Opera Limited (OPRA) Earnings Call Transcript & Summary

Hi. Good morning. My name is JT Stephens. I'm Managing Director at UBS and the Tech Banking team. We are pleased to welcome back the team from Opera. We have Frode Jacobsen, Chief Financial Officer of Opera, who's been with the group, serving in the CFO capacity since April 2016; and we also have Derrick Nueman, who heads up the Investor Relations efforts. Just for a quick background. For those of you not familiar with Opera. It's one of the world's leading browser providers and is an influential player in the field of integrated AI-driven digital content discovery and recommendation platforms. They have a mission of enabling Internet users around the globe to discover and access digital content, and this is truly a global business, as you'll hear from Frode and Derrick shortly. So guys, thanks again for coming back to the UBS TMT conference. It's an honor to host you. I know you guys are going to spend a little bit of time running through a presentation. And then to the extent there's time at the end, we can do some Q&A. So Frode and Derrick, over to you.

Perfect. Thanks a lot, JT. Thanks for hosting us. I'll walk through the presentation. We'll try to leave some time at the end also for questions. So the investor presentation I'll walk through is the presentation that's available also on our IR website. Does -- can -- when I'm flipping slides, it translates to whatever -- what you're all seeing?

Yes.

Excellent. So beginning at a glance with Opera, many people have heard about us, but -- we've been around for a long time, but not everyone is sort of aware of everything that's going on at the company Opera. So at a glance, the company is a huge consumer Internet player. We have over 380 million monthly active users. It's growing nicely. We've added more than 70 million users over the past 3 years. We're known for our browsers, but we are also launching several new products and services on top. And the most at scale one currently is called Opera News, which is a content platform. I'll get back to it. It's already exceeding 200 million monthly users. Revenue-wise, we're at a run rate of $170 million at the core businesses of Opera in addition to other companies that we have created and incubated and retained ownership in. Launched several new businesses and many initiatives that we'll talk about. The core of Opera is still the browsers. We have, first of all, found out that or experienced over a couple of decades now that there is a very interesting opportunity for an independent company like us to provide an alternative to the system defaults. It's also a very nice business to run, profitable, nice cash flow from it. And strategically, very important because what we have seen is that it's a really good launchpad, given the scale, the brand and the distribution power of it, to launch new businesses and services on top since so many people use the browser to access other services. I mentioned Opera News as a very high-growth initiative. We've also launched a classifieds service currently in Nigeria, the biggest company (sic) [ country ] in Africa. We are launching European fintech services, and we have several very attractive, well-performing investments. OPay, the biggest mobile wallet in Nigeria, also going into more countries. We expect Nanobank, which is a fintech provider for emerging markets and StarMaker, which is a music-oriented content platform. I'll talk a bit more about all of them as we progress, but this is sort of an overall introduction of the main components. When you look at our trajectory, we have, as you see here, a nice growth in our core business. It's very -- it's user-generated revenue, driven by these hundreds of millions of users, quite predictable and high margin. And in addition, we have these new products that we have launched on top that have become material, and we upgraded them as strong companies or that we are about to scale within Opera proper. The mentality of the company is still very much like a start-up, and I hear a lot of tech companies say that, and it's probably true for us all. But it's a very fast-moving company, very impatient company, both in terms of improving always the core that we have but also the opportunities that we are seeing, in particular on the content and fintech verticals, and we go full speed at the initiatives we're driving. We'd rather do that and learn lessons quickly than to plan forever and maybe miss the train. Geographically speaking, you can see that, of course, we're a global company, but we are much more penetrated in emerging markets and Europe than we are, for example, in the U.S. and South America. So we really focus on the regions Africa, Europe and Asia. And of course, with the Africa and emerging Asia economies, when we just take the broader market context, they are massive, massive population markets and still relatively low Internet penetration. So both in terms of sort of the underlying monetization that we have and the underlying inflow of potential new users to our service. We have those tailwinds that we benefit from. To summarize the -- sort of the investment highlights, the key things that we want to explain to prospective investors that look at us is sort of the size and magnitude of our brand, the broadening of the ecosystem, and the fact that we have shown on several businesses but also are very excited about new ones, the opportunity that this core has to drive growth even beyond sort of the nicely growing but nothing crazy business of the browser portfolio. We've created investments and companies that we are very proud of. We are a very scaled player, which also benefits us as we launch new things in terms of monetization, for example. And we are a profitable company. We have shown that over time, there are periods that we invest, make additional investments in new products and new services or even the marketing and promotion of our products. But we've consistently maintained profitability as we have done that. And we have also shown sort of the margin potential of the business at scale. Then I will talk briefly about -- a bit of a deep dive into the products area. Beginning, of course, with the browsers. More than 300 million users on our PC and mobile browsers. Both mobile and -- smartphone and PC browser users are growing nicely. It's, of course, a very competitive space. We're up against competition that sort of are integrated into operating systems like Android or Windows or macOS. But what we have seen is that by creating a product that stands out from that, that solves additional challenges for users or provide functionality that go beyond the system defaults, there is -- there are hundreds of millions of people that find that worthwhile to actually go to Opera.com or find us in Google Play, for example, download us and start using our products. When you look at our portfolio, I want to very specific deep dive here. I think the key thing is to just say we have multiple products. We don't just have one browser. And the reason for that is that we tailor them to different groups of users, emerging markets-oriented, very lightweight, data savvy, et cetera, to a more developed market, privacy-oriented or more advanced features, et cetera. And this is important because these are then representing the hooks that we have to get people interested in trying our products and stick with them. Another very important factor when you are like the underdog in a market like that is that you've got to lead with innovation. So we got to do stuff. We spend a lot of our talent focused on what is next in browser, what are the next services or features, what can make the experience even richer. And we have a long history of stuff that Opera did first. Many of them get copied, of course, eventually, like multiple tabs, everyone takes that for granted, or searching from the URL bar, but we did it first. And then there are also features that are more unique to us still, not all of them would make sense for like OS-default type browser to provide. And that's something that we can do. The most recent example in the browser space that we've talked a bit about recently in our quarterly result is Opera GX, which is the first-ever browser tailored for gamers. So PC or Mac gamers that has functionality that works really well for them, if you want to limit like the CPU power or memory consumption by the browser as you stream, while you play in a different monitor or you have a community and, of course, the look and feel, design, et cetera. So that -- we think that product has done -- has performed well ahead of our expectations, and it also has brought in very, very engaged users with very good monetization metrics. So we see that as the start of a potential broader play around gaming and how we think about sort of segments using our browsers as well. Opera News, I mentioned that. So that was the first major thing that we built on top of the browser. What it is? It's a content platform. So it's an AI-driven. We have a -- relative to Opera's size, we have a significant engineering and big data and AI team behind this product, we essentially created so that it serves up the feed of content that is relevant to each individual user and tailored, of course, then to each individual user. But -- and we also create opportunities for the user to sort of engage and discuss and even participate with the content. It's -- we launched it in the beginning of 2017 and, as mentioned, now well over 200 million monthly users on the service. It's available within our mobile browsers but also as a stand-alone app and a web sort of solution. So -- but the service is common across all the various outlets of it. We've also invested heavily into being locally relevant. So from the start, Opera News supported multiple languages, meaning it supports sort of the AI understanding or classification of content around several languages. And as we have progressed, we have also created local editorial teams, but what is presented here is the Opera News Hub, which allows local content creators to publish their content with Opera News, participate in the monetization of that content. And what we see is that the combination of all of these things is driving both high engagement but also very good retention from our user base. Monetization, how we make -- how we generate revenue. On the browser, it's all about driving traffic. So we drive traffic to our search partners, and we have revenue shares based on the then monetization by the search partner. Or we promote partners through advertising. This -- the screen shows how we can pre-populate bookmarks of partners, we typically monetize those on revenue shares as well. So if you click a partner and make a transaction, for example, we will collect the percentage of that from the partner. Opera News, when we launched that in 2017, it was also a big milestone for us monetization-wise. We didn't focus much on it initially, but what it also represented, of course, was a content stream, a never-ending content stream that was very suitable for just classic, native ads, like you would see on any social media platform, for example. And then it became a new monetization opportunity for us given the new sort of content offering that we had. We are well connected in the ecosystem. We work with sort of more or less all the major players that are relevant to us. And of course, a long, long list of country or region-specific smaller players as well. I'll then talk a bit about the new initiatives. We've recently spoken quite a bit to our -- on our earnings calls, et cetera, about the fintech offering that we are about to roll out in Europe. I won't go too deep on that in this presentation. But overall, again, we believe that is a space where there will be a lot of innovation and when there is tremendous opportunity for new players to come in. And unlike our competition or an advantage that we have over most companies there is that we have 50 million Europeans already making transactions in our browsers. So we see that as a fundament or a launchpad that we believe will give us a big advantage in this space. We are really gearing up for that. The first market we will launch in will be Spain. The first service will be buy now, pay later type offering for both online and off-line purchases. We're more or less done with testing. We've got everything ready, and we got the brand worked out, if that's not announced yet. And we look forward to sort of the first official launch. Now if you follow us, you will see that we've made several very small acquisitions, but really, it's all about licenses and the teams that we are pulling together in order to sort of broaden that service to become a quite broad fintech play in Europe. Then we have our investments, and I'll talk about the 3 key ones. Nanobank is the first one. So that is a -- that's another fintech business. That is tailored for emerging markets, initially focusing on microlending. So it's very different than the European play. But again, the technology behind it, launching a microlending service in emerging countries, it sort of makes or breaks based on the technology that you have, both to run lean operations but also to do a decent credit scoring, given that the launch will be unsecured, et cetera. We have now established that as a company called Nanobank together with a partner that we had along the way, carved it out from the core Opera business, operating in a total of 4 countries. Pro forma, Nanobank had revenues in 2019 of over $200 million. And actually, the run rate in Q4 of the year was nearly double that. So very quickly growing and very solid profitability. So we think Nanobank remains extremely excited about the potential for fintech in emerging markets. And we see that company broadening its geographic footprint and broadening its services as well. The second one to highlight is OPay. That's a company that Opera participated in from the start. We incubated it. It stands for Opera Pay, so we have a joint branding benefit there because it's very physically present, launched in Nigeria first. It's raised significant capital from external investors. We have a 13% stake in it. It is now, I believe, the biggest mobile wallet in Nigeria, over $1 billion every month is transacted through it, and it's grown 3x year-to-date 2020. So on a very rapid growth curve. Final one to mention is StarMaker, which is a music community, over 50 million users. It's doubled revenues this year, fantastic user growth and become a very popular service with a very strong financial trajectory. So that's a high level introduction through 3 of our investees. Financial overview of Opera, you'll see we've got a strong core, and we have also shown how we can scale things. When you look at the revenue chart here, you can see the sort of the nice and steady growth of the core. The gray represents the microlending revenue that Opera had before we created Nanobank. So it's a good visualization of sort of the power that we have as a company to take a business from more or less nothing in 2018 and make it over $100 million revenue stream the following year. Profitability-wise, in 2018, we had an EBITDA margin of 38%. It was up from mid-20s, I believe, in 2017, and it really shows sort of the scale economics of our core business model. In 2019, we announced at the beginning of the year that now we are seeing opportunity for several new services that we want to launch and build within Opera, and we also had a great marketing opportunity around both the browsers but also Opera news, and we wanted to seize that. So we always make that trade-off between near-term profitability and sustaining and driving sort of accelerated growth for our company. In the most recent quarter, we had a 25% profit margin, and that's also what we have more -- the level that we have guided for the next quarter. This doesn't show quarters, et cetera, I would say, high level. Opera had -- we, of course, like many other companies noticed the decline in spend in advertising around peak of the COVID pandemic. April was the worst, most affected month. Since then, we have been and we continue to recover. We could present a Q3 that was back to year-over-year growth on the user-driven revenues, search and advertising. And we've guided to continued strengthening in the year-over-year growth in Q4. So I think as we now look ahead, I don't have a separate slide here on guidance. I would say that the highlight is that we're coming out of this pandemic with fantastic momentum in our user base and user growth beyond what we expected when the calendar is January of this year. Monetization-wise, now we are back on track. We're actually in year-over-year growth mode. And that is while monetization on a per user basis is still lower than last year, of course, given COVID still having an impact. So that's a great one to sort of have with us in our back pocket as we then enter 2021 with a solid user base and several levers essentially to continue to scale monetization faster than user growth. Growth strategy, final slide here, at the core is sort of a healthy browser business. Doesn't have to grow anything crazy. It's a sort of nice and steady growth as we've had, and we continue to benefit from that in a strategic sense. Monetization, we still -- we are still quite early in the monetization of Opera News. The products and services really starting to become material and meaningful, significant in our financials now. And it's showing -- shown consecutive sequential quarterly growth even through the COVID period. So it's been quite impressive. We have a short list of the hot verticals, and those are -- that we are going into. Those are the ones we have communicated externally to date, but that is something that we have observed in the past that we can do well. And here, we see with the continuation of Opera News, both European fintech, classifieds as examples of areas that we think can be very material for our company. And of course, we follow our investees very, very closely. And we think that's another venue where we are creating value for our shareholders. I think with that, I will stop my presentation, and then we can take questions or any particular areas that you'd like us to deep -- dive deeper on.

Great. Frode, thanks a lot. Maybe one of the questions, and obviously, there was a bit of a decline in kind of the ad business with COVID, right? And we've got the news of the vaccine as we were talking about. I mean how do you guys -- maybe how are you seeing kind of responsiveness from advertisers as you look forward to '21 and beyond based on your kind of early discussions and as people are doing kind of ad buying, planning for next year?

Yes. I would say, high level, we're not done with COVID yet, not for Opera, not for any of us, right? We have to give it some more months, right? But -- and we've seen a shift in -- of course, different verticals are affected differently. The travel segment used to be -- if you go a year back for us, travel used to be a really big, big segment for us. Obviously, now, it is not. But I think what we have been doing a decent job at is to look at other verticals that -- where there is more demand for -- essentially for traffic, for users, for volume and to redirect it like that. So being back in year-over-year growth mode now even without some of our prime verticals of 2019, let's say. And I guess you could say that also feels good because we don't think travel is that for good. We think people will actually be quite excited to be able to travel again. And of course, we like demand for our users, for our inventory.

JT, this is Derrick. I would add 2 other points to that. I think advertisers are feeling more and more positive. I think we've had a pretty good start to the fourth quarter in the first 2 months. Obviously, we'll see what the next 3 weeks bring. But despite COVID becoming a little more -- out there, we're not seeing any impacts further than what we had seen before. And then the other comment I would make is when Frode was talking about 2021, we definitely feel more positive about our future. I mean, we've guided to baseline growth of 25% next year. And I think that speaks to our optimism as it relates to the vaccine and just COVID, things continuing to progress from a COVID perspective, not necessarily going away but progressing.

Yes. No. That's great. And I guess one of the other questions, one of the underlying themes, I would say, we've heard from this conference is that businesses that -- obviously, it's been a tricky year for a lot of companies, and tricky decisions have to be made from an operational standpoint. But then you fast forward a handful of months, and there's all these like business realizations. Like, "Oh, my gosh, we've optimized our business so well on this front that we've never envisioned, we've seen this opportunity emerge that we hadn't originally envisioned." Maybe talk a little bit about that, right? I mean 2020 has been a year of change for a lot of us. And any kind of silver linings that have come out of this for you guys as you think about the future?

Sure. So maybe highlight of this is when you're in the business, when you have a core business that is a browser, sort of as a strategic fundament, whenever transaction shift from off-line to online, that's good for you, right? People transacting online, the value of the traffic that we can bring increases, the number of people that want to access sort of e-commerce, et cetera, online -- and even digital consumption of different kinds, positive for us. That's sort of a trend that we have benefited of -- from for a long time, for years. COVID is certainly accelerating that transition, we believe. And sort of that is a positive thing -- underlying positive trend that all our monetization benefits from that. Specifically, in terms of like lessons learned, I think maybe one example is we -- around the classifieds business, there are different ways that you can approach a business like that. And initially, we had a much more physical, present approach in markets. That became very difficult in Nigeria as the country shut down, et cetera. And we -- in the year, we did a slightly different take on it. And then looking back at it, it's almost like the version of Olist that we are sort of envisioning right now is a version that is easier to scale over time. So I think COVID maybe forced some lessons a bit earlier than we would have -- maybe we would have reflected on it a bit later if it weren't for sort of that forced mechanism.

Yes. No. We've been seeing that across the board for a lot of companies. I think what you're going to see is just a lot of efficiencies and innovation as we head into '21 across the board, across the sector, so not surprising. One of the other questions that came in is just around the classifieds business. Obviously, there's been a lot of consolidation across the category broadly. But how do you guys think about competing? Obviously, you're in kind of a market that maybe is a little underserved. But the question here is do you worry about Facebook given their momentum in their marketplace business, if you think about those guys at all?

Derrick, maybe you have been -- maybe you have some insights to add. But at least at the high level, what we saw with Olist -- so our classifieds offering, Olist. We launched it after the summer of 2019. Of course, we have a quite trusted brand in our regions like in Nigeria that actually adds quite a bit of credibility. I spoke to some local potential partners, and they were like, oh, would love to do something with you, Opera, because we can put the red O on it, then immediately, people don't -- their first assumption when they see the offering is not this is probably a scam. It's like, oh, Opera, we know that company. And it's a bit trusted. I noticed it when I come at the airport, and I wear my Opera hoodie, and even the guys at passport control, very aware of the company, and it's very visible there. So I think we were able to scale it quite quickly. There will always be competition. There was a big player. I think we have become a -- I don't know if we are the biggest, but we are certainly a material player in the country. And then I think compared to international competition, one advantage that we saw, we had -- when we scaled the microlending business in, for example, Kenya, is that we're not afraid to go very local. We're not afraid to set up offices. We've hired hundreds of people on the continent over just probably the past 18 months and make the -- we have the digital back end. We have sort of the digital AI and systems, but then to have the business to be created, be local, we're not afraid of that. Like we're not so academic that everything needs to be business run out of HQ in Norway or the development hubs that we have at other places in the world.

Yes. I mean, JT, I mean, I would start off with the fact that we have 150 million users in Africa and have this platform between our browser and Opera News push products. And so if you look at the 5 million plus monthly users we have on Olist, roughly 3/4 of those users are being introduced through Opera, with the rest being mostly introduced through SEM. So we don't have those customer acquisition costs that other players have. Now you could argue that when we push somebody from an Opera property, we're going to get ad revenue. But that, the trusted brand, I think, give us a huge advantage. The other thing I think that's really interesting is we've shifted our marketing approach within Africa, which I think benefits all of our properties. So instead of running a TV ad, we're now partnering with telcos to give out small amounts of free data. And that's further making us a trusted brand to people in Africa and making people think of Opera the same as the Internet. And that doesn't mean that Facebook can't figure out how to make money or do well. I just think that compared to traditional classified platforms, I think we have a very good opportunity to grow traffic. Now we have to figure out how to monetize it the right way, and that's still admittedly a work in progress. I mean we're doing small amounts of revenue today through sponsored listings. But ultimately, if we want to get bigger, we got to get into more countries, and we got to figure out the right monetization platform. And maybe that's doing a lot maintenance partnering, but we'll see over time.

Makes sense. Makes sense. Well, look, we're coming up on it. I think I can probably give you guys a minute back of your schedule, but really appreciate you taking the time participating in the UBS conference again. Business obviously has continued to make a ton of progress, which is great to see. And I think we're all looking forward to seeing how things perform in '21 and beyond. So thanks again for your time, guys.