Opera Limited (OPRA) Earnings Call Transcript & Summary

Good day. Welcome to the Second Annual Winter Wonderland Best Ideas Conference. The next presenting company is Opera. [Operator Instructions] I'd now like to turn the floor over to today's host, Frode Jacobsen, CFO of Opera. Sir, the floor is yours.

Thank you for that. So hi, everyone. Thanks for joining us. We'll speak about our company today. And now then, Opera, not as known to the U.S. investor community yet. But the United States, it's actually one of our fastest-growing countries. We're a net existing company, over 350 million monthly users of our apps around the world. It's a Norwegian company. I'm based in Oslo, Norway. We've been around since 1990s. And it's a company that's growing really well and is profitable. But I'll end my introduction there, and we can start going through the slides, which I cannot see them, but I'll begin with the opening slide. So Opera is a web browser company, I'll let this explain that business a bit later. But overall, being a browser is actually a pretty good business and a good place to be. People are spending more and more time online than ever had before and using the Internet for more aspects of their lives, whether it's around communication or shopping or content consumption or just entertainment. And then we build browsers for people who want a more personalized experience when they are online. Opera is the most downloaded independent browser. So that's people choosing us instead of going with whatever is the default for their operating system. So when we say browser first, it's because we don't make an operating system, but the companion browser like Safari or Chrome or Edge, we focus just on the browser. And then, of course, we have to give people a reason to want to switch. So we have browsers made for gamers, for privately-focused people, some of it for the geeks maybe, and people who want to save data and so on. So we're actually quite good at addressing those niches and give people and alternative. And given that it's a global business, even this leads to hundreds of millions of users. Also being a browser in the current stage of the web is much more interesting than maybe you think at first. If you think about the promise of Web 3 with a decentralization of services, blockchain assets, trusted transactions, all of those things. What they have in common is that the browser is at the forefront instead of native apps. So the browser becomes the super app. All of that, and we're really excited about the match of how we are positioned than our current reach and the technology that we have and how that can sort of keep benefiting us as we move ahead. In terms of geographies, our largest markets are Africa, Asia and Europe, but the North America is the fastest growing market. And in general, over the past years, we have focused on high monetization region, which has also fueled a very strong revenue trajectory that talk we'll about. So to sort of present an overview of the company outlook, you could say that the operating model that we follow, we call it the Browser Plus strategy. So it's the browser at the core, and then we have some natural extensions where we take advantage of our user base, our brand technology. So in addition to a very healthy and profitable core, we have expanded into content very successfully, Opera News with over 200 million users. And also a big gaming initiative, including the world's first and only browser made for gamers, which has been a huge success and very financially attractive. And then sort of on the side, the one more thing with Opera is we have a relatively solid cash position, given our size of nearly $200 million. And then we have investments into 3 currently private companies that are all focused on emerging markets and all leading in their segments. OPay is a mobile wallet payments provider, StarMaker a social work for music and Nanobank is a micro credit provider in emerging markets. So then going to sort of the overall product highlights of the company. First, how we make money. So we make money by driving traffic. We have search partners like Google, Yandex and then, of course, a long, long list of advertisers. So our revenue is user generated and of course, with the added bonus of being quite predictable and recurring, of course, driven by sort of the billions of clicks and attention. Overall, we have a revenue we've guided for 2021. We guided a revenue with a midpoint of about $250 million. So that's well above last year's COVID impacted results, and of course, also substantially up from 2019, pre-COVID. Just a few words about Africa. We consider it our most strategic region. We have a huge presence on the African continent with well over 100 million users and a very known brand. So we developed a lot of our products with Africa first, such as Opera News and several browsers. And that underlying growth and potential of that geography is a key optionality for us. Then I have 1 slide on each of the 3 core boxes there. So we take a browser first. I guess some highlights is that we are the most downloaded independent browser. We have a history of innovation and being the first like how problems to first have multiple tabs or search from url or -- and we integrate VPN and block lots of different features into the products to make it stand out. It's very compatible with the Web 3.0 trend. And finally, a super scalable business model like, I guess, any centralized software where incremental top line dollars that fall directly to the bottom line. On the Opera News side. So what it is, is an AI-based content platform where we serve a personalized content to each user. And then it's a tool to find, consume news, share, discuss and we even allow contributions by user base, et cetera. So that started in Africa, as I mentioned, but we've also expanded it to certain Western markets, including the U.S., but also Germany, France, U.K., et cetera, where the product is actually also doing very well. On the gaming side, it's a relatively new thing for us -- or during '21, we've got more focused. And so we focus not only on -- we created for our products where instead of thinking about great features, we started to think about the PC gamers as a segment and then the tailored a product to that. And that's obviously a huge and super valuable segment. And then we use our technology strength to create the products with real benefits for those users. It's gotten great reviews, and it's become one of our stickiest products with the highest engagement. Then moving to the monetization and results. We've really invested in accelerating our growth in 2021. Given the economies of scale, size is obviously super valuable. So what we did in '21 was to flow all the excess profit generation into marketing and product development. And that scaling really paid off. We had a -- we guided a 41% year-over-year growth in -- for Q4 '21, which we haven't reported yet. It's like a week away. And then if you look at the bars, you have search and advertising revenue. So the user-generated revenue. That's the lower 2. So you can see that from Q3 2020, we were back to pre-COVID levels. And of course, after that, we've seen very nice continued growth as well. On the profit side. So as mentioned, we had a year of high investments in percent and then, of course, in dollars greater than ever. We guided breakeven EBITDA for Q1 to Q3 of '21, but we came in quite well above that. What happened was that we exceeded, so the initiatives were doing better than expected on the top line and then that translated to the bottom line. And we've guided the near 20% EBITDA margin for Q4. So we've said is that we expect to continue towards normalization of profits. If I go a couple of years back, our EBITDA margin was in the high 30% range. So sort of the key value drivers for Opera, it's a diversified business that's doing well with the growth flowing down to the bottom line. And of course, in a very interesting space with all that's happening and the next wave of sort of major innovations around the blockchain, user-created content, even these metaverse starting to find their place. So the browser is pretty central to all of that, and we also all have the luxury that we can be segmented and use case focused. We don't have to apply it to everyone. So that's a pretty strong position that we tend to leverage. And then I guess as a little reminder, we made some great investments, more financial nature now, but opportunities that we see and that we had given our strength in emerging markets. So as we look ahead, we have core businesses doing really well. And then we have a strong cash position in these investments that offer some optionality on top. We just launched a buyback program, for example, both are in terms of strategic and so the financial optionality that we have. I think I'll end with that, and rather reserve some time for questions.

[Operator Instructions]

And if not, I guess that was a 12-minute introduction to a company that may be new to many people, and I hope it was 12 minutes well spent and you find it somewhat interesting. So we're, of course, very happy to connect one-on-one in the future.

We actually do have a question. Somebody wanted to know -- we have a few questions actually. My first question is what percent of the business is in North America? And why is it the fast growing segment?

I don't think we've given the specific regional split other than at the big picture, we have a bit over half of our revenues coming from developed markets. And then the other half from emerging markets where Africa is the most emerging in the region.

And then why do we think that North America is the fastest-growing segment?

I think some of the realization that we had that looking at segments before functionality, looking at specific users and their needs first. That led us into the path of the gaming browser, Opera GX. We've also got launched in beta, but a crypto browser. So it varies with integrated functionality including the wallet and information access and so on for people interested in blockchain and crypto. So I think that has played very well with highly engaged segments in Western markets and in the U.S. may be, in particular.

Okay. And then we have another question. And I believe you briefly touched on this in the presentation and maybe go a little more detail on, what are the class for the cash on the balance sheet?

So yes, as I mentioned, we did just launch a $50 million buyback program to give us the -- we essentially saw that as we try to decompose our market cap and allocate it, we have some analysts to follow us, but also put the value tag on our investments. We have our cash, et cetera. And we did nothing set to add up. So we consider this a pretty good ROI for us to launch that. We can't be in the market until we've announced our Q4 results, but that's coming up on Thursday next week. Beyond that, I think we've historically always been a company with a strong balance sheet. We don't have any long-term financial debt, for example. And just give us sort of the freedom to seize the opportunities that come our way. But we've shown it in the past, too. And that's when we see it's a good use of money, we are happy to give excess funds back to our shareholders. We run buybacks a few times.

Okay. Well, that appears to be all of our questions. If anybody has any follow up questions and they'd like to reach out to us directly, you can e-mail me Matthew Wolfson, I'm Head of Investor Relations. My email address is [email protected], and I'd be happy to schedule a time to speak with you. And thank you, everyone, for the time today. Frode, do you have any last comments?

No. Thank you. Thanks for joining us. Hope you found it interesting. We're in a great, very hectic, very opportunistic period. So we would like to get to -- we're happy to spend more time in results that will be most helpful.

We actually do have one more follow-up question real quick, Frode. Somebody asked about our ownership structure. If you want to quickly comment on that.

Yes. That's actually also a source of some confusion at times. But -- so we have a free float of about 20%. So it's a bit unique. Our CEO and Chairman is our largest controlling shareholder. He's a Chinese guy. So we sometimes get that bucketed in with the Chinese companies, but we don't have any business or any users in China. So whenever there is a concern around regulation for Chinese Internet companies that sort of doesn't affect us, but I think we get grouped or it happens that it gets misunderstood. But CEO and Chairman is our biggest investor, and then there's a couple of Chinese listed companies that also have major chunks. Matt, anything else to supplement there?

No, I think that pretty much sums it up.

Okay.

And again, if anyone has any follow-up questions, feel free to reach out directly to us. All right. Well, thank you, everyone, and have a great day.

Thanks, all. Bye.

Bye.

Thank you. That does conclude Opera's presentation. You may now disconnect. The next session will begin shortly. Please consult the conference agenda for the next presenting company.