Opera Limited (OPRA) Earnings Call Transcript & Summary

Okay. Maybe I'll kick off. Thank you, Per, for joining us today. Very welcome, and glad to have you back at the conference. So I think probably you had some slides that you would start off with, and then we'll go into Q&A after that, if that works for you?

Perfect. Thanks, [ Chris ]. And yes, morning, everyone. Thanks for joining us today. My name's Per Wetterdal. I'm Head of our Commercial Activities at Opera. Been with the company for 15 years. And I'm responsible for, yes, all the revenue and other parts of the business. I will kick off with a short presentation, and then we will jump into some Q&As. So starting off with a little bit who is Opera. And for the people who is not familiar with Opera, we are a browser maker. We've been around for more than 26 years. Everyone asks the question is the browser business an exciting business to be in? And I can confirm, it definitely is. We are super excited about the browser business on multiple fronts. One being, of course, that all the users we have, which is more than 320 million users globally, they have actively chosen Opera. We are not bundled into a specific platform or operating system. So every user we have, we have delivered a different setting experience, and we have earned it. So that is, of course, what's making us excited when we stand up in the morning is that all our users have chosen us. We're actually also very excited to compete with the biggest tech companies out there and show that there is a possibility to compete and compete with differentiation, deliver a specific experience to specific audiences and be that relevant choice. Of course, being the revenue guy, I'm also very excited that this is a highly monetizable business, and it really scales from a cost of revenue perspective. So those are things that make us very excited about the browsing business. I will go through a little bit later on. Then if we look going forward. So being a browser is, of course, a very important position in the whole ecosystem. We are presearch and usually users that don't know where to go, they go to the browser. This is the ultimate content discovery platform and many people are debating if browsers are here to stay in an app and mobile-first environment? And we definitely see that the web activities is increasing. And people don't want to have thousands of apps on their phone for the thousands of services, but the browser is the unified entry point to those actually million of online services with 1 interface. And that is then becoming even more strategic moving into Web3, where the browser is also the point for identity and also hold your digital assets. Our global user base is also well developed across all geographies. Another strong point with Opera that we are not solely dependent on a specific market, a specific geography and our 320 million users are well spread across emerging markets, across developed markets, across all different types of operating system and mobile and PC. So that makes us all -- that makes us a bit more resilient against geopolitical things, governmental regulation and even more that you have seen earlier this year. We have developed what we call a Browser Plus strategy. So as I mentioned, the browser is the unified entry point for all these millions of services. But it's also a very great opportunity to bring complementary services into the browser. Sometimes they usually know where to go when they open up the browser, but sometimes they don't. So we have found a way to bring content to the user, and we have then expanded from our core business, the browser engines and the browser interface, to also deliver content aggregation based on personalized artificial intelligence, aggregation and within different categories. Another important aspect that we have developed throughout the years is a category-specific browser. We also have the flexibility to build distinct products for distinct audiences. Our most successful category is the gaming browser. So we devoted the whole user experience for the gaming use cases, aggregated those popular gaming services so they're very on user fingertip, and that has proven to be a very successful strategy. So this is why we are extra excited about being a browser vendor that it gives those Browser Plus opportunities, and we can then expand our business and then monetize and grow our user base as a good starting point for being an old [indiscernible]. So looking at the case of investing in Opera. So as I mentioned before, it is a highly monetizable business, and it's very scalable. With a rather small team, we manage 320 million active users, and we have been able to really accelerate the growth of revenue. I think the key takeaways on this slide are 4 points. First is a very rapid revenue growth, which is all good. The second point is that we are now less dependent on the search category, which is a very consolidated revenue stream. There are a few providers out there globally. And of course, reducing dependencies on a few big partners is always good. So we have seen the ramp of advertising, just other takeaway here that this user base, and thanks to the incremental services that we deliver on top of the core browser use case with search has enabled us to scale the advertising fees. That is, by nature, a much more diverse revenue category and makes us more resistant also to change. The third takeaway is that we have also been able to reduce a lot of nonrecurring revenue streams such as tech licensing. So all of this together makes us not just from a geographical position, that I mentioned on previous slide, and that we run on all operating systems, but also from a revenue stream and partner framework diversity makes us very robust. Another thing is the cost of scale that I mentioned, which we have also proven to be there for our business. We are a very healthy operation, and we have been able to scale our EBITDA margin. And this is thanks to, of course, scale of the partner framework. So the same partner we can monetize on multiple fronts, and the same advertisers, we can scale on owned and operated, but also audience extension. That is helping us to give the cost scale. And then also with the marketing optimization where we can go and do more value-based bidding across platform, and we can also work with influencers to distribute more efficiently. And that is because we have this differentiated offering. It's much easier to talk to influencer communities and reach audiences through their messages and hence, have a more cost-efficient distribution method. There have been a lot of discussions on our shift to -- from more emerging markets to developed markets and how we've been able to increase the ARPU of our users. And we have a couple of drivers behind the ARPU expansion. One, of course, is the geographic shift. And it shows here clearly, on the development of the ARPU, we have reduced our exposure in emerging markets, especially in emerging Asia, still very strong and very focused on Africa. But still, it's good that we have shifted the user base and the focus more to high ARPU markets. The developed market trend looks maybe not so impressive on this slide, it's rather flat, but that also factors in, that does include Eastern Europe into the developed market segment and, of course, with everything that's happened in Russia and Ukraine, so of course, we saw a user impact. It does not harm our ARPU as we see there but, of course, from a user growth lens, it makes an impact. So 1 driver for the ARPU expansion is, as I mentioned, the geographical shift. Another big driver has been the enablement of new inventory options. And here, we are only at the start. So we are monetizing the core product in classical browser monetization, but bringing also content into the product through the various platforms for gamers or flagship or emerging markets, has enabled us to unlock incremental revenue to the same user, all of that generating very nicely to the ARPU uplift. I think I covered most of this, but at the core of the business, we have a series of products. So we have the flagship products that is a full-fledged browser where everything comes packed in the browser from the start. The user can just enable it, flipping switches and so forth. They don't have to go and download extensions or other services so they can have a full personalized experience, very feature-rich that help them to organize their online activities. Then we have our emerging market platform, which is Opera Mini, that's focusing on data savings and speed over low-speed networks and even there have sponsored data programs where we give data for free to users in Africa, for example. And then we have our Web3 browser, which is a concept browser for Web3, but we have actually included all our Web3 functionality across the board. So we're very long term on Web3. There has been indeed a number of events earlier this year and throughout the year that has set the whole prospect of Web3 back a bit, but we see that more as trading and part of the Web3 ecosystem. What we are more excited is about the infrastructure of Web3, the distribution of assets, persistent ownership and distributed identity. And that's where, once again, the browser play a key role. Also touched a bit how we then bring content. So we have 2 use cases in the browser, one being a proactive content discovery, the user know where to go or they know the keyword, what they search for, but it could also be that they don't know and actually want to have content coming to them, which is very popular and very used in social apps and other platforms, and we bring that element in as well. So if the user don't know, they can just start to scroll on the browser and we bring content to the user. So this has unlocked, as I mentioned, the new monetization opportunity, increased time spent in the product and further, this transition for the offering compared to the standard ecosystem-based default browsers. And then what we are super excited about is the category browser prospect. So we are the first in the industry to deliver specific browsers to specific audiences. We focus on segments and audiences that has a big enough [ span ], so that is commercially and, of course, user base reach relevant, but also that the interest is rather unified so that we don't have too many local adoptions that we have to do. There will always be elements of localization, which we also see in the gaming thing, but it is a rather common need. Same services are popular, the same games are popular, the same [indiscernible] are popular, independently, if you are in the U.S. or Brazil or in Germany. So we have here also demonstrated that the category browser has completely different KPIs than the standard one-size-fits-all type of browser case. It's talking directly to an audience, we can easily market the product with investors that they can convey the message differentiation of the product to their fans. And that just makes the first run experience for the user so much better, and it then tends to stick better as well. So we see that, for example, on the product KPIs. We have very high ratings, thanks to the high level of engagement, online gamers and PC gamers, they are very online-savvy. They spend a lot of time online. So of course, that represents a huge monetization opportunity. We see that around $3 versus the $1 average is what we are in now. And we have just started to scratch the surface on how we can monetize these users. We're very excited about the future prospect when we start to introduce more inventories and more use cases on how to first engage these users, but also how to monetize it. And that spans across vending of digital currency that is used in the games. That's a very popular item that these users are purchasing and also the discovery of content, new titles, engaged with early access projects on the gaming [ scene ] just be first and then convey that to your friends. Another important thing is that as we saw, the business is fast growing, revenue-wise. It's a profitable business. We have healthy EBITDA margins, but we also have a very strong cash position, and we have also a set of investments that have been monetized [indiscernible] years, so when it was a good track record of monetizing investments that we have incubated throughout the year. Totally around $131 million investments that we are monetizing. And yes, you see on the graph on the planned installment plan to receive these or to get the receivable for these investments. So in summary, we have a very strong portfolio of our core products that talk to different audiences across the globe, support different use cases for people that want to be online, stay online and have a more organized online experience. We have been experiencing very rapid revenue growth and even more rapid EBITDA expansion. So it's giving a good indication of the health of the business. And we have, as I mentioned before, also a very strong balance sheet with both cash and receivables that we will collect through the coming years. And this is a little bit our, I would say, main assets that we have, strong core business with a great content opportunity that represents both engagement, depreciation and monetization and then the vertical aspects that we are small and agile enough that we can build content-specific or category-specific experiences. Yes. So that is a little bit what I want to do as a wrap up before we head to the Q&A. So we are on a very good path. We have a set of very strong value drivers. It's in our DNA to always innovate, to push the boundaries, to stick out from the established players that get their distribution for free through their ecosystems and their operating systems. We always wake up in the morning, think about what can be the next thing to push that boundary. We have also shown that this is a very scalable and profitable business. So that is something that also makes it worth to make all these investments and differentiation that we feel that there is a very good reward for this. And then last, but not least, the long-term prospect is very exciting. Not just from a Web3 perspective, where we, of course, see that the browser becomes an even more important entry point to the users, but also in a Web2 environment where people actually start to prefer to consume digital services within the browser versus having thousands of apps. So that make us once again extremely excited when we go up in the morning, and being that independent browser maker with a good heritage and good proof points of showing how we differentiate and also deliver value to our shareholders. Thank you.

Okay. Thank you very much, Per. That was very helpful to get the update on Opera and maybe we can turn to Q&A now.

I think through your presentation, you showed how Opera is differentiating and creating different experiences for users and attracting different people all over the world. At first glance, if you look at the browser industry, you have Google and Apple pretty much tying their browsers to their ecosystems and trying to keep people within their browsers. Can you just talk about how big is the independent browser opportunity?

Yes. So we have made our estimation and there is also external data confirming a little bit what the TAM is for independent browsers. We see that around 20% of the users globally want to have choice. They want to have about a choice, they actively go to app stores or download portals to download their own experience or download their own -- or their browser of choice. Looking then at the overall Internet market, around 5 billion users, we estimate that independent browser segment is around 1 billion. And we have a fair portion of that already, and we, of course, have a lot of growth ahead to further grow in that segment. We also think that with the new events of Web3 and other infrastructure changes that, that independent browser segment will even grow further.

And then when you look at how you attract users, you probably have users that come in and search on their own, but others need to be attracted in and kind of enticed to install the app. How do you -- how does marketing work for you guys? And how do you think about marketing and driving user installs?

Yes. So marketing has developed through multiple capacities. We work with the handset manufacturers to preload our app when we see an opportunity for that. That is, of course, limited to the Android ecosystem. That's not possible on iOS. But it is representing a baseline of distribution. As I mentioned, we also work with very unique value propositions in Africa where we sponsor data, so people can use our app to access the Internet for free. That's also very differentiated. And lately, and thanks to the concept browser and so forth, we have moved more and more of our marketing activities towards influencers that when we have developed a specific experience for a specific audience, that audience usually also engage influencers and follow the influencers. That has been a very ROI-efficient way of reaching users, and we also see that the users we acquired through that channel also stick better. Then there are also better tools now in the market where you can also do value-based bidding in a different format, actually, also at scale was a bit of problem in the beginning. We have moved more and more from our more paid acquisitions then into that base today, like [indiscernible] and other techniques. That has helped us a lot when moving into more high ARPU markets that we can actually go after the users that use our product in a way where it monetize better.

Okay. Great. And then moving on to the monetization side. Your annualized ARPU is now above $1 for the first [indiscernible] for the year. How should we think about what's driving this increased monetization? And how are you thinking about ARPU going forward into what might be a difficult macro year next year?

Yes. So as I briefly touched in the presentation, the expansion is driven by -- yes, we are growing our user base in high ARPU markets. We have expanded the inventory so we get more impression opportunities per user per day. We have also innovated in the type of formats. So we have more high-impact formats. We can, to our advertisers, sell a daily takeover and those type of things. And then looking a little bit into the future on, to say, the monetization opportunity, we think those high-impact formats will grow even further. And that also with the category browsers, such as Opera GX, is providing an elevated opportunity because we have a captive audience. We can then line up a studio or a AAA title and they know that they reach only gaming-centric users and not like an average vanilla user base that have a diversity of interests. These are spell-out gamers. So that is how we think about the thing. When it comes to the macro environment, yes, we see a slowdown in the overall ecosystem, but we are still rather small, and we are taking market share. So a small impact, let's say, market share impact or market share gain, I would say, in the broader ecosystem is a big gain for Opera. So that's how we have been able to show good results this year, despite the fact that we have had a lot of challenges kicking off already in February with the war and then followed by a lot of the macroeconomic slowdown and pullback of budgets and spend from advertisers. So we are very hopeful that we can continue to take this market share. It's, as I mentioned, a very big TAM, and we are just starting to move forward on that.

Okay, great. And let's talk a little bit about your audience extension offering. It looks like that product has had good growth. And can you just talk a little bit more about what that is? What's driving the growth, and how it connects to the browser business?

Yes, absolutely. So the audience extension is a very natural expansion of our business. We are already connected into the big buying platforms. We have direct sales demand working directly with brands and agencies. And of course, we can then deliver them the Opera audience. But these buyers are also looking for incremental scale and we then connect into partner inventories where we can then drive advertising across Opera own and operated and our partner inventories. And there, we have connected into a series of partner inventories that has a similar and, of course, a very high-quality profile. And then we have our first-party data that can help us to target the right type of users in the right context. And that is something our buyers are really appreciating. So then the single interface can now help them to scale their budget.

Okay. Great. Yes, that sounds like it would be very helpful for them. And if you -- let's talk a little bit more about the -- your gaming browser. Opera GX. So it sounds like that has quite a bit of momentum with, looks like, around 20 million users now. Can you talk about what's -- dig a little bit deeper into like what is the functionality in there that's really different from other browsers that's attracting these gamers onto the platform? And what else is driving the success of that offering?

Yes. So I mean it's multiple factors. The thing that we have just built, a browser where we could develop the whole UI into a gaming experience. We started off the differentiation with introducing a set of utilities, meaning that you could be in full control of how you allocate your hardware resources on your PC, while you're streaming a game, at the same time you're streaming YouTube and at the same time, chatting with your friends. Then of course, you don't want to cannibalize the speed of the game and the responsiveness. The browser then helps the user to easily organize that planning. Then we have also integrated all the popular services that gamers like, like Discord, [ which ] YouTube, different type of chat services and instead of them having to go and download videos or extensions or even the native apps for those, they have that at the fingertip within the browser. And then also in a multi-task context, they could easily just click and slide out. That's why they were still within the game or in other context. So that was the starting point and we got really good feedback. And then we have expanded from that to deliver also a dedicated content experience for people to easily go out to find new releases coming up, the gaming-related news, trailers for upcoming games and also engage with everything from deal aggregators to pure [indiscernible] kill 5 minutes' worth of time through an instant play experience. We've also been focusing on a lot of customizations. So we did hardware integrations where you can align the user experience on the -- in the browser and on the PC also with your hardware appliances. That could be color schemes, sound effects and all these things. So all these small incremental level of customizations and that the gamer feel that here is actually a developer that has my interest first and foremost and built the browser for me, that has been, I think, the key thing. And then, of course, as I mentioned, it's very easy to convey from a marketing perspective because it's truly differentiated. No one else can claim that from, so to say, the more standard browser experiences.

Okay. Got it. And then based on the presentation, it looks like GX is monetizing about 3x as much as your average browser user. Can you walk us through what's the opportunity to potentially drive that even further from a monetization perspective?

We're very bullish about that opportunity and, of course, we're very excited. We have bootstrapped, I would say, from a revenue perspective the browser with just standard browser revenue streams like search, affiliate fees and so forth. So that's where we are now, already, so say, at the $3 mark. What we are now building is how we can integrate brands and game studios and so forth into the experience. So having like daily takeovers or weekend takeovers connected to a new release or a promotion or a campaign of a game. These are things that we have built up from an experience perspective that they will be very natural. It will be a fully [indiscernible] experience for the end user fully integrated. Then we also see that our users are, of course, being gamers, they also transact a lot online, especially in-game currencies. We see that already with the marketplaces that they are connecting to, the overclocking on Roblox vouchers, V-Bucks vouchers, gifts cards and so forth. So also to participate in that and create an experience where we have a wallet where a user can log in, they can see all their different items, they can easily transact, top-up, buy new in-game currencies or in-game goods. And that, of course, represents both a monetization opportunity to participate in that transaction, but also an advertising opportunity where partners like to be promoted within that experience.

And that's -- so it sounds like that customized browser strategy is definitely working on the gaming side. Do you see any other customized browser opportunities that might be on the horizon?

Yes. We are looking into that, of course, actively. We see that that's a way for us to differentiate. As also mentioned briefly in the presentation, it has to be a rather sizable TAM for it to be worth it, and we'd like to see a rather unified need across the TAM, so that we don't have too many local variations that we have to factor in. We have already introduced a set of sports experiences focusing on football. It is a very big sport category, and there is a global audience, of course, that is very excited about sport. So we have integrated as a first step now a live score feed into the product, and we see very good initial results on that. This can then, of course, be further expanded into a sports browser with focus on a set of big global sports where you can also work with, of course, influencers very naturally and have wallpapers, specific goods, access to specific content that then talks to that audience. But we are always testing these things first and see how they can scale a bit in our -- across our flagship audience before we devote the whole application to it. But yes, we think that the opportunity goes beyond just the gaming vertical that we are successfully addressing right now.

Okay, great. And then also, I was interested, you were talking about the, I think, for Africa, the subsidized data browser experience. Can you talk a little bit more about that and how the economics work? Like who's paying for the data? And how is this driving more usage potentially, more users there?

Yes. So what we do, first of all, thanks to the browser architecture that we have, we have a very easy way actually to zero-rate data within our app because working on the data savings and the speed over loan networks, we have a very scalable process infrastructure in place with local data centers in the big African markets. So our users connect into the proxy where we can do all the data savings. That makes it easy for the operator to also zero-rate that tunnel. And thanks that we do the compression, it's also [indiscernible] zero rate, both for the operator and for us. Then we buy data in bulk from the operator, and then we gift that back to the user that they get the preallowance every day when they use our app. From a monetization perspective, this data bulk purchase is ROI-positive. So we are seeing that our monetization and the increased engagement that we see through the free data and helping that a secure differentiator, so to say, among other browsers, but also making the user more active. So the whole MAU/DAU ratio becomes better. We see engagement going up, and they do more of these activities that we do monetize going to our partners, they do more searches, they engage more with content, and that then represents an increased monetization opportunity for us, that we then free up to fund the data purchase.

Got it. And do you see that as an opportunity in other geographies? Like, for example, in the U.S., would that make sense or not make sense?

Currently, we have not seen that, that is the best use of, so to say, let's call it, rewarding user for engagement. We think there are other models that would be more interesting. And the thing is that the data prices in Africa are so disconnected to the disposable income and so forth. It's a very high, so to say, proportionally high fee and that holds a lot of users to even come online, but also to restrict their usage online. In many of the developed markets, data is more a commodity that is more aggressively priced. It'll be harder to make a difference, as high-speed data and cost-efficient bundles is more ubiquitous. So yes, we think there are more markets that could respond well to this, but we think it's more in the emerging market space than in developed markets.

Okay. That makes sense. And then I have a finance question. I know you're a product guy, but let me know if this is -- if you want to pass on this question. But in the presentation it looks like you're in a great position with the growth, cash flow, strong balance sheet with some receivables, future cash coming in. Can you take us through how you think about capital allocation of this cash as it -- in relation to potentially M&A, buybacks, more R&D to fund new initiatives? Like where is the focus from a cash perspective?

Yes, exactly, as I said, not being a finance person that you could hear from the receivables slide. It's not that fluent. But yes, so we have been focusing on buybacks. That has been the biggest use of capital, of course, in addition to do business as usual, whether you invest in R&D and, of course, distribution of our products. These are our main, so to say, use of capital, just continue to drive the -- or continue to core business, further innovate within and around the core business and then to allocate, yes, capital for buybacks. Of course, there is always an opportunity to also look into inorganic growth, such as M&As and so forth. We don't have like an active program out in the market where we have a specific fund just allocated to M&As or increasing, so to say, our investments in other companies. So that is our current focus that we have been focusing on the buybacks and then we have to see what the future strategies can be when it comes to deploying that capital. [indiscernible]

Sure. And then touching on the buybacks, recently, I think it was on the footnote in one of the slides, you bought back shares from one of your large shareholders. Now the ownership structure is a bit simplified. I think that's a question that comes up, can you talk more about the ownership structure? Does it have any impact on the business? Or how should investors think about the ownership?

Yes. So the buyback, I think, is only a positive from that perspective. It's making the cap stable, more keen, and we also have now a simplified Board. Kunlun Tech are majority owners and they are very active owners. And we represent an important part of their overall business. So yes, we only see benefits of that from an ownership perspective. And yes, they are a very active and engaged owner, and this also helps us to simplify important decision-making, so we can be very fast in doing these decision-makings and that help us to stay very agile.

Got it. And then if you look at kind of your partners, I think you have an interesting position where a lot of your revenue comes from Google or Google Search partnership, but they're also a competitor with their Chrome browser. How do you think about that relationship? Like how you do you characterize it and -- yes?

Yes. No, as you mentioned, Google is our most material partner. It's a very long-term and strategic partnership. We have been able to balance very well about, let's say, a potential conflict of interest on Chrome versus Opera. We, of course, we don't work with the Chrome team, to say, as a revenue partnering. We work then more on the tech side with -- we are sharing the same, so to say, rendering [ elgin ] and of course, everyone wants to have an open web and that things should work. So I would say that, that relationship is more technology standards supporting each other. Then the commercial relationship is more with, of course, the search team and all the different ad teams within Google. We also, of course, had the Google ads products integrated into our content experiences to monetize that. And that is a very standard, so to say, distribution relationship. Google Search team see value in our audiences. They see value in our innovation [indiscernible] gaming audience, promote a search entry point for Google Search to that audience. Yes, the fact that we compete on the browser side has never been an issue of us, so to say, sustaining and expanding the partnership with Google as a group, so to say, because, there are [indiscernible] businesses that see an interest in working with Opera. And of course, also Google from a global perspective also see the benefit that there are rival browsers out there that is pushing the boundaries and strive for innovation. So that's good for the broader ecosystem.

Okay. That makes sense. I'm going to try to squeeze in 1 last quick question. So maybe if you're back here in a couple of years, what do you think might be a trend or technology that people aren't thinking about right now that will become obvious in a couple of years' time?

Yes. So from our perspective, we definitely think that we have developed a lot around the gaming vertical and have proven how a browser being, so to say, today, the entry point for these gamers into gaming services, but more to be a gateway and also be a wallet for your online gaming life. And I'm not only connecting that to Web3, but also to Web2 use cases. So I will say a combination of that. And even if we have seen a setback now on the whole Web3 crypto ecosystem, we still believe that in the coming years, if that is 2 years or a bit longer, that there will be very strong use cases where the blockchain technology is utilized to satisfy use cases that we are used to today that we may be using in a Web2 world, but with more transparency, persistence of ownership and then, of course, that the user is in more control. I would say a combination, and I would love, of course, to see those 2 really coming together, both the gaming and the Web3 and all the promises and using NFTs, not just as a mini, but also as an infrastructure component and support transactional use cases with smart contract technology to say transparency and ownership persistency.

Okay. Great. Yes. Thank you. Thank you very much, Per, for joining us.

Yes. Thank you. Thank you. thank you so much, [ Chris ].