[Management View]
Duolingo's management highlighted a shift in user acquisition and engagement strategies, emphasizing a deliberate reduction in viral social media campaigns and a transition to more positive sentiment postings. This directly impacted DAU growth rates in North America, resulting in Duolingo's 40% year-over-year DAU growth in Q2 2025, which was at the lower end of prior guidance due to these changes. They detailed continued margin improvement driven by lower AI compute and content generation costs, and confirmed incremental profitability from direct payment flows on iOS, even as adoption remains early in the implementation cycle.

[Outlook]
Management raised full-year guidance in response to top-line outperformance and margin gains but did not provide updated explicit DAU growth guidance for future quarters, stating no large changes expected sequentially. Accelerated international expansion was noted, with China and Asia delivering above-average growth, supported by prominent partnership activity, while the US market’s slower growth has prompted the initiation of targeted marketing investment.

[Financial Performance]
- Daily Active Users (DAUs): 40% YoY growth in Q2 2025, compared to 60% YoY growth in each of the prior two Q2 periods.
- Monthly Active Users (MAUs): 24% YoY growth, with a sequential decline due to elevated levels in the prior quarter from the 'Dead Duo' campaign.
- DAU to MAU Ratio: Reached approximately 37% as of Q2 2025.
- Subscription Mix: Max subscribers accounted for 8% of the total in Q2 2025, up from 7% in the previous quarter.
- Average Revenue Per User (ARPU): Increased by approximately 6%.
- Gross Margin: Outperformed management expectations due to lower AI-related costs.

[Q&A Highlights]
Question 1: DAU growth was strong but moderated in February. Can you break down the primary drivers and provide some color on the Chinese market? Any recent product improvements and timeline for video call launch in China?
Answer: DAU growth posted 40% YoY in Q2, slightly on the lower end of the 40-45% guidance due to a shift in social media strategy to more positive sentiment postings, impacting the US market. China is the fastest-growing market, with a significant boost from a partnership with Luckin Coffee. Max is not available in China due to regulatory requirements on local LLMs awaiting government approval.

Question 2: Can you update us on the paid conversion, particularly Max, and any changes driving the increase in conversion this quarter?
Answer: Max subscribers grew from 5% to 8% over the past few quarters, though slightly less than expected due to Super's higher growth. The main feature for Max, video call, is challenging for beginner users. Future improvements include bilingual conversations to ease beginners in and more engaging conversation topics.

Question 3: Can you update us on the direct payment flow tests bypassing the App Store and any early learnings?
Answer: Testing shows minimal bookings loss but significant profit improvement by lowering commission fees from Apple's 30% to a provider fee near 2%. The impact on profit will be limited this year due to GAAP revenue recognition for 12-month subscriptions.

Question 4: MAUs declined sequentially. Was this related to the social campaign? Also, can you speak to the excitement around the chess product launch?
Answer: MAU growth followed the DAU trend, with a slight decline due to the 'Dead Duo' campaign's elevated levels in Q1. Chess has surpassed math and music in user engagement among iPhone users with English UI, though near-term revenue contribution is not expected as all subjects are bundled in the core subscription.

Question 5: Are you seeing any retention trends with Max subscribers compared to Super?
Answer: Early renewal signs for Max are attractive, but it's too early to compare with Super. The focus is on optimizing LTV, with Max's higher price point contributing to overall platform LTV.

Question 6: Can you elaborate on the benefits of the energy system and how you plan to iterate on it?
Answer: The energy system, replacing the hearts mechanic, has increased revenue, DAUs, and time spent using the app. It rewards users for correct answers rather than penalizing mistakes, creating a more positive user experience. Full rollout is expected before the end of the year.

Question 7: Have you seen any negative impacts from the energy system switch?
Answer: Some users, particularly those who had optimized for free usage, have expressed dissatisfaction. However, overall metrics show positive impacts on DAUs, revenue, and time spent.

Question 8: Can you discuss the impact of AI model improvements on your service and the video call feature in Max?
Answer: AI model improvements help in content generation, particularly for math. Lower latency and cost reductions from older models benefit the video call feature, which is being continuously improved for better engagement and adaptability to user levels.

Question 9: How do you view the product experience for voice on Duolingo compared to other AI-based voice services?
Answer: Duolingo focuses on teaching rather than translation, and the video call feature is designed to be engaging. Download trends are not a primary focus, with more emphasis on active usage and revenue.

Question 10: What investments are planned for the second half of the year?
Answer: Investments will focus on product development, including hiring new graduates and expanding the music roadmap. Limited marketing spend in the US is also planned to boost growth.

[Sentiment Analysis]
The tone of analysts was generally positive, with a focus on understanding the drivers behind DAU growth and the impact of new features. Management maintained a confident and forward-looking tone, emphasizing strategic shifts and long-term growth potential.

[Quarterly Comparison]
| Metric | Q2 2025 | Q1 2025 | Q2 2024 |
|-------------------------------|---------|---------|---------|
| DAU Growth (YoY) | 40% | 50% | 60% |
| MAU Growth (YoY) | 24% | 25.5% | 30% |
| DAU to MAU Ratio | 37% | 36% | 35% |
| Max Subscribers | 8% | 7% | 5% |
| ARPU Increase | 6% | 5% | 4% |
| Gross Margin | Higher | Higher | Higher |

[Risks and Concerns]
- Regulatory constraints in China affecting Max rollout.
- Potential backlash from changes in user engagement mechanics.
- Slower growth in the US market compared to international regions.
- Dependence on social media sentiment and viral campaigns for user growth.

[Final Takeaway]
Duolingo's Q2 2025 performance reflects strategic shifts in user acquisition and engagement, with a focus on positive sentiment and international expansion. While DAU growth moderated in North America, the company saw significant gains in China and Asia, supported by partnerships and new product features. Management's emphasis on long-term growth through product enhancements and targeted marketing investments positions Duolingo well for future expansion, despite some near-term challenges in specific markets.