 investment and upcoming investments, we're primarily focusing on engineers, product managers, and designers. We can launch these initiatives with small teams because they utilize the mechanisms we've already established, making it highly scalable. Consequently, when I consider the margin impact, it has not been significant, nor do I anticipate it will be much more in 2023. Furthermore, we expect these new apps to grow organically; that's our aim. Thus, the marketing impact will also be minimal. This illustrates the strength of the platform we've developed.

Eric Sheridan, Analyst

Thanks for the color.

Operator, Operator

Okay. The next question comes from Aaron Kessler at Raymond James.

Aaron Kessler, Analyst

Great. Thank you. Two questions. First, just maybe if you can update us on the family plan adoption and kind of what that's doing for retention rates? Second, you talked a little bit about shifting some of the ad supply from more internal promotion. Just curious, if you're seeing the results thus far in terms of that driving more subscriptions? As well as I guess third question would be just any macro softness you're seeing on advertising overall? Thank you.

Luis von Ahn, CEO

Okay, sorry, what was the first question?

Aaron Kessler, Analyst

Family planning.

Luis von Ahn, CEO

Yes, the Family Plan is growing quite well. Last time we spoke, it was in the single digits, and now we’ve moved into double digits. It continues to grow nicely, and one of the positive aspects of the Family Plan is that the retention of users is significantly higher. As long as any family member continues to use the service, the payments will keep coming in. We're optimistic about this. Regarding the specific impact on our overall retention, I'm not certain off the top of my head, but I'm sure Matt has that information. I'll let him address that.

Matthew Skaruppa, CFO

We have two types of retention that we measure. User retention is continuing to grow nicely for us. Your question was mainly about subscriber retention. When looking at the platform level, the retention rate for all our subscribers has significantly increased over the past year or two, driven by a shift from monthly to annual plans, with annual plans showing better retention. The Family Plan, a subset of that, retains even better. While this might not represent a major shift at the platform level, we expect cohort-level retention to improve considerably, especially as we increase the Family Plan percentage. We're pleased with how retention is performing and the positive impact it will have on the lifetime value of the platform. Regarding ad revenue, it has been affected by what seems to be an industry-wide advertising slowdown, which isn't particularly surprising. There was also some foreign currency impact, as much of our ad revenue comes from Android users outside the US. However, ads are not a significant part of our business and are primarily a means to convert free users to subscribers, so we don't see it as a major concern moving forward.

Aaron Kessler, Analyst

Okay. Thank you.

Luis von Ahn, CEO

Part of your question was whether we've tried switching some of our ads to encourage subscriptions. Yes, we continuously run experiments to find the optimal mix. This mix varies depending on the user. Some users are much more likely to subscribe, and for them, it's better to show ads promoting subscriptions, while others are unlikely to ever subscribe, so for them, programmatic ads are the best option.

Aaron Kessler, Analyst

Great. Thank you, Luis.

Operator, Operator

Thanks Aaron. And the next question comes from Nat Schindler of Bank of America.

Nat Schindler, Analyst

Yes. Hi, guys. A couple of questions. First, on the user numbers. Just digging in a little bit there. Q3, at least in the Northern Hemisphere is when school starts. So was there any new promotions and pushes to get schoolchildren using the product that would have helped that number? Or is this just, I don't know, viral?

Luis von Ahn, CEO

It's a good question. In the Northern Hemisphere, school typically begins in the third quarter. Every year, we observe growth related to back-to-school. We conduct efficient marketing through social media and some paid acquisition focusing on schools. We also offer a product called Duolingo for Schools, which is a dashboard for teachers. While students use the regular Duolingo app, teachers can track student progress through the dashboard, eliminating the need to check each student's phone in person. This product has been available for a couple of years, and we consistently see annual growth. This year, however, we experience accelerated growth, likely due to back-to-school factors but primarily due to strong organic growth that continues to improve.

Nat Schindler, Analyst

Great. For the second question, could you provide any updates or clarity on the duration of your average bookings and what you're currently selling? Last time, it was mentioned that about 90% were annual bookings. Has there been any change? Additionally, could you share insights from the last few quarters to help us understand how this has been impacting your numbers?

Matthew Skaruppa, CFO

Yes, it's a great question. And so Nat, the answer is we are roughly still around 90% annual plan. And I think when you look back a year ago, the number was in the 70s. So as we've gone through the course of the past, call it, four to six quarters, the percentage of that the annual plan has gone up quite substantially. It can't go up the same amount anymore, right? If it went from 70% to 90%, it can't go from 90% to 110%. So the way we're extending the retention of it, Luis’s question now in my math…

Luis von Ahn, CEO

Maybe it could go up to 100%, I don't know. I’m kidding.

Matthew Skaruppa, CFO

But the way we're extending the kind of the synthetic duration, I guess, to use a bad phrase is through things like the Family Plan, right? That's how you actually extend the lifetime of the subscribers longer as you increase the retention to things like that.

Nat Schindler, Analyst

No, it's not just an issue with extending the lifetime. That's important too. However, I assume that if everyone is focusing on bookings growth, increasing the number of annual subscriptions, such as selling 12-month plans instead of one or 1.5-month plans on average per quarter, can significantly impact results. Is there a particular quarter that we should monitor closely for notable year-over-year differences?

Matthew Skaruppa, CFO

Yes. Over the course of 2023, we will see some impact from that. But there's not going to be one particular quarter. And in general, we still feel that we'll be able to lap those quarters as well in terms of growth.

Nat Schindler, Analyst

Great. Thank you.

Operator, Operator

The next question comes from Arvind Ramnani at Piper Sandler.

Arvind Ramnani, Analyst

Thanks for taking my question. I wanted to ask about math. It's still early for math and too soon to determine its direction. However, I know you are tracking data frequently. What are the adoption numbers so far? If you can't share specific numbers, could you provide information on the user cohorts? For example, how do existing language users and paying Duolingo users compare to new users who are just starting with the math product? Please share the characteristics of the customers who have signed up for this new offering.

Luis von Ahn, CEO

Thank you, Arvind, for the question. There are several points to discuss. Firstly, it's still early days, and we don't have extensive knowledge yet. We have access to all the data and track it hourly, but things are just beginning to settle after two weeks since the launch. I can share some insights. For instance, the retention rate of users on the math app appears to be relatively good. While it doesn't match Duolingo's performance, it's performing better than the initial retention rates we saw with Duolingo when we first launched it ten years ago. We're pleased with how a new app is retaining users. Regarding user acquisition, we haven't invested in paid advertising or marketing campaigns. Instead, our user base has primarily come from our social media efforts, press coverage, and initial word of mouth, although it's too soon for the latter to have significant impact. Currently, we know that over half of the math app users already have a Duolingo account, but that’s about all we can discern at this point.

Arvind Ramnani, Analyst

Okay. From a product perspective, looking at the initial feedback, are there any significant product enhancements needed? The product is always evolving, right? Duolingo has been around for 10 years and is still making changes. I understand there's an enhancement in math, but have you noticed any major design flaws or issues with the product that you've identified? Or do you feel confident about continuing at a steady pace?

Luis von Ahn, CEO

We feel optimistic about our progress. Before launching, we established a roadmap for the next several years, and that plan remains unchanged based on user feedback. We believe the math app will evolve similarly to how Duolingo has improved over the last decade. It took us ten years to reach a revenue of around $100 million per quarter with Duolingo, and while we hope it won't take that long for the math app to achieve similar success, it will certainly require several years of development. We recognize the need to expand our content offerings, moving from third and fourth-grade material to include fifth and sixth-grade content as well. Additionally, there are several features from Duolingo that we plan to incorporate into the math app. For instance, the streak feature in the math app is not as advanced as the one in Duolingo, which we have refined over time to ensure users maintain their streaks, as losing one can be quite disappointing. There are various elements we need to implement in the math app that we know will enhance the user experience.

Arvind Ramnani, Analyst

Thanks. Yes. Just one last question on math. When I look at Duolingo language, there's no other product. There's no user base. You kind of have to kind of build this brick-by-brick. Math, you have this massive user base and actively engaging. Is there a plan to kind of use this, I would say, kind of the core application to promote math? I mean have you started to do that like put buttons on the tick.

Luis von Ahn, CEO

We intend to do that. We have not initiated it yet, but we will. The integration can be quite effective. This is what we've discussed. The simplest approach would be to display an ad at the end of a Duolingo lesson stating that we have a math app. That's the most basic method. However, we can make it more advanced. For example, you could have a playable ad that allows users to try a brief interaction before directing them to the app. We can further enhance this by incorporating it more deeply. On Duolingo, we have Daily Quests requiring users to complete specific tasks like finishing three lessons or engaging with a story. We could include a quest that encourages users to complete a math lesson, or allow users to extend their Duolingo streaks by completing math activities. We're committed to exploring these more effective integrations and will test various approaches over the coming time.

Arvind Ramnani, Analyst

Perfect. Thank you very much.

Operator, Operator

Great. Thanks, Arvind. And I'm showing no further questions. So I'll turn it back to you, Luis, for any closing remarks.

Luis von Ahn, CEO

No, just thank you for all the questions, and keep learning languages or math if you want. But yes, remember, Spanish or vanish.

Operator, Operator

Thanks, everyone.