Earnings Call Transcript - DUOL Q2 2023

Operator, Operator

Good afternoon, and welcome to Duolingo's Second Quarter Earnings Webcast. We hope you enjoyed the celebrity compilation, which complements the themes discussed in this quarter's shareholder letter released today after market close. You can find that letter on our investor relations website. On today's call, we have Luis von Ahn, our Co-Founder and CEO, and Matt Skaruppa, our CFO. They will start with some brief remarks before we open the call to questions. Please note that this event is being recorded, and all attendees are in listen-only mode. We will be making forward-looking statements regarding future events and financial performance, which are subject to material risks and uncertainties that are outlined in our filings with the SEC. These forward-looking statements are based on assumptions that we believe to be reasonable today, and we have no obligation to update them due to new information or future events. We will also present both GAAP and non-GAAP financial measures on today's call. These non-GAAP measures should not 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. Now, I'll turn it over to Luis.

Luis von Ahn, CEO

Thank you, Debbie, and welcome, everyone. I'm pleased to share that we had another record quarter. In Q2, we achieved our highest ever daily and monthly active users, revenue, profitability and free cash flow, and we surpassed 5 million subscribers. We also just celebrated our 2-year anniversary of becoming a public company, and I'm very proud that we have outperformed the lofty goals we set for ourselves at the time of the IPO. Thanks to our continued strong performance, we are raising our top line and profitability guidance for the year. Matt will walk you through our updated outlook shortly. Our strong results are a testament to our relentless focus on making our product more fun, engaging, and effective. We delight our learners, who tell their friends and family about us, which drives our organic word-of-mouth growth. Add to that, our unique and efficient, though at times unhinged, approach to marketing, and you get a brand that has become synonymous with language learning. And that creates opportunities for us to be part of cultural moments, like you saw this past month when we were referenced in the Barbie movie. I should mention that this was an inbound request to us. We didn't seek out being in the film, which I think is a reflection on the strength of our brand. Over the past 8 quarters, we've seen very strong DAU growth, and that growth has been high-quality and broad-based with users coming from all regions of the world. The U.S. continues to grow nicely, and some of our fastest growth has come from the wealthier European countries. This growth not only validates the huge addressable market of language learners but also demonstrates the power of our freemium business model. Strong user growth drives strong financial performance. We attract free users primarily through word of mouth. We delight them through product improvements driven by experimenting and optimizing the app, and then we convert them to paid subscribers. This playbook for growing subscribers has worked exceptionally well. Last quarter, the focus of our shareholder letter was on how AI has been part of our strategy for a long time. We have been using artificial intelligence for years to make our product more personalized and engaging. We're also embedding the recent advances in this type of technology throughout our products and the company. For example, we're using generative AI to speed up our script writing for Duolingo Stories and to more efficiently scale our course content. We are using generative AI to continue to innovate on Duolingo Max, which is a higher tier offering. We will continue improving Max features and testing pricing and packaging before rolling it out more broadly, as we do with all our major changes. Using new technologies to make excellent products takes time to get right, but it's exciting to think about how the acceleration in AI can help us achieve our vision of teaching you as well as a human tutor. And with that, I'll turn it over to Matt.

Matt Skaruppa, CFO

Thanks, Luis. In the second quarter, we outperformed our expectations for user growth with DAU and MAU increasing 62% and 50% year-over-year, respectively. This brought DAU to an all-time high of 21.4 million and MAU to an all-time high of 74.1 million. Our total paid subscribers increased by 59% to 5.2 million. Our strong user and subscriber growth fueled our top line performance with bookings and revenue increasing 41% and 44% year-over-year, respectively, or 42% and 46% on a constant currency basis. We continue to manage the business with cost discipline, and this quarter, we delivered our highest quarterly profit. Our net income totaled $3.7 million compared to a net loss of $15 million in the year-ago quarter. Note that our net income benefited from a $1.3 million noncash tax benefit. We also posted a record high adjusted EBITDA of $20.9 million, or a 16.5% adjusted EBITDA margin. Note that we moved some marketing spend from Q2 to the back half of the year, and this increased our adjusted EBITDA this quarter by about 0.5 point or 1.5 points. Based on our strong results and trends, we are raising our full-year guidance and issuing the following for Q3 2023: $136.5 million to $139.5 million in total bookings; $129.5 million to $132.5 million in revenue; and an adjusted EBITDA margin of 13% to 14%. For the full year 2023, we are raising our guidance to $569 million to $575 million in total bookings, $510 million to $516 million in revenue, and we are updating our adjusted EBITDA margin range to 14% to 15%. Our full-year guidance calls for a 33% year-over-year bookings growth and 39% year-over-year revenue growth at the midpoint. We feel confident raising our top-line guidance because of our strong user growth and continued strong free-to-pay conversion. Furthermore, we've achieved significant operating leverage year-over-year across the business, which gives us the confidence to raise our full-year adjusted EBITDA margin guidance by about 300 basis points compared to what we issued on our last call. Let me go through how our Q3 operating expenses are expected to compare to Q2. We expect non-GAAP R&D as a percentage of revenue to increase by about 1 point. We expect non-GAAP sales and marketing to increase by about 2 points due to the sales and marketing spend that I mentioned being shifted from Q2 to Q3. Non-GAAP G&A will be relatively stable as a percentage of revenue in Q3. In Q2, our average subscription revenue per subscriber declined by about 7% year-over-year, driven by foreign exchange impacts and regional pricing. At current exchange rates, we expect that the year-over-year decline in this metric has bottomed out, and that the year-over-year change will approach 0 by Q4 as we finish lapping FX and regional pricing impacts. 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 $1 million headwind or tailwind, respectively, on total bookings for the second half of the year. As Luis mentioned, we're excited by generative AI's potential to help us accelerate our mission, and we are experimenting with that in Duolingo Max, our higher tier subscription. We have not yet included any material amount of booking revenue from Max in our guidance, and we'll keep you updated on our progress in the coming quarters. Finally, we ended the quarter with approximately 48.8 million fully diluted shares outstanding using the quarter-end closing price. We continue to expect to end the year with about 2% dilution from equity issued to employees. And with that, I'll turn it back to Luis.

Luis von Ahn, CEO

Thank you, Matt. I'd like to thank our team of amazing and talented Duos for all their hard work and helping us deliver another record quarter. These results would not be possible without their dedication and passion. And now we would be happy to take your questions. I'll turn it back to Debbie to manage the queue.

Operator, Operator

All right. Thanks, Luis. As I mentioned earlier, if you have a question, you can use the raise hand feature. So the first question comes from Ryan MacDonald of Needham.

Ryan MacDonald, Analyst

Thanks for taking my questions and congratulations on an excellent quarter. Luis, I wanted to start with your comments about social marketing mentioned in the shareholder letter. You have consistently done a great job driving usage and attracting users to the platform through various social media channels. With the emergence of a new platform like Threads, I’m interested in your marketing strategy there and how you believe it could serve as an additional boost in attracting users to your platform.

Luis von Ahn, CEO

Thank you for the great question. Yes, regarding Threads, our social media team engaged with it immediately upon its launch and we received a considerable amount of engagements. We are actively exploring it. If Threads evolves into a significant social network, we will certainly be involved. Currently, it is much smaller compared to platforms like TikTok or YouTube, so we aren't seeing a major impact yet. However, we will definitely experiment with it. Our social media team is exceptional. It's also important to note that our marketing efforts are primarily organic, and we plan to continue that approach.

Ryan MacDonald, Analyst

Excellent. Can't wait to see more about that. Second question is on the use of AI and how it's being built into the product. I'd be curious to hear some of the additional feedback of what you're hearing from customers so far that are using the Duolingo Max features? And then how, if you see the AI integration evolving over time? We're starting to see newer models where maybe instead of leveraging OpenAI and that functionality and sort of having to bear the cost on a per interaction, some vendors are starting to build customized large language models for their own content, which can potentially save on costs and create some proprietary nature of the AI. But just curious how that continues to evolve for you?

Luis von Ahn, CEO

Yes. These are great questions. First of all, for Max, I want to remind everyone of its position. Max is a premium subscription option. We are currently experimenting with pricing, but it's approximately double the price of Super. However, we are testing various price points as part of our standard development process, especially for significant features. We start by rolling it out to a small segment of our users and gradually improve the features. As they enhance, we extend access to larger groups. For a substantial feature like Max, the last major update took about a year from the initial test to a full rollout. I can't predict how long it will take for Max, but it will be similar. When we began testing Max, we had two features: Roleplay, which enables users to practice conversations, and Explain My Answer, which offers explanations when mistakes are made. We have been enhancing these features. For instance, Roleplay has become much more engaging; instead of a straightforward scenario like ordering a croissant, now disruptions can occur, such as a burglar entering, adding unpredictability to the conversation. Additionally, we recently introduced another feature for Max, called the in-lesson coach. Before submitting answers in lessons, users can access hints or grammar tips. The feedback has been positive, and we are pleased with the progress. We are testing thoroughly to ensure that by the time we release it to all users, we establish an optimal price and feature set. Regarding costs and the development of our own model, we are currently using OpenAI, which we find satisfactory. We believe that the costs associated with these models will decrease over time. For now, our focus is on creating the best possible features rather than conserving costs. We plan to optimize expenses after we are fully satisfied with all the features, and we are not at that stage yet.

Ryan MacDonald, Analyst

Thanks for the color and congrats again on a strong quarter.

Luis von Ahn, CEO

Thank you. Thank you, Ryan.

Operator, Operator

Thanks, Ryan. Next question comes from Mario Lu at Barclays.

Mario Lu, Analyst

Great. Thanks for taking the questions. The first one is on the average subscription revenue percent. So Matt, I think you mentioned by the end of this year, it's going to be a portion with flattish growth. I was just curious to share your thoughts on Duolingo's pricing power overall. And the thought of increasing pricing on the core products and synergies going forward as we have seen from other kind of consumer low laps?

Matt Skaruppa, CFO

Yes. No, it's a great question. And Mario, you're exactly right. We expect that by the year-end, to your point, the year-over-year growth in ARPU will be essentially flattish. When you talk about pricing power, I think it goes back to what we've said a bunch of times on these calls, which is we experiment with price and packaging a lot around the world. So like in the U.S. or Western Europe, raising price will be just a normal experiment. That's just a normal course thing we'll test from time to time. There are times when we do bigger pricing tests like Q2 of last year when we did the regional pricing tests in about 100 countries at once. But we're always, I guess, fine-tuning our price, and that includes raising prices over time in certain places. So yes, we're definitely going to consider that, and it's something that could happen in the future.

Mario Lu, Analyst

Great. Thank you. And then maybe just a high-level one. I saw on your blog that you had an article in terms of streaks by user age. And I think it said that users over 60, like 30% had a streak of over a year. Whereas, like users, 13 and 17 were less than 5%. I guess why is that? And any learnings that could be applied to kind of the younger users from the older generation? Thanks.

Luis von Ahn, CEO

You probably don't have teenage children. It's harder to get them to do something. I mean, it's just the case that we have noticed that people who are older are just more constant in their habits. And that's that. Now I'll say, I mean, we are very happy with our results for the younger audience. We are much more well-known among younger audiences than we are with older people. It just so happens that older people are a lot more committed. But I don't know if we can change that, but we're always working just in general, not necessarily per age. We're just always working to make the product more engaging. And you can see that in a number of ways. For example, our DAU-to-MAU ratio keeps getting better and better. It's now up 29% essentially. The number of people with long streaks continues to grow, and it's now multiple millions. So yes, in general, we just keep making the product more engaging.

Mario Lu, Analyst

Great. Thank you.

Operator, Operator

The next question comes from Ralph Schackart of William Blair.

Ralph Schackart, Analyst

Great. Thanks for taking my question. Since your IPO, you've delivered very strong system performance, particularly on the top line, but even more so on the bottom line this year, like the new guidance is somewhere in the range of 1,000 basis points increase year-over-year was just exceptional. Just philosophically, how are you thinking about margins going forward without quantifying it? Are you willing to let them run? Will you reinvest for new products? That's the first question. I have a follow-up.

Luis von Ahn, CEO

Thank you, Ralph. We definitely agree with you. Since going public, our overall performance has been impressive, showcasing strong user growth and a solid revenue stream, particularly with this year’s strong adjusted EBITDA performance. We’re pleased to see the business becoming both more profitable and generating more cash. Our focus remains on reinvesting in the business first, as we see significant growth opportunities ahead. We are just beginning to monetize our user base and tap into a large market, so our plan is to keep investing. This year, we are demonstrating that we can achieve substantial growth while becoming significantly more profitable. In response to your question about allowing margins to run, companies in our industry that went public around the same time as us often see a significant leap when they first hit substantial profitability, similar to what we're experiencing. Following that, they typically make consistent progress towards their long-term EBITDA goals. This aligns with our long-term vision.

Ralph Schackart, Analyst

Great. And Luis, I think you've been asked this before, maybe a couple of quarters ago, just in terms of size of the TAM in terms of users and some people do compare to the dating apps or companies. Maybe just kind of go back to that, give you an opportunity. Do you have any updated thoughts on sort of like the long-term penetration there?

Luis von Ahn, CEO

Yes. I mean, it's an excellent question. So for one, language learning as a whole, I mean our best estimate, there's about 2 billion people in the world learning a foreign language. Collectively, they spend about $60 billion a year. So that's a standard answer, but it's a little more complicated than that because in many countries, for example, in the U.S., 80% of our users were not learning a language before Duolingo. So it's really hard to know exactly how many people we can get to. I mean, we're getting close to 100 million MAUs. We're like getting close there. I think we can get much further than that. But it's just hard to know exactly how much because we are growing the market.

Ralph Schackart, Analyst

Okay. Thanks, Luis. Thanks, Matt.

Operator, Operator

Thanks, Ralph. Next question comes from Eric Sheridan of Goldman Sachs.

Eric Sheridan, Analyst

Thank you for taking the question. Could you elaborate on what you consider to be some of the most important investments moving forward? When we look beyond this year and into the future, these investments could drive additional user growth and engagement, as well as monetization of our user base. Also, I know you mentioned it briefly earlier, Luis, but how can AI help reduce some of the challenges in content creation compared to areas that may move away from AI initiatives? Thank you.

Luis von Ahn, CEO

Thank you, Eric. In terms of content, we need to invest significantly in advanced material for our courses. Not all courses reach the same level of proficiency; for instance, our French course offers more comprehensive learning than our Italian course. We aim to enhance all courses to teach at higher proficiency levels. A key focus will be on expanding our English courses due to the large opportunity among English learners. Generally, average English learners tend to be more advanced than their Spanish counterparts, as they often have prior knowledge of English. Therefore, we are adding more content to our English courses as well as improving advanced content across all offerings. Another significant initiative is making our content more engaging, particularly by incorporating narratives featuring our characters. We are working on developing stories and plotlines for these characters and enhancing them over time. In both of these areas, AI is a valuable tool for us, and we are dedicated to leveraging it to generate content more quickly and cost-effectively while maintaining quality. For creating enjoyable stories, we can likely produce them faster and at a lower cost, though we haven't fully matched the quality of traditional writers yet. We are progressing, but there is still work to be done. Overall, we believe that AI will greatly enhance our content creation efforts. I will stop there and that sums up my thoughts.

Eric Sheridan, Analyst

Great. Thank you so much.

Luis von Ahn, CEO

Thank you, Eric. Okay.

Operator, Operator

Okay. So next question comes from Andrew Boone at JMP.

Andrew Boone, Analyst

Thanks for taking my questions. I wanted to go back to one of the IPO disclosures and just talk about the 40% kind of annual retention rate that you guys talked about back then. Can you talk about how that's trending? And then maybe how do we think about kind of updating models today now that we're kind of 2 years out from pretty significant cohorts? How do we think about maybe year 2 or year 3?

Luis von Ahn, CEO

Yes, it's a great question. We view retention not as an end goal but as a component of our focus on lifetime value, which encompasses pricing, packaging, and retention. Since the IPO, our platform's lifetime value has risen significantly due to improved retention driven by an increase in annual subscribers and their enhanced retention rates. This shift has positively impacted our platform's lifetime value. Additionally, we've introduced a new family plan SKU, which carries a higher price and better retention, further contributing to the growth in platform lifetime value. Overall, blended retention remains consistent with the levels observed at the time of our public offering. While specific plan retentions, such as annual or monthly, may vary, when averaged, retention is approximately the same as when we went public. We anticipate this stability will continue for at least the remainder of the year. This is our approach to retention as it relates to increasing platform lifetime value.

Eric Sheridan, Analyst

And then, Luis, you talked about more of the advanced learner market earlier. What are the key product levers that you need to unlock there to really open up that market? And then just help us size that, right? Is that the majority of the $60 billion? Or is that a minority? How do you think about the potential for that? Thanks so much, guys.

Luis von Ahn, CEO

This is a great question and represents a significant opportunity. The total language learning market primarily consists of individuals learning English, many of whom seek advanced material rather than just beginner courses. This is why we are focused on enhancing our English course offerings. While a substantial portion of our revenue originates from the U.S., where learners often focus on languages like Spanish or French, the broader market for language learning is predominantly centered on English learners in non-English speaking regions, such as Asia, Latin America, and Western Europe. Our revenue model aligns more closely with other digital products like Spotify and Netflix, which also generate income primarily from English-speaking markets. However, given the expansive language learning landscape, we see tremendous potential to increase our earnings across various markets. To tap into this potential, we need to achieve a few key objectives: first, we must enhance our English courses to cover more advanced levels, which we are actively working on, though it may take a few months to implement. Second, we need to improve our system for assessing users’ prior proficiency to better place them in appropriate courses. Additionally, we must effectively communicate to English learners the availability of our advanced content. There's also a challenge in convincing consumers in certain countries to pay for our services. Users in these regions are often more inclined to choose free options, even when pricing is adjusted to be more suitable for local economies. Our freemium model tends to lead many to settle for free alternatives. We have noted that some competitors, like Spotify, have been more successful in monetizing their products. We recognize the need for experimentation in this area. Overall, a combination of these improvements could unlock significant revenue potential, which we believe is vital since it represents the majority of the market.

Eric Sheridan, Analyst

Thank you.

Operator, Operator

Next, we have a question from Arvind Ramnani at Piper Sandler.

Arvind Ramnani, Analyst

Thank you, Debbie. I wanted to ask about the daily average users. It seems to be tracking at a really healthy pace. What would be considered a healthy number in terms of growth rate or total figures?

Luis von Ahn, CEO

I mean …

Unidentified Company Representative, Unknown

Go ahead, Luis. Do you want to take the first stab at it?

Operator, Operator

That's a challenging question to address. From our perspective, this is our primary focus. Our freemium model means that the more daily active users we acquire, the more opportunities we have to convert them into paying customers. This is beneficial overall. Additionally, having more daily active users allows us to gather more data, which enables us to conduct further experiments and tailor our offerings more effectively. Essentially, an increase in daily active users is advantageous in multiple ways. We're pleased that for the past eight quarters, our growth has either accelerated or remained consistently high. It's difficult to predict how many more quarters we can sustain this kind of growth. Naturally, we cannot expect user growth to accelerate indefinitely; eventually, we'll reach a limit. However, for us, it's challenging to define what a healthy number is. The key for us is to keep growing, and we have been doing just that.

Arvind Ramnani, Analyst

Yes, there are many ways to generate revenue. Having more is beneficial and addresses numerous issues. I'm trying to understand if there's a specific ratio of paid users that would alert us to become more proactive in acquiring users if we fall below a certain threshold.

Luis von Ahn, CEO

Yes. One way to approach this was before we went public, we had a lot of years of data. User growth then was in the 25% to 30% range, which was really healthy and helped us achieve a good scale. While we’re pleased with our current situation, the growth rate in that period was beneficial prior to our IPO. At some point, we expect that growth rate to be healthy again in the future. I don't think it will happen in the next quarter, but it’s still possible to generate a significant number of subscribers, revenue, bookings, and profit even with a lower growth rate. We believe that such growth levels are attainable in the long run. For now, it feels healthy.

Arvind Ramnani, Analyst

Yes, certainly. Regarding AI, you've shared several insights, and Duolingo Max seems to be the first tangible product. Can you share your thoughts on how you plan to apply AI in the next 6 to 12 months in terms of developing a tangible product that can generate revenue?

Matt Skaruppa, CFO

Most of our efforts will focus on Duolingo Max when it comes to what we plan to charge for. We are also integrating AI in other areas of the company, such as speeding up and reducing the cost of content creation. We are implementing many internal initiatives to enhance our operations. However, the primary emphasis on what we will offer to users will be on Duolingo Max.

Arvind Ramnani, Analyst

Yes. Terrific. By the way, great start to the earnings call. I don't know if you can top that on the next one. But I thought bringing out the DO last earnings call was good, but you all outdid yourselves. Let's see if you can top next earnings.

Luis von Ahn, CEO

Thanks, Arvind.

Matt Skaruppa, CFO

I should say all of these deliveries. We do not pay celebrities for doing that. They use us.

Operator, Operator

Thanks, Arvind. Next question comes from Mark Mahaney at Evercore.

Mark Mahaney, Analyst

Thanks, Debbie. I have a couple of questions for Matt and a couple for Louis. Matt, you've seen a strong growth in monthly active users. Can you provide any insights on whether there’s anything noteworthy about where these users are coming from? Is there any reason to believe that the recent surge in growth is coming from more stable markets compared to what you’ve experienced in the past? Additionally, for you, this is the first quarter where your incremental margins exceeded your long-term EBITDA margins of 30% to 35%. The outlook seems positive for the latter half of the year. At what point do you reconsider your long-term margin potential? Or do you think it would be better to focus more on investments since you might be over-earning in the short term, and want to invest more throughout the next 12 to 18 months?

Luis von Ahn, CEO

Thanks, Mark. Great questions as always. In terms of the user growth, I'll say three things. So the first one is that we saw a great top-of-the-funnel user growth and great kind of current user or active user retention and growth. So it's really across the funnel we saw really strong growth and have for the past several quarters. The second thing is that it has been broad-based geographically. So one of the things we look at is, is it lopsided? Or is it basically all around the average? Obviously, around the average things move. There's some that are going faster, some are going slower. But it's still broad-based meaning that like the U.S. is growing really, really well. Western Europe is growing very fast, and then plenty in Asia is growing fast as well. So broad-based. The last thing we look at is how strong are these cohorts in terms of free-to-pay conversion. And we've seen great trends on free-to-pay conversion as well. We feel not only is the user grow fast and impressive, but it's high-quality and broad-based. So we feel really good about that performance to date, and then we feel good about the forward on it as well. On your second question, the incremental margin is the right one to think about it. I'm glad you framed it in terms of the long-term margin. We have not updated our view on long-term margin. We still think it's the same as it was when we went public, 30% to 35% long-term adjusted EBITDA margins. What we've shown this year is that there's power in this model. It's a very profitable model, and so we can get to that level of incremental profit slightly above this quarter. But I think again, I'll just go back to our capital allocation strategy that I mentioned in the answer to another question. First and foremost, we're at the early stages of growing this business. It can be a very large business. And so we're going to continue to invest into the business while also maintaining that profitability threshold that we talked about getting towards the long-term margins. But you should not read into this quarter as us redefining the long-term on that.

Mark Mahaney, Analyst

Okay. Luis, I have two quick questions. Can you provide any updates on my favorite math subject? What kind of traction are you seeing? Also, regarding your comment about expanding content, have you considered the idea of vertical language? For instance, there's standard English and then there's specialized versions such as legal English or medical English. Is this something you're thinking about for the long term? I realize that different industries have distinct terminology, and it can get complex. I believe it could be highly profitable for any company that can facilitate learning medical English for individuals from places like India or Guatemala, for example. Is there potential for creating more specialized English for various industries?

Luis von Ahn, CEO

Yes. Both are excellent questions. We are pleased with our progress so far. The app is continuing to grow, resembling the early stages of Duolingo, which makes us very happy. We recognize that we need to enhance the content available, particularly in the math section, and we're working diligently on that. Over the next few months, you will see a significant increase in content. That is our main focus. The growth metrics look promising, and I'm satisfied with them. Regarding the specific verticals of English, we understand that there are significant markets for Business English, Medical English, and others. Currently, we are not targeting those areas, but we may consider them in the future. For now, our priority is to enhance our general English courses to offer advanced instruction, even though they may not be specialized. There may come a time when we explore specialized English. However, I want to note that the target audiences for specialized English tend to be much smaller, and our strength lies in reaching large audiences. Given that we operate as an app business, it's rare to find situations where individuals pay substantial amounts for learning via an app. When audiences are smaller, substantial income typically requires high pricing. Our approach is to cater to broad audiences, which is why we haven't pursued specialized content yet. However, we may look into it at some point.

Mark Mahaney, Analyst

Thanks, Luis. Thanks, Matt.

Operator, Operator

Thanks, Mark. And now we have a question from Justin Patterson of KeyBanc.

Justin Patterson, Analyst

Thank you very much. I want to revisit something that both Andrew and Mario mentioned in their questions. Time usage is clearly a significant consideration for the app. On one hand, younger generations often have shorter attention spans, while older consumers also have limited time to spend on the app. Looking at something like the Duolingo Max at the premium tier, how can we effectively position this to address these challenges? Additionally, Luis, how do we find the right price point for international markets with a lower willingness to pay, in order to succeed in making this a global education platform? Thank you.

Luis von Ahn, CEO

Yes, Justin. I believe we will be conducting a lot of tests. Our approach with all our products involves gradually experimenting. I'm not completely certain how we will differentiate our strategies for younger and older audiences with Max and similar offerings. We will conduct many tests to identify the ideal combination of price and features that will attract a significant number of customers. However, it's challenging for us to predict which elements will appeal to which users, which is why we rely on testing. Our user base is very diverse; it's not limited to just younger or older demographics. We have users across various economic backgrounds and in every country around the world. Therefore, it's difficult for us to set priorities in that regard. Ultimately, we will navigate this through testing. That is our approach.

Operator, Operator

And it looks like we have a question from Zach Morrissey of Wolfe Research.

Zach Morrissey, Analyst

Great. Thanks, Debbie. Just curious on an update in terms of you called out paid influencer spend in Asia and LatAm last quarter kind of working well. Just curious for an update there. And if you see an opportunity to kind of translate that kind of strategy also to kind of your core Western markets as well, if you're seeing kind of good returns.

Luis von Ahn, CEO

Yes. I mean, generally, I'll say for our marketing, per our shareholder letter this time, the vast majority of our marketing is geared towards just viral stuff that we don't even pay for. In some cases, particularly in Asia and LatAm, we have found that working with paid influencers actually makes a lot of sense. We've gotten really good results with that. We have not gotten as good results in places like the U.S. for influencers. In part, that's because influencers in the U.S. are just very expensive, and we don't see the returns. I mean, for similar types of video views or something like that in the U.S. versus in a place like Brazil or something, the difference in price that you have to pay an influencer, I don't know off the top of my head, but it's something like 10x, and you just don't get the 10x returns. It's just much more expensive to pay a celebrity to do something versus to pay whatever the equivalent in Brazil is over a celebrity. It's just much cheaper. So we have not cracked that, and I don't know if we ever will. For now, in markets like the U.S., our marketing is just much more Owl doing unhinged stuff on TikTok or on YouTube Shorts and stuff like that, and that has worked really well.

Zach Morrissey, Analyst

Got it. That makes sense. And then just one on gen AI, right. I think you kind of talked about a healthy product roadmap for Max. Do you see an opportunity for in-app purchases products from gen AI? Or is the primary focus right now just driving kind of a premium tier on Max and maybe in-app purchases as something down the road that you can kind of layer in over time?

Luis von Ahn, CEO

It's the latter. I mean, there's definitely an opportunity for in-app purchases for almost everything we do. But historically, our subscription business is just so good. That's where we are putting our effort in. At some point, once we've really nailed what Max will be like, we may start selling some of these features a la carte or we may start having kind of power-ups or something like that. But for now, the effort is going into the higher tier subscription.

Zach Morrissey, Analyst

Makes sense. Great. Thank you.

Operator, Operator

Thanks, Zach. All right. So I'm not showing any other further questions. So I'll turn it back to Luis to wrap up.

Luis von Ahn, CEO

Thank you, Debbie. I'd just like to thank everyone for joining us, and we look forward to speaking to you in November. If you haven't watched it, watch the Barbie movie; we're there. And have a great evening.