It is allowing us to do things a lot faster. And what that does is it just changes the calculus for everything. And you’ll see this with English. There were projects that if they were pitched to me seven years ago or five years ago, and I would just do the back of the envelope calculation of how long it was going to take to make the content. And it would be pretty clear that it was going to take us five years to make the content. I would say, let’s not do that project because I don’t want to spend five years on that. That same content can now be made in, call it three months. So now I’m just like, yes, sure, go for the project. And even more, even if we make the content in three months and at the end of the three months, we realize we screwed something up.
It’s okay. We can redo it again in three months. So it’s just allowing us to be a lot more aggressive on what content projects we work on. So in terms of spend, I don’t think this is something that you should be too concerned about in terms of the spend of the content. And in terms of the marketing, it’s something else that we’re not going to, because as a company, we’ve never been a company that uses, for example, performance marketing that heavily or anything. So you’re not going to see us spend a $100 million on a campaign to convince English learners on this. Probably what you’ll see us do is do a lot of in-product marketing inside the Duolingo app, which is free, and probably a lot of our very strong social media to convince people that Duolingo is an effective way to learn more advanced English.
Ryan MacDonald: Makes sense. All right, that’s helpful, color. And then maybe just speaking of social media channels, obviously, we continue to see developments around TikTok and a potential ban and bills being passed. Can you remind us what percentage now of marketing spends on TikTok in the U.S? And then if the need arises and you need to continue to diversify, what’s the process like to migrate maybe some of those campaigns off? And what’s relative effectiveness maybe on other channels relative to TikTok? Thanks.
Luis von Ahn: Yes, great question, Ryan. So, okay, so there are a number of things to say here. First of all, our TikTok views are organic, so we don’t pay for that. That’s just it’s organic stuff. We’ve decided, we realized a while ago that it was a good idea for us to diversify away from TikTok. This was more than a year ago. I mean, we got very prominent on TikTok and that was great, but we realized that it was a good idea to diversify. So we’ve done a number of things. For one, we’ve invested in Instagram and YouTube shorts. The good news is that YouTube shorts and Instagram reels are products that are pretty similar to TikTok. So what works on TikTok, pretty similar things work on YouTube shorts and Instagram reels. That’s one thing to say.
Another thing to say is by now, actually, YouTube contributes more users than Instagram for us already. That surpassed it. So that’s good for us. The other thing is that our TikTok views in the U.S. are the US accounts for less than, it’s a minority of the TikTok views, because we have views from TikTok from all over the world. So our sense is that if TikTok were banned, which, you know, may happen, it’s probably going to take about a year for that to happen. And if that were to happen already, it’s a minority. You know, it’s not a very large fraction of users that are coming from our TikTok views because we’ve diversified a particular TikTok views in the U.S. And then the other the other kind of in-house view is that what will probably happen is what happened basically in India.
Basically, people move to from TikTok to Instagram or YouTube where we’re already pretty strong. So overall, we’re not particularly concerned about a potential TikTok ban in the US.
Ryan MacDonald: Excellent. Thanks for the color.
Deborah Belevan: Next question comes from Andrew Boone of JMP Securities.
Andrew Boone: Hi, guys. Thanks so much for taking my question. I wanted to ask about the deceleration in MAU and DAU. And this may be more of a theoretical question. But how close do you guys think we are to Kerr where growth would be more limited to your ability to generate new users and resurrect users?
Luis von Ahn: Great question. I mean, so, yes, DAU’s decelerated a little bit. Well, DAU growth decelerated a little bit. But the way we see it, we had like ten quarters of accelerating DAU growth and we kept saying almost every quarter like this can’t happen forever. This can’t happen forever. And DAU growth was accelerating, but it was accelerating a tiny bit. It was like 60%. Then it was 60.5%. Then it was like 61%. That’s it. And it kind of went all the way up to 64%. This time we had 55%, sorry, 54% DAU growth. We’re at the beginning of Q2, which we already have is looking higher than the 54%. So we think it’s going to go a little higher than that. Kind of the way we see it is we’re at around 60% DAU growth. I mean, some quarters are a little more, some quarters a little less.
It was kind of this fluke thing that we were going to keep creeping up for like ten quarters in a row. But the way we see it is we’re around 60% DAU growth. And we think that that’s going to continue for a while. It’s hard to say exactly what a while means. We feel pretty good about our DAU growth.
Andrew Boone: And then for my second, I wanted to ask about subscriber conversion. It ticked up this quarter. Looks very healthy. Can you talk about just the strength of the 23 cohort now coming through? And it’s just kind of that yearly lag. And that’s what we’re seeing for conversion. Or is there anything else you guys want to call out there as we think about that metric? Thank you so much.
Matt Skaruppa: Yes, I’ll take a little bit and then, Luis can talk about some of the products out of it. But when we look at the numbers, Andrew, that’s what we saw. And that’s what I mentioned to a question earlier around the subscriber bookings growth. Cohort conversion has improved across every cohort from 2023. And so we feel really good about the subscriber free to pay conversion and the continuing ongoing conversion of those cohorts. So it’s led to, that’s what led to the 47% bookings growth for sub bookings and Q1 and why we feel pretty good about the rest of the guide on the sub booking side.
Andrew Boone: So Luis, if you wanted to mention anything about the product.
Luis von Ahn: Well, I mean, just generally we keep making the subscription tiers more appealing for people to subscribe and it’s working. So it’s getting more and more people to subscribe. Yes.
Andrew Boone: Thank you.
Deborah Belevan: Next question comes from Eric Sheridan of Goldman Sachs.
Eric Sheridan: So much for taking the question. I just have one maybe for more for Matt. Obviously, you continue to sort of demonstrate continued incremental margin outperformance versus the way you guide one quarter forward. Obviously, you’re talking about a step back in margins lower than the level you just put up a Q1 for both Q2 and the remainder of the year, the full year. Talk a little bit about the investment you want to make between now and the end of the year that could cause that margin to take a step back from the level seed in Q1. And if you were to outperform margins as we go through the end of the year, what would be some of the drivers and more of the upside note? Thanks.
Matt Skaruppa: Yes, no, it’s a great question. And I understand why you would ask it, given that we printed a 59% incremental margin, which is higher than our long term margin by a lot. The reason that happened in Q1 was twofold. One was we actually just shifted some of the expenses out of Q1. It’s in the normal course. Some of that went into Q3, which is why I mentioned sales and marketing expense goes up in Q3 relative to our previous guide. That was about half of it. The other half was we were finalizing some additional projects, so Max and some of the English learning content. So we capitalized about a million, million and a half more incremental than we expected. That was about two points of adjusted EBITDA margin. So if you take those two things into account, you get about half of that over performance and incremental margin.
But to step back even from that very detailed Q1 answer, the broader point is we have a ton of things we want to invest in throughout the course of this year and then for the next couple. So Luis mentioned English learning. That is a priority. We’re going to focus on that. We’re going to focus on math and music. We’re going to focus on our core subscription business as well. And so that’s why we think that the prudent thing to do to attack this huge opportunity we have is to continue to invest such that that incremental margin stays closer to 35 than 60. And that’s what we’re guiding to. And that’s what I think we’ll see the rest of the year.
