Earnings Call Transcript - DUOL Q4 2022

Operator, Operator

We hope you enjoyed that fun TikTok. It's one of the many examples of organic user-generated content that goes viral every day without any involvement from us. We love to see the creativity and enthusiasm of creators like this, which continues to drive our brand awareness and word-of-mouth growth. Now let's proceed with today's call. Good afternoon, and welcome to Duolingo's Fourth Quarter and Full Year 2022 Earnings Webcast. Today, after market close, we released our year-end shareholder letter with our Q4 and 2022 results and commentary, which you can find on our IR website. On today's call, we have Luis von Ahn, our Co-Founder and CEO, and Matt Skaruppa, our CFO. They will 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 outlined in our filings with the SEC. These forward-looking statements are based on assumptions we believe to be reasonable as of today, and we have no obligation to update these statements due to new information or future events. Additionally, we will present both GAAP and non-GAAP financial measures on today's call. These non-GAAP measures are not intended to be considered in isolation from, or as a substitute for, our GAAP results. We encourage you to consider all measures when analyzing our performance. I will now turn it over to Luis.

Luis von Ahn, CEO

Thank you, Debbie, and welcome, everyone. I'm pleased to report that we finished 2022 with a record quarter, achieving our highest-ever number of DAUs and subscribers. We ended Q4 with 16.3 million DAUs, which is 62% year-over-year growth, and we ended 2022 with 4.2 million paying subscribers, which is 67% year-over-year growth. These metrics led 2022 to be our best year ever in terms of bookings and revenue, which grew 46% and 47%, respectively. It was a fantastic year. Our DAU to MAU ratio, which is an indicator of user engagement, improved to 27% this past quarter, up from about 24% a year before. We have also seen the number of learners with long streaks grow immensely. To remind you, a streak is the number of consecutive days that a user learns with our app. This mechanic has proven to be an efficient tool for encouraging engagement and helping us grow DAUs. 63% of our DAUs now have a streak of 7 days or greater, which is up from 53% last year. What's even more impressive is that we now have over 3 million DAUs with a streak of over 1 year. That means that more than 3 million people use Duolingo every single day for the last year or longer. It's also impressive that it took us 8 years to reach 1 million DAUs with a year-long streak and only 21 months to get from 1 million to 3 million. This is one example of the compounding effect of our product improvements. Our user growth was strong in every region of the world. We also have users of nearly all ages, from all socioeconomic statuses, and who have a variety of motivations to learn, including work, school, and travel. The result is a diversified business that has been largely uncorrelated with macro and geographic trends. Our investments in monetization have also shown the power of compounding. Over the past 3 years, we've seen conversion increase across nearly all cohorts. Users who are new to the app have converted more readily to our paid subscription, and users who have been on the app for longer periods, like multiple years, have also seen an increase in their conversion rates from free to pay. And now I'd like to discuss what you should expect from us this year. In many ways, we expect 2023 to look similar to 2022. We expect users and bookings to grow nicely. We still have a massive $60 billion addressable market that we have only barely penetrated, and we have strong organic growth on our side. I want to remind you that currently, our subscribers make up about 8% of our monthly active users. So we have plenty of room to further monetize our current user base. We also have an attractive opportunity to increase bookings from a la carte in-app purchases like we did in 2022. But I do want to point out again that you should not expect any bookings from our math or apps this year. As to where we'll invest, the majority of our engineers, designers, and product managers will continue to build on the success we've had in growth, efficacy, and monetization. That means that we'll continue to run experiments to increase DAUs and engagement, improve how we teach, and optimize how we convert free users to pay. In our shareholder letter, I discussed the 2 additional areas we're focused on in 2023: the first is generative AI, which will power a higher-tier Duolingo Max subscription and also help us reduce content creation costs; and the second is improving how we teach and monetize English learners. I'd like to emphasize that we are excited about these initiatives, but they are still in the early stages. I also want to touch on profitability. Coming off a strong 2022, we are well positioned to grow users and bookings rapidly while also delivering higher profitability. We plan to continue to compound the returns we've seen from our past R&D investments, so we don't plan to hire as many people as we did last year. Just to remind you, we've never gone overboard with hiring. In fact, we've grown revenue at about twice the rate of headcount in the past 4 years. This year, we plan to show operating leverage across all costs: R&D, sales and marketing, and G&A. Given those strengths, we're guiding to a 10% to 12% adjusted EBITDA margin for the year, up from about 4% in 2022. And with that, I'll turn it over to Matt to talk more about our financial outlook.

Matthew Skaruppa, CFO

Thanks, Luis. To quickly recap the highlights of our impressive Q4 and full year 2022 results. In the fourth quarter, we delivered 39% bookings growth year-over-year, which was about 46% on a constant currency basis. We saw a 42% revenue growth year-over-year, which was 47% on a constant currency basis. We had a net loss of $13.9 million compared to a net loss of $17.5 million in the year-ago quarter. We posted our highest quarterly adjusted EBITDA of $5 million, which was a 5% adjusted EBITDA margin, and we had a free cash flow margin of about 11%. For the full year, we delivered 46% bookings growth year-over-year, which was about 52% on a constant currency basis. We saw 47% revenue growth, which was about 51% in constant currency. We had a net loss of $59.6 million compared to a net loss of $60.1 million last year. We saw adjusted EBITDA positive $15.5 million compared to an adjusted EBITDA loss of $1 million last year, and we had a free cash flow margin of about 12.5%. In 2023, we expect to continue delivering strong bookings growth, and we will do so while making progress towards our long-term profitability goal of an adjusted EBITDA margin of 30% to 35%. For the full year 2023, we are guiding to $530 million to $542 million in total bookings; $486 million to $498 million in revenue; and an adjusted EBITDA margin of 10% to 12%, which translates to about a 32% incremental margin at the midpoint. And for Q1 2023, we are guiding to $127.5 million to $130.5 million in total bookings, $111 million to $114 million in revenue, and an adjusted EBITDA margin of 9% to 10%. Our guidance assumes current prevailing foreign exchange rates. As a reminder, roughly half of our revenue comes from outside the U.S., so every 1% increase or decrease in the value of the dollar versus our basket of currencies has about a $2 million headwind or tailwind, respectively, on full year total bookings. At the prevailing exchange rates we've used in our guidance, foreign exchange is expected to be a 3-percentage-point headwind to Q1 2023 year-over-year bookings growth. In terms of quarterly cadence of our bookings for the remainder of the year, we expect our year-over-year growth for total bookings in Q2 to be about the same as Q1. We expect Q3 year-over-year growth rate to be slightly higher, and we expect Q4 to be our biggest quarter in terms of dollar bookings. Given our outperformance in Q4 of this year, it will be a slightly lower growth rate. After pricing in 2022, we lowered pricing in several countries to get our prices more in line with each country's GDP per capita. This initiative and our intentional mix shift from monthly to annual plans were to increase the overall LTV of our platform, and that drove down subscription revenue per paid sub. But we're done, for the most part, with lowering prices globally. In fact, based on strong conversion trends, we believe we have the opportunity to raise prices in some places and are experimenting with pricing as we speak. We have not included any material amount of bookings or revenue from Duolingo Max in our guidance since we've only just started testing it, but we'll provide you with an update when we report our Q1 results. I'd like to emphasize that we are focused on managing the business so that we achieve our full year adjusted EBITDA margin of 10% to 12%. We'll be making spending decisions throughout the year based on our revenue and gross margin trends to ensure that we are in this range for the full year. Also to remind you, given the seasonality of our revenue, our Q2 and Q3 margins will be slightly lower than Q1, and Q4 will be higher. We will continue to run the business with discipline and prudently manage our expenses. Starting in Q1, we expect to see meaningful leverage in total non-GAAP OpEx compared to the fourth quarter of last year. In 2023, we expect to achieve about 7 to 9 percentage points of operating leverage in total non-GAAP OpEx. For both periods, the improvement is mostly in sales and marketing and G&A and, to a lesser extent, R&D. We ended the year with approximately 48 million fully diluted shares outstanding using the year-end closing price. In 2023, we expect to end the year with about 2% dilution from equity issued to employees, which is less than the roughly 3% dilution we had in '22. And with that, I'll turn it back to Luis.

Luis von Ahn, CEO

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

Operator, Operator

Okay. Thanks, Luis. And the first question comes from Ralph Schackart of William Blair.

Ralph Schackart, Analyst

First question, the shareholder letter, I think you called it a 'Super' end to 2022. I think that may incorporate some of the beginning of the year campaign that you run to attract new users. Just curious, what drove the really strong performance in the year-end? And then how did your New Year's campaign compare to expectations? And I have a follow-up.

Luis von Ahn, CEO

Thank you for the question. We had an excellent Q4 and a strong year-end. There are two main reasons for this. Firstly, we have made significant improvements to our products, making them more engaging and attracting more users. Our growth team is performing exceptionally well in this area. Secondly, some of our marketing campaigns were extremely successful. A notable example is our year-end review campaign, which ran from December 10 to December 14, where users received a summary of their yearly activities and were encouraged to share it. This resulted in millions of shares and we even trended on Twitter as users posted their Duolingo stats. These efforts contributed significantly to our performance. Regarding our New Year's campaign, we typically start it on December 28 and it runs through January. This year, the campaign lasted about three days and exceeded our expectations. The improvement can be attributed to the insights we gain from previous campaigns each year, which help us refine our approach. We conduct A/B tests to enhance the effectiveness of the campaign and apply those insights for the following year, and that strategy worked well for us.

Ralph Schackart, Analyst

Great. Maybe just a quick follow-up. Just in terms of DAUs, I think you reaccelerated for 6 consecutive quarters, which is pretty tough to do. But just maybe some color what's driving the strong acceleration and growth. I think in the prepared remarks, you talked about it being broad-based. But were there any sort of 1 or 2 regions that showed stronger growth than others?

Luis von Ahn, CEO

Yes, it's a great question. In terms of regions, we are seeing growth across the globe. The U.S., Asia, and Western Europe are particularly strong in terms of increasing daily active users. The reasons for this growth are twofold: ongoing product improvements that build on each other over time, making the product more engaging, and our enhanced ability to identify effective marketing strategies. Our social media initiatives, such as campaigns on TikTok and Twitter, as well as influencer collaborations, play a significant role. Additionally, there are many organic videos created by others that mention Duolingo, which contribute to our visibility. There seems to be almost daily viral content about Duolingo, driving user growth consistently.

Operator, Operator

Thanks, Ralph. And the next question comes from Justin Patterson of KeyBanc.

Justin Patterson, Analyst

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

Luis von Ahn, CEO

I'm glad you read that blog post. We're very proud of our growth model. Over the years, we've become significantly more sophisticated at analyzing our user base and making changes to improve certain cohorts. In the post, we mentioned what has been the most important metric for our company over the past several years, which we call current user retention rate. This metric measures the likelihood that people who were engaged with us in the past week will return tomorrow. Currently, that number is around 80%, and we've increased it. Over the last 2-3 years, we've raised that number from about 65% to approximately 80%, and every 1% increase in this rate has led to a significant rise in our daily active users. This model has been beneficial, and we’re continuing to refine it. Initially, we treated all our users as one group, but now we differentiate between new users, current users, and more. Although we don't have a specific strategy for Gen Z, we are making our sessions shorter to accommodate their decreasing attention spans.

Operator, Operator

Great. The next question comes from Andrew Boone of JMP.

Andrew Boone, Analyst

Can we begin by discussing any insights gained from in-app purchases? I noticed they doubled in the last quarter. Could you elaborate on the successes there and how we should view this for 2023? Additionally, regarding profitability, Matt mentioned a real contribution margin for the latter half of this year. Is there any indication that this will decrease as we look at a three-year plan or beyond the upcoming year?

Luis von Ahn, CEO

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

Matthew Skaruppa, CFO

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

Operator, Operator

Thanks. And then the next question comes from Ryan MacDonald of Needham.

Ryan MacDonald, Analyst

Congratulations on a strong year-end. Luis, I'll start with you regarding the Duolingo English test. Recently, the Chinese government imposed a ban on online degrees, meaning that Chinese citizens can no longer have fully online degrees from international universities recognized. This seems likely to lead to a shift, with more Chinese learners looking to study in person abroad. Have you noticed any effects of this on applications or sign-ups for the Duolingo English test so far? What are your expectations for this in 2023?

Luis von Ahn, CEO

Thank you for the question. We have not seen any impact based on this, and I think there's many reasons. One, yes, China is a relatively large chunk of the Duolingo English test takers, but we really have test takers all over the world. Another reason is that the reasons for taking the tests are varied. Some people are applying for international undergraduate admissions. There's also graduate admissions and transnational education. There are many different motivations for taking the test. And while one segment may have policy implications, the others remain strong. We are still growing quite a bit and pretty fast, so this is not something that we're seeing yet.

Ryan MacDonald, Analyst

That's helpful. I appreciate it. As a follow-up, you discussed generative AI and its application, and I'm particularly interested in content creation. You mentioned a greater emphasis on advanced English content for non-English speakers or those with basic English skills. How quickly do you believe generative AI can shorten your content creation timeline? How do you ensure quality in this process? Additionally, for Matt, in the profit margin leverage you're presenting this year, are you factoring in any benefits from content creation through generative AI?

Luis von Ahn, CEO

Thank you for your question. We're very enthusiastic about generative AI. At Duolingo, we've always incorporated AI into our products from the start. Recently, generative AI has advanced significantly, and we plan to utilize it further. You mentioned content creation, which is an area where we believe it can greatly benefit us and accelerate our processes. While I can’t provide an exact estimate of how much faster it will make things, we are already seeing improvements in speed and cost reduction. One way we are applying it is by producing more English learning content. We will still have humans review the quality, as the timeline used to be almost entirely human-generated. Now, the content only needs to be reviewed by humans, which is much quicker than generating it from scratch. We anticipate a substantial enhancement in our content creation efficiency and cost-effectiveness. Generative AI will also improve the experiences we provide to our users by offering more opportunities for online conversational practice. We are very excited about this. As a company, we have partnered with OpenAI, and we are committed to working diligently on this initiative.

Matthew Skaruppa, CFO

And Ryan, Luis answered the question for the guide. We only included in the guide things we have direct line of sight into. Generative AI is so new, we don't have a ton of line of sight into direct savings yet. But as Luis said, over time, that's probably the way to bet.

Operator, Operator

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

Aaron Kessler, Analyst

A couple of questions. Maybe for Matt. On the paid conversion rate, it was very strong in Q4. Can you just talk about that? Was that family plan a part of that? And then how should we think about paid conversion in 2023? And then maybe any updates on a given test, maybe kind of human tutoring as well. Is there any kind of thoughts on that direction as well, especially as it relates to Duolingo Max, how you're thinking about integrating that as well?

Matthew Skaruppa, CFO

Sure. Yes. I'll let Luis answer that last part. For the payer penetration, we had mentioned, I think throughout most of last year, we expected a 1% to 2% increase each quarter year-over-year in that metric. That increase is from all the things that Luis has described before, which are the product improvements that compound over time to make free-to-pay conversion go up in general. There wasn't any one particular item, like the family plan, that contributed. It was a combination of all of them compounding over time. Going forward, as we previously mentioned on, I think, the Q2 or Q3 call last year, given the growth in MAU, that denominator is just growing really nicely, and the retention trends lead us to expect it to be closer to a 1% increase this year, as opposed to 1 or 2 points every quarter year-over-year. Luis, you want to talk about Max and tutors?

Luis von Ahn, CEO

Yes, on human tutoring. The second question was about human tutoring. Over the years, we've waffled between considering human tutoring. At first, we launched Duolingo with no humans involved. Then we tried to integrate it. Over the last year, we've decided we are not going to get into human tutoring at all. We've tried it and decided against it for a number of reasons. There's nothing against human tutors, but we are a technology company, and that's what we excel at. If you look at it, human tutors are great, but they're not improving over time. Whereas technology, especially with AI and generative AI, is getting better and better every year. We're betting on technology. Much in the same way, like 10 years ago, we were told we could not teach a language with synthesized computerized voices. We bet on that, and today they sound excellent. We feel the same about AI; in 5 or 10 years, we'll be glad we bet on technology rather than humans.

Operator, Operator

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

Nathaniel Schindler, Analyst

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

Luis von Ahn, CEO

It's a great question. If there has been, it's small. Our user base is very wide. We have users from every single country in the world. Every single country is represented. We have users from every single socioeconomic status and all ages, as long as they know how to read. So it ranges effectively from 6 years to about 100. We really have users from all over the place, and it's a very wide user base. So it hasn't changed too much. The one thing we've noticed is it has gotten slightly, ever so slightly younger, and that probably has to do with our prominence on social media like TikTok, but that's it.

Nathaniel Schindler, Analyst

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

Luis von Ahn, CEO

The honest answer is I don't know. I know that the free users are getting slightly younger. I don’t know about paid users.

Matthew Skaruppa, CFO

Yes. I'd have to go back and double-check on the paid. I think what we've seen on paid is that the conversion trends haven't really changed. Some have accelerated. For example, just overall conversion across cohorts has increased over the course of last year. Folks who are new to the platform convert more rapidly than in 2021. Folks that have been on longer convert a little faster than they had in the past. We've always seen that people who use the app more convert more. That trend has stayed the same or improved slightly. So yes, it was kind of a broad base. Just like our users grew around the world in a pretty broad-based way, the same trend applies to free-to-paid conversion.

Nathaniel Schindler, Analyst

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

Operator, Operator

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

Mark Mahaney, Analyst

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

Luis von Ahn, CEO

For your first question, this is not a new thing. It's been a while since returning users have been the same as new users. I'm going to assume at the very early stages of Duolingo, that was not the case. But it has been a while that it has been like that. It is rare for us to see a user that uses Duolingo go away and never come back. That is rare. Usually, people may go away for 2 years and then come back. It’s because there's such little friction involved. The reason we put that there is mainly to emphasize that it is not accurate to think of our users as having churn and been gone forever. That is rare. It’s more that they come, stay for a few months, may take a break for a couple of months, then come back. In terms of math, we're very happy with the progress. It's growing rapidly. Just to remind you, our goal is to grow our math product organically so it can grow by itself. Once we reach a decent number of users, say, 1 million daily active users, then we'll consider monetization. For now, we are focused on solidifying product market fit and are adding enhancements based on our learnings from our main Duolingo app. We're also adding more content to it, as some very heavy users may run out of content.

Operator, Operator

Next question comes from Eric Sheridan of Goldman Sachs.

Eric Sheridan, Analyst

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

Luis von Ahn, CEO

Great question, Eric. In terms of travel, we don't see in our metrics that more and more people are using Duolingo for travel. We did see a very temporary dip at the height of COVID a couple of years ago, but overall, it's been about the same. While for many users who are relatively wealthy, travel is a big motivation for using Duolingo, for a majority of our users, they're learning for other reasons, such as learning English or hobbies. We don't see a notable link between travel reopening and Duolingo usage. We do track why users sign up, and a fraction tell us they are using it for travel, but I can't recall the exact number. In terms of virality, we have experimented with various social media platforms to get the word out. This is mainly organic; we create good content. TikTok has been really effective for us. We've localized our TikTok to Portuguese, Spanish, and other languages, which have seen rapid growth. For example, our TikTok account in Brazil performs particularly well. We have creative TikTok content that has gained millions of views. We're also doing well with Twitter and have initiated a campaign to encourage sharing within the app, such as sharing peculiar sentences. These initiatives have contributed positively.

Operator, Operator

Next question comes from Mario Lu of Barclays.

Mario Lu, Analyst

Great. The first one is on app store fees. Just curious about your thoughts on the recent trend of apps bypassing the app store. Games like Fortnite and apps like Spotify, Netflix have done this for a while now, but more recently, more traditional mobile games are implementing a direct-to-consumer payment method. Just curious about any initiatives you have on your end.

Luis von Ahn, CEO

We're not currently working on that. We love the app stores. It's hard to say that we wouldn't love them to decrease their fees, of course, we would. However, we do really well with the app stores as they provide an effective distribution mechanism. When you bypass the app stores, it creates harder distribution challenges. With app stores, people have their credit card details already stored, and it's just one tap to make purchases. While lower fees are attractive, the friction that is added may counterbalance that. We're always thinking about it but not actively pursuing bypassing app stores.

Matthew Skaruppa, CFO

And remember, Mario, we did see a significant bump from Google lowering their app store fees last year. So...

Mario Lu, Analyst

Got it. Helpful. And then second on the changes to the Duolingo app itself. I believe the past few quarters, you talked about the change to the single learning track being at parity. Any updates on that? And in general, how do you balance optimization for learning versus maintaining a more casual app that attracts the masses? I think just user feedback could be like a lab minority. The removal of features like oral prompts or typed answers, I believe, got some negative feedback. I just wanted to hear your thoughts there.

Luis von Ahn, CEO

Mario, you read Reddit. It's a great question about the changes to the app. We consistently strive to improve the app. We made significant changes; we're always working to enhance it. Over the last year, we made a large change to our home screen, moving from providing users many choices to a linear path. The main reason for this linear path was to improve teaching efficacy. We've noticed that when we provided too many choices, some users opted for easy lessons merely to extend their streaks without meaningful learning. With the linear path, we’re encouraging a larger portion of users to learn something while increasing their streak. The three key metrics we're focusing on during the changes include improving how well we teach, the engagement of the app, and monetization. Each group responsible for these metrics can make changes, but they cannot negatively affect the others. The changes made to teach better were carefully assessed to ensure they didn’t reduce DAUs or retention while improving learning outcomes. Most changes can be traced back to the focused groups, and this approach has worked well for us.

Operator, Operator

Our next question comes from Arvind Ramnani from Piper Sandler.

Arvind Ramnani, Analyst

I guess my first question is, among the management team, who has the longest streak in terms of usage? But let me now ask that.

Luis von Ahn, CEO

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

Matthew Skaruppa, CFO

We can be pretty sure about that.

Arvind Ramnani, Analyst

Yes, that's correct. User engagement is a strong indicator of our revenue growth and bookings. However, I understand there are many other metrics you monitor that you may not disclose. If you're unable to provide specific figures, could you share some insights on the metrics that reassure you about the growth trend for this year?

Luis von Ahn, CEO

Yes. I don’t know if we can share precise numbers. There are certain things that we share and some that we don't, but we do track a lot of metrics. In general, there are three groups of metrics. The first is growth metrics concerning our user base, such as DAUs and their usage of the product. The second is monetization metrics, indicating how much money we make. The third group concerns our teaching efficacy. In each of these groups, we have a ton of metrics. For growth, I look at time spent learning, DAU to MAU ratio, resurrection rates, and the retention of current users as well as new users. For monetization, we monitor conversion rates, LTV, retention of paying users, and daily bookings. In learning, we evaluate the content's difficulty we can provide without discouraging users. We track a wide array of metrics, and I can't recall all of them off the top of my head.

Arvind Ramnani, Analyst

Yes. That's helpful. And then about bookings growth, kind of sitting externally in some sense, it's a bit of a black box. Are you able to share what goes into the type of projections for bookings growth? I mean we don't even know the specific numbers, but just conceptually, what goes into predicting bookings growth?

Luis von Ahn, CEO

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

Matthew Skaruppa, CFO

Well, maybe not. The main thing to consider with bookings growth is there are just two dimensions. There's new bookings from new subscribers and there are renewals on the subscription side. You can also add in IAPs. Concerning new users, Luis described our really complicated model — a markup model for growth predictions — combining organic growth and marketing spending. A significant input into the model is predicting new users. This flows into new bookings and involves cohort math for cohorts over time to see how they convert. Additionally, we add the renewal cohorts, which we have solid data on, to derive subscription bookings. Add that to IAPs and we arrive at total bookings. It's really that simple.

Operator, Operator

Great. That's all the questions we have. So I'm going to turn it back over to Luis.

Luis von Ahn, CEO

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

Operator, Operator

Goodbye.