Opera Limited (OPRA) Earnings Call Transcript & Summary

Thank you. Good afternoon, and thank you all for joining today. I want to welcome you to the Opera Limited session at the 2021 UBS Global TMT Conference. My name is Ritchie [indiscernible], I'll be opening up for discussion today and then moderating a Q&A at the end. I'm joined today by Frode Jacobsen, Chief Financial Officer of Opera; and Matthew Wolfson, Head of Investor Relations at Opera. This session will be held in the presentation format. Frode and Matthew will take you through the presentation and then, of course, we'll take some Q&A from the audience. The audience should feel free to submit their own questions to system as we go along, and we'll do our best to address the questions at the end. With that, I want to give a warm welcome to Frode and Matthew and turn it over to Matthew and Frode to share more about the exciting things going on at Opera. Frode?

Thanks, Richard. Hi, everyone, thanks for having us today. So we've prepared a few slides, so I can use that as we give a brief introduction about the company. Here we go. Matthew is showing that. I'm joining you today from Oslo, Norway, where Opera is headquartered. So I think we can just move into the content of the slides there. So I think maybe the first thing to say is our message. I think the slide is this here. But I'll just read and talk to it anyway. First thing, so Opera as a company has been around since the '90s. It's the key part -- the first part, we had this Internet browser, so web browser, and that is still the core of the company. I'll explain more about that later, but first is I wanted to say, the context, we're actually in a quite good place to be as a company and as a business. People are spending more time on the Internet than ever before and engaging online with many aspects of their lives, whether it's through communication or shopping, news, fun, gaming, et cetera. And what we do is we build browsers for people who want a more personalized experience for their life, and we're actually the most downloaded independent browser. So there are, of course, browsers with bigger user bases than Opera, but they basically are bundles with the operating system or the provider, and then we are the most downloaded independent one. So the strategy that we follow is to invest deeply and to create a great product. Many thought that sort of the history of the browsers are over, and we're moving to apps for everything, et cetera, but the opposite has been happening. So we are getting making more and more time spent by our users, and we think a bit of bias, of course, but the history of the browser is still quite early. And we see that as a marketing point [indiscernible] in terms of the emergence of more and more decentralized models, user engagement, content creation, the obvious techs, right, and the obvious video and making games, participating in the creation of these metaverses or these digital worlds. We see that as a really evolving space. And as a browser, we are really participating at the forefront of that. The next slide is -- talks a bit about our user base. We're not so big in the U.S. yet, but it actually is our fastest-growing region. So it may be surprising to many, but Opera has over 350 million monthly users. The biggest reason for us are Africa and Asia, so emerging markets. But also Europe, and North America more and more. And as I mentioned, U.S. is growing fast, this is actually the developed Western markets in general that are growing the fastest, which we also see a bit in our revenue, obviously, also the highest monetization regions. And the way we drive it is we don't have one browser like Chrome versus our range. We have multiple browser products tailored to different use cases and into specific segments. So this is a bit of an overview of the company. We call our strategy browser because the browser is the core, and it's our most sizeable product also nice growth, very, very profitable core as well, economies of scale. And we have expanded into 2 verticals, one is content, the other one is gaming. So in content, we have a product called Opera News, which is a personalized content platform where we use AI to create a sort of a unique experience or unique content to each person based on their interests. And on the gaming side, we have a browser made for PC and also mobile gamers, which plays into the strength of Opera in that we take our of technical expertise in that area, we pay for products that work seamlessly with streaming, integrating of different services, et cetera, where we really take a pretty active control of the resources of the consumer. And we're expanding into the game platform, allowing people to create simple games in this way, and then these cross-pollinate of course. Opera also has 3 investments in private companies. OPay is our current [indiscernible] and they're all emerging market-focused. I guess the analysts that follow us, already know but it's a few hundred million dollars, actually. They're all doing actually quite well, actually. OPay is the biggest mobile wallet provider in Nigeria, its home market. But also expanded into other markets, in the mobile payments and mobile transactions. StarMaker is social media related to music and Nanobank is a micro credit provider in emerging markets. So this is the totality of the picture. In terms of our financials, you can see on an upcoming slide here, our revenue with guidance for the year to about $250 million at the midpoint, well above where we were pre-COVID, obviously. And of course, this substantially -- substantial increase from last year that had some quarters with dampened advertiser demand in -- as those business [ starting point in ] COVID. Maybe also just to say how we make money as a browser company. So that, we do by providing traffic to partners. So we have search partners where connect revenue share on the partner, such as schools, monetization of purchase that we buy, that's about half of our revenue. And the other half is advertising, whether it's integrating partners and promoting them to the product or just having native apps in the Opera News news stream, essentially. Then just a few words about Africa. So I mentioned that emerging markets were the biggest foothold that we have. And in particular, Africa is our most strategic region, so we have huge presence there, over 140 million users on that continent and a very well-known brand, the Opera brand. And so a lot of the products that we develop is with sort of with an Africa-first strategy. And while, of course, the monetization per users in Africa is still much, much less similar to this in Europe or in North America, the underlying growth and the potential of that region is a key optionality for us. And as I said, we're very strategic part of what we focus on. And let me say a few words about each of the 3 or 4 areas on the browser side. Of course, we are a global provider there, and we actually differentiate our products between different use cases. So there are some products that are very popular in Western markets, for example, the gaming browser and some are very popular in emerging markets. The most downloaded, more than 1 billion downloads so far on the Android Play Store and this -- and as I mentioned before, it's a very strategic asset. And so obviously evolution of web into the next era. For example, we're the first major browser to have a crypto wallet built right into it, but it's super easy to activate it and start using it. In terms of business, it's a business with very high economies of scale. The gross margin is 90-plus percent of revenue, and we have the ability to provide massive traffic to our partners, and that's something that we work very closely with strategic partners. And we also have a lot of them on tail of other advertisers and local partner that we work with. And I'll briefly introduce News. So as I mentioned, it's an AI-based content platform. We founded it for Africa, which I just alluded to as the most strategic markets. We want it to be the biggest content platform on the continent, and that, we have achieved. And then we actually saw that the product performed well also in Western markets. So we've launched it in several European markets as well as the U.S. And we have some revenue set here, and it's growing very quickly, well over 100 million users, now it's over 200 million and more than -- or nearly 300% revenue growth. On the gaming side. Let's start with the gaming platform. And then we launched a browser for gamers. It has become almost very material. Financially speaking, it's the highest value our producers said we have and a is really placed well and has been well received in the gaming communities. Beyond that, we have a platform called GameMaker Studio, where people with low or very low coding skills can make like simple games and publish them through the GX community gaming platform to launch the game into an audience, which will enable people to play the game directly in the browser or their own station, et cetera. And even if it's still early days, it is already our highest monetizing product, and we're just starting to look at and gain monetization and supporting our game makers essentially to monetize their games. So it's a very interesting space for us. On the financials. You can see our quarterly revenue here. So for the next quarter, we've guided 41% growth at scale that we're driving now, and that acceleration is very valuable given the economies of scale in the business. I'd also see -- what I'll talk about is that this year, we are pulling all our focus into marketing and scaling the business, which has really paid off. And actually, when you look at the bars, you have different revenue categories there. The bottom one is search, next one is advertising. Those are the user-generated scalable ones. And the top one is [indiscernible] another, which is something that we've been focusing on for some time. So when you look back to pre-COVID, you can see that even Q3 of '20 was at the level that is pre-COVID and then grown substantially also since then. On the margin side, I would say we, of course, we've had for years now with a high investment in 80%, taking our EBITDA margin down to 14%, 15% in the past couple of years. and of course, in dollars now in particular, this is greater than ever. But that is also then really paid off in terms of the COVID and our growth trajectory. For this year, the quarters of this year are here at the bottom. We guided breakeven actually in the first 3 quarters, and then exceeded the revenue as well as given the cost structure that fell down to the bottom line and we sort of unintentionally ended up with the 10-ish percent EBITDA margin. And so in 2018, so the year just before that time something like 30 -- high 30% EBITDA margin and it was guided that's now this year we start to normalize margins even. So overall, I know this is a very directed introduction, but it's a pretty diversified, small company, and we're actually doing pretty well. And then we actually accelerate gross dollars due to the bottom line. And of course, we're in a super interesting space, with everything that's happening around web innovation. And we had the luxury that as a small independent player, so we can be quite use case-focused. We don't have to cater to everyone. So that is actually a quite strong position on top of a 350 million user base that we intend to leverage, of course, also going ahead. And then a bit often overlooked but worth to mention. We've made investments into these 3 companies with our [indiscernible]. They've been pretty good investments. They're now, at this stage, more financial in nature and we take on some opportunities that we had and created given, in particular, being our strengths in emerging markets. So I think to round it up, core business is doing very well. We're probably going to exceed 50% year-over-year growth this year. On the profit side, you can see the dollar is exactly the same as last year, and that is because of a pretty massive increase in how we invested to accelerate our scale. And then in terms of assets beyond sort of the core business and the enterprise value. We had a very strong cash position relative to our size, and these are worthy investments that give us optionality on top. I think I'll end there and very happy to take questions.

Great. Thank you very much, Frode, and while we wait for questions to queue from the audience. Really interesting presentation, and I appreciate the overview of Opera. You mentioned gaming and crypto during the presentation, and just curious how Opera plans to further monetize those initiatives.

I would say both are subjects of great strategic interest. And maybe -- and for crypto is a sort of a blockchain-based economy universe. We were very early in 2018, when we integrated our own crypto wallet in the browser. We do see that sort of how the Internet is evolving into the decentralized trustless transactions, ownership of digital assets I would potential. We completely appreciate that. And it's a nice thing in that space is that all these services you access it through a browser. It's -- in principle, it's not one big, centralized service provider, but a very decentralized ecosystem. And so that plays to both, I would say, the technical aspect of this and so the use case of it like takeout restaurants. And we do have a sizable user base. And if we are right, if the world is moving in this direction, of course what we can do to lower barriers of -- to entry to make it understandable to make it accessible, we actually think we can play a role in that. So that's how I would summarize that. On the gaming side, it's -- we're going to -- well, one thing is very close to home, why don't we make a browser for gamers? It looks very different, it feels very different. It has it's own community, it has got information about games, upcoming releases from all these different studios, et cetera. And we also have a technical aspect that's very clear, it's not just a skin on the body, right? It's something that -- where some people with actual browser expertise can do that. So for example, you can limit how much memory and CPU power is used for the screening and the pace you run that on one monitors, so that your game is still running smoothly on the other monitor, a very typical use case. And then beyond that, we're also seeing -- just look at Roblox, right, the interest of people to make simple games, share it with their friends, Tweet [ iPhone ] assets in that [indiscernible] et cetera. We think it's a very interesting kind of trend. I mean we're seeing social media protecting pictures within TikTok, with Vimeo, and we believe that we'll see similar trends on games. And so we tie that to sort of the whole broader, which is still a buzzword, but the whole broader sort of metaverse emerging. And so these will all somehow be great and connected and share across. I mean we -- in terms of strategic focus, those are also almost very high on our way up.

Understood. Understood. And exciting things, especially if you think about metaverse and gaming and where those end markets are going. During the presentation, you mentioned a little bit about the minority investments, OPay, Nanobank and StarMaker. Could you just discuss a little bit more opera's strategy regarding these and other potential minority investments?

So they are the ones we have. They came for quite specific operational purposes. One was a part of our business that we spun out directed at [indiscernible] with the party, another party that was Nanobank. OPay is a company that we participated in the incubation of. I mean I guess a lot of it is quite similar to Opera's own, right? Kind of originally stood for Opera Pay, as it might have with them. But we were there on the ground in Nigeria. We helped get it up and running, et cetera. The company has raised $600-plus million of capital since inception. And so at this point, I would say all of these companies are professionalized. They are operating on their own spend and they spend on their own companies. Our operational involvement is not really there anymore, meaning we played a role in the operation of them. But now we consider it's more financial assets, and now we try to do what they're already in there also doing when it comes to talking up an ownership and just how we maximize the value for our shareholders. On that we did monetize like 29% of our OPay stake this summer in connection with the funding round with the company from like 9x was the investment, so that was [ $50 million. ] We still retain the -- it's more from a value maximizing perspective at this stage.

Interesting. That's very helpful in understanding the business from a [indiscernible] today. And a little bit more, I guess, on the financials. Could you go into a little bit greater detail on maybe user trends, ARPU by region, if you think about it that way or other related terms?

Yes. I'll say -- it's a big question. The platform we are talking about [ 57% ] year-over-year growth. It's driven by ARPU improvements. So we actually -- we grew and we've been rolling the fastest in Western markets. Africa has been quite stable despite the [indiscernible]. And in Asia, we had a net decrease of users because we stopped some distribution activities that yielded lots of users, but we didn't make any money. So that's why the net has been quite stable overall in the user base, but the revenue growth comes from monetization. So I think something like about 1/3 of the ARPU growth is driven by sort of a regional mix, and the other 2/3 driven by like-for-like improved monetization per user.

Understood. And it seems at least recently and historically, the revenue growth here has been quite strong. As you think about in your confidence in the ability to continue to grow revenue, any thoughts there? And I guess, in particular, do you think it'd be driven by user growth? Improving monetization? Other factors?

I -- we haven't guided yet for next year, but we have been [ messing ] this year to put ourselves on sort of a nice trajectory also to the exit of the year and go into the next. So we do still give about the revenue trajectory that we expect and talking about coming out of the crisis for next year ad we announce Q4. And in terms of sort of the breakdown of that, we typically don't guide for users and thereby we don't guide for the breakdown. But I think we're doing very well in both, like we're growing users nicely and in particular in Western markets. We -- our product line up, like every tech company would say, has never been better. And at the same time, we're starting to scale operational, so market is 10, 15x the [indiscernible] potential than what we see in Africa. You could say Africa is still more maybe strategic, but in terms of like the cover and the scale and having greater dollar revenue on the cost base because it's actually a big product developed this year. And then on the gaming side, I think we said [ less than 1 million ] of just the US browser users is like $2.70 annualized ARPU. Or $2.70 per user, $2.70 for online whereas our average is somewhere in $0.70. So highly valuable. We're very -- placed pretty well, but it's still like 13 million users so we know relative to the 1 billion gamers that definitely have some potential there. And that's still with quite limited monetization. So of course, I'm hoping that a year from now, I'll point back to that and say it was well.

Absolutely. Absolutely. Well, I think we exhausted the audience questions, I don't see any others here. As we close out, any final thoughts or anything that investors should take away as they think about Opera? It sounds like pretty compelling opportunities going forward.

We're a small company, probably get overlooked at times, we find we have to earn the attention. Sometimes we get misunderstood to add on top of it because we have our biggest shareholder is also our Chairman is a Chinese entrepreneur, very successful and all that, which I think is sometimes is not into being a tiny company. And then whenever there are macro things, people get concerned, but we're actually a European company. So I want to clarify that, we have a headquarter in Norway, [indiscernible] in Sweden, et cetera, we have a very competent and a driven channel in this [indiscernible] time.

Makes sense. That's helpful. And I think a great overview of the company there. We really appreciate the time today and for joining us this year and hope to see you again in person next year as opposed to virtual, and thank you very much.

All right. Thanks, Richard.

Thanks, Frode.