Opera Limited (OPRA) Earnings Call Transcript & Summary

Great. So we're on the clock. So we'll get started here. My name is Ron Josey. I cover the Internet sector here at Citi, and I'm very happy today to be with us, Frode Jacobsen, who's the CFO of Opera. I think we all know what Opera does. Opera has a portfolio of browsers and a ton of other products, from a payments perspective and just everything under the sun, and multiple secular tailwinds from a global basis as well, whether in every region, but in particular, in North America. I think the one thing for me on Opera is the 289 million global monthly active users. You say that number, there aren't that many companies with that much scale. So there's a lot to go through here. And of course, it was a very busy week from a news flow. So Frode, thank you for joining us today. Glad to have you.

Thanks for having us, yes.

Before we get into news flow, I want to lay the foundation here. Just talk us a little bit more about Opera, the product portfolio across. So we talked earlier browsers, payments, other products and -- yes, talk about the product portfolio and the go-to-market.

I mean you already introduced it pretty well. But we've been around -- it's a Norwegian company originally, quite global today. Been around for 30 years. Started out competing with Netscape, essentially. And I think, as you said, we've built up to become a quite sizable challenger, with competition being mainly browsers that belong to operating systems like Google, Microsoft, Apple. So I think we've shown that there definitely is a segment of people who like to have something nondefault, and we've created a portfolio of browsers to cater to different needs. I think -- I'm sure we'll get back to sort of the more news flow. So I can go back on that.

Well, we can talk about it now. That's very topical. So happy to jump in.

But -- so that's the business. And size-wise, in case you're new to the story, we're guiding close to $600 million of revenue this year, $130 million, $140 million adjusted EBITDA, a good cash flow. We're guiding to growth at about 23%, so multiple years of growth. We've been a Rule of 40 company, I think, for the past 16, 17 quarters. So we try to balance growth and profitability, and then we use our cash flow to actually pay a dividend, which I think is maybe a little bit unusual for sort of tech growth companies.

That's great. Yes. Good overview. Okay. So 289 million monthly active users, browsers are a big part. Did we -- so we talked about -- started competing with Netscape for us, old folks up on stage, i.e., me. I remember Netscape very well. So all right, big news earlier this week. Google is a partner of yours. You've been a partner for 25 years. That's right. So the big news is -- and then I think Google is around 1/3 of total revenue in terms of partnership from a [ tech ]. So would love -- I'll just keep it open ended. I would love your thoughts on the news that came out this week on the remedies.

I mean what was most relevant to us as a browser company, was this question, would Google be allowed to essentially pay for traffic, which is a little -- funny anecdote, but I think it was -- Opera was the first browser to actually natively integrate search, kind of proposing to Google like, hey, what if we just make it so the people -- if they type the a search query and hit enter, we send them to you. And I think they thought it was a good idea, and that's how that all started. So still waiting for the thank you card from Apple. But I think it would have been very surprising if somehow, Google would not be allowed to pay for traffic when the competition is just heating up, like that being would be allowed to perplexity and ChatGPT and Claude will be allowed to pay for traffic, but somehow not Google. So that almost -- I the remedies that came out on Tuesday was sort of not limiting, that was kind of not so surprising to us in a sense.

Though exclusivity is no longer part of it?

Yes. Well, I think our agreements with Google is very compatible with sort of what came out in that ruling. So it's not so much about exclusivity for us. It's just -- I mean, we appreciate the ruling because it allows us the freedom to choose the partners that we want. And I think right now, it's just the fact that Google is the best at monetizing traffic. If I -- I am a user of all the other platforms, right? I pay them the $20 a month, all of them. And the funny thing is they make the most money off me if I pay that $20 and not use them, where, of course, Google is much better at actually being a bit commercial in that sense. And so I think there are some other aspects of the ruling, like around the potential to do data sharing. And I mean the [indiscernible] about promoting competition in the sort of information and product gathering space. And if anything, like if that fuels competition, as a browser, that is a positive news for us, right, because our ability to make money depends on both the value of the traffic and the competition for that traffic. So if more players out there are able to essentially generate revenue from search queries, you could call it that, right, even though it's like an AI chat, then the better it is for the browser.

That's very helpful. And we can get into more Q&A. But I think that's a great place to sort of jump off into. We're all asked about the TAM for the browser market, the size, the scale, the strategic benefit simply because it's hard to see maybe how browsers touch revenue. Obviously, browsers are the portal to the -- everything Internet. So walk us through, just on the browser market overall, as you think about the TAM and then how you see it evolves over time. And the next follow-up question, which we'll get, is just the competitive side, which you touched on.

I mean I think browser, it's getting it a little bit more front of mind. I feel to be the application that most people spend most of their working day, it has a surprisingly little attention. Maybe some of that is because most people use a browser that come with operating systems, so people focus more on like Windows versus iOS versus -- or Android on mobile versus [ macro ], iOS. Now I think it's almost -- the economics are much more relevant in terms of within the browser than within the operating system. Like it's -- you don't shift so much between -- the operating system isn't really doing that much in terms of touching commercial points or touching product points, but the browser is. So I think there's been more attention in the space lately also because these AI companies are talking about the importance of browser, which is sort of -- it's helpful to us because they just direct more eyeballs and sort of the -- in our direction, right, because there aren't so many browser companies out there. I guess there's only one listed browser company out there, and that is Opera. So it's a good benchmark, I guess, to -- for people to look at. So I think that's been positive to us. And I think we -- we've been trying to say this since we went public in 2018, right, that this is actually a quite valuable piece of software because this is where hundreds and millions or in the market, billions of people are going through to find information by products, to make decisions, et cetera. And so I think our ability to generate revenue of sending traffic to partners is -- it's more visible now. Yes, perhaps. Yes.

So let's -- we'll get the competition in a second, but I want to focus on Opera here and the portfolio of products, but let's focus on browsers for now. There's multiple browsers within Opera. You have one, which is the key, I believe, but then we have Air, GX, Neon is coming out. Talk to us about the portfolio of products that are offered. And we don't have to get through each one of those. But maybe -- so the portfolio of products is one, and then just trend-wise, where the technology is going as agentic browsers become the norm, et cetera.

So I think our strategy has always been -- if we're going to be -- we are an independent player in that space, and we know that the landscape, like it's a bit stacked against us in the sense that when you buy a computer, it comes with a browser. If you buy a phone, it comes with a browser. So we've always taken a very explicit strategy that our browser needs to be meaningfully different than whatever comes as default. Because if you are a Chrome or Safari or Edge, you have to sort of cater to the grandparents and the kids and everyone tech-savvy versus completely not, right? So it has to be -- it's very minimalistic and it's very basic. And then so I think the opportunity we have had is to make products that not for everyone, but targets particular groups of people that we can identify, reach, communicate with, build a brand against that can appreciate. So if it's like very tech-savvy people that I appreciate sort of the very like richer functionalities with, for example, Opera One, gamers with Opera GX, the newer product, Air, which is sort of like mindfulness [ declutter ] simplify kind of thing, and then Opera Neon, which will be the very AI-oriented products. And that's been a successful strategy. And I think it's very different from the most well-known challenger in the U.S., which is Mozilla [ Hub ] Firefox, which is -- they've taken the almost opposite strategy of looking a whole lot like Google Chrome, like feel -- it's almost like -- I mean, it's also viable, like we want to make Chrome for people who don't want to use Google. I'm sure that's not what they do. But we've tried to be -- stand out much more, future-wise and sort of the experience.

Sure. And so with the advent of agentic browsing, so to speak. Neon is coming out here soon. It's out now, but maybe taking a more GA later this year. Just talk to us about some of the key, call it, functionalities or capabilities as browsing evolves with AI.

Yes. This is where we try to have AI play to our strength. So we're extremely excited about it. So Opera Neon -- so what -- we don't have our own large language model. We don't try to compete with Gemini, ChatGPT, Anthropic, those companies. There, we just -- we benefit from the fact that we are an independent company. And then our strength is we've built browsers for 30 years. We have like a team of people who are like the smartest engineers in Opera work on browsers. That's what we have. So I think we're quite good at that, that we're quite -- if you use Opera One, it's probably quite tailored to everyone here in the audience, sort of information workers needing to process a lot of information. You can sort of see that that's -- hopefully, you'll find it a different and more -- and better experience. It's -- and then so I think our strength is to use the power of LLMs as a natively integrated function in the browser. So if you -- if you think about the -- if you use ChatGPT or Claude or et cetera, today, they are a tab in your browser. They -- within that window, that window doesn't know whatever else is going on in your browser. It can answer your request, give you facts, but it's not really an assistant across everything you do. So I think the benefit of natively integrating AI in the browser is that you lift it up one level to sort of exist across everything that you do and also being able to run essentially the tabs and the tasks for you in a different way than when it's just a website.

Can you give us a real time like a use case of that? So...

Yes. I mean -- anything from -- because what do you use -- in the browser, you have your e-mail, maybe you have your Teams and like Slack, instant messaging, you have your calendar. And then obviously, you have all the various websites, for example. So you could set up a team meeting with my direct report tomorrow to talk about this topic and include a summary in the meeting notes. And then AI can find an available time for everyone, can summarize whatever you put it in.

Always in the browser? You have your e-mail tab up. You've got your Teams. Teams is a separate app, but you could also do it within the browser.

Yes. For example, we in Opera, we use Slack. So then like you could -- that the AI will then create a Slack room with your direct reports. Let's say, you had the DOJ versus Google, 200-page ruling up, to summarize how this is relevant to us and send it to the team that's been studying that process and set up a meeting tomorrow to discuss with any implications for us. They can be very massive timesaver, right? Because -- so one of the things when the product team goes through our plans for Opera Neon, and they've looked at quite a lot of -- so we do a lot of work with our user base and we -- and the broader market. So you have -- it's more than 1 billion information workers worldwide, right? And then the fact that people go from this task to that task to that task, creates like these inefficiencies in your day. So I think if this product is done right, it can be a massive timesaver for people. You get a lot of the simple stuff out of the way in terms of like task management, but also, let's you just keep the flow much more. So no, we're coming out with Opera Neon this fall. We're very excited to release it. And I hope when it comes out, that if you contrast it to like, I don't know, Perplexity Comet, which is the alternative that's out, right, that you'll see that it bears the mark of a company that has much more experience in making a browser, and therefore maybe have some interesting thoughts on how AI can be helpful in -- within the routines and the muscle memory of how people actually work.

And as we think about the multi-browser strategy within Opera, talk to us, Frode, about how we can use the best use cases of Neon into One, into GX, into Air. So how we bring the product portfolio together.

Yes, because Neon is made to -- it's most likely going to be a paid product. It's most -- that's where we're going to put the richest features, which is the most compute-intensive. But then I think -- so we already have, you would say, AI in all our products. We have a built-in assistant that we call Aria. It sort of exists in the browser interface, but doing many of the same things as a normal AI service would do. Maybe it links a bit more to products, and so we try to -- we set it up in a way that we can monetize it. I think as computing cost comes down, as we learn how we can monetize best that type of traffic, because it is interesting also from a revenue point of view that we are moving in this direction of an agent in the browser, helping the user out. But as that relates to -- I mean, there's not so much money in summarizing the ruling and calling up the team, but when you talk about your vacation plans or things you need to buy, et cetera, right, of course, you can generate revenue share from that, from making the purchases with your partner base, et cetera. So I think as we see how the user monetization evolves and there's sort of a line of debt versus cost, it can get broader and broader.

Yes, that's great. We all look forward to Neon launching and just seeing how the broader market evolves here. And we can get more on the competition side, but I want to also dive a little more deeper into the operations of the business here. And so that's -- we've already talked about Google, but we haven't really talked about the partnership with Google. And just the visibility that comes with a 25-year relationship, I think. And just talk to us about the term as much as you can, the terms or the duration of the relationships every 3 years, but you have a year-plus renewal cycle. Any insights around those would be very helpful.

Yes. As you mentioned, it's entering the 25th year now that we have been consistently in partnership with Google, where we send traffic and get a revenue share in exchange. We've typically had 3-year agreements, and then Google has had an option to extend the fourth year on the same terms without renegotiation. And that's the year we're in now. And then earlier this year, they extended -- they asked if we should just keep extending like that, which is now, finally, very compatible with the ruling. So I think the only change is that the default would be a 1-year contract as opposed to our history being to do this every third year. So -- but I mean, the option was for Google to extend at the same term because we always try to do well in those negotiations. So for us, this doesn't really change very much. It's not like we see them every 3 years. We see them on a very frequent basis because it's a partnership across traffic, technology, sort of how the browser evolves, how their services are integrated. We work with -- Gemini is one of the language models that we use in Aria. And it's interesting for us to use that in Neon as well, right? And I think it's probably interesting to Google too because everything they put in Chrome is not scary to them, but it's huge, right, it's like billions of people. So of course, I'm assuming it's interesting to these LLM players to see how things work also with partners like Opera, yes.

You talked about Gemini as one of the language models. How are you using LLMs overall? And which ones are...

I think -- we are independent. We don't have any -- we're a very pragmatic company. So depending on like the use case, which model works best on some, you can maybe use some like open source models. We can run it in our own data center on something that's more language quality, it's maybe in like more OpenAI direction and then you have like the product search, et cetera. I'm not into the detail of how we do the mix, but the point is that we do a mix on the back end. The user doesn't really have to know or have to give input on it. We'll try to select the best one, but we will let the user be in control. If you want to use a specific model, we will allow for that.

Makes sense. Let's talk about the user base to a certain extent. Western MAU has been a focus here for the past couple of years. I think overall, the MAUs use are doing what they're doing, but higher monetizable Western MAUs are still seeing growth here. So just talk just on the products and features and really the go-to market to build that Western presence overall. And Western is defined as U.S., Europe, but then also several other countries.

Yes. I mean it's -- we try to find good ways to explain our strategy in simple terms because we are still a relatively small company. And so -- but what we have been focusing on is the highest potential ARPU user base. What we have defocused on, in particular, been feature phone users in emerging markets, which has -- we -- at some point, I think we had 70 million feature phone users in Africa and Asia. There wasn't really much revenue associated with it. So we focused marketing in higher ARPU regions, and that's where we have been growing. The overall base has been quite stable. It's gone a bit down in totality, but the net there is feature phone user. And then while -- when we have had fewer users in Africa and Asia, we have had equally many new users in the U.S. and Europe essentially, which is very good revenue-wise and what we are focused on. So what we are doing is we're making products that we think will do well with the most demanding, highest ARPU potential users, whether it's because people live in rich countries, like this one or Norway or like Europe or because they are in, let's say, segments like gamers -- for GX browser for gamers. What we see is that -- of course, there is a big difference between the average ARPU of an American and a Kenyan, let's say. But if you're a gamer, like if you have the setup with the whole like gaming PC and the neon lights and the gaming chair and all of that, the difference is less. It's still a difference, but it's less because then you're -- obviously, you're more affluent if you're in an emerging market and you're in -- are in that group. So we've been focusing on that. I think we've quadrupled the ARPU or tripled at least the ARPU over the past 4 years. And we've grown the Western user base by close to 30% over the past 4 years. So I think we've been quite successful at it. And it's fortunate that we did it because the AI changes that are happening now and all the opportunities that come with that is very -- it comes at a certain cost, it certainly monthly price point, et cetera, where I think that user base is much more susceptible to that than the average global mix, let's say.

And from an advertising -- how is awareness of the browser? Like we often try to do our studies about awareness and Opera is an emerging brand here. So talk to us how we build up awareness in these Western U.S. and Europe, we'll call it.

Yes. No, we spent close to 30% of our revenue on marketing and brand building. So it's a quite wide list of initiatives, but it goes from like working with people that like YouTubers, influencers, people in the space. If it's for a gamer for example or now with the well being. So just to introduce it in people's awareness that we exist. That's like number one. If you take the gaming browser, it has like great reviews, very high retention. And then we have like 33 million users, I mean, which is like the -- by far, our highest ARPU products we have. But there are hundreds of millions of gamers, right? So if they all love it so much and the retention is so good, so then our job is to make more people sort of aware and sort of consider it and give it a try. So the foundation is to build an awareness and a brand identity. And then on top of it, we can be more tactical ad click, download kind of things. But the ROI on that is much better if the audience that you go after have some sort of association with the product to begin with.

Are there any newer channels that the team is focused on, whether it's social search course or you talked about influencers, maybe Twitch is it for the GX browser. Any insights there?

No, I think we are quite present in all these, maybe not social media -- or social media, too, like our [ X ] account is very active, for example. New -- what was I -- I mean, another aspect is we -- tech media because, for example, for One, it goes after people who are a little bit interested in technology, et cetera. And so I think you will see -- if you ever read the press release that we say something like we launched something and if you try to Google it, you'll see like 100 tech sites already talking about it. So we're quite good at working with journalists in the space. We gather them twice per year to show them the latest things, they can get some early access so we can sort of prep it a little bit so that they are aware that's...

Analysts enjoy early access too.

Yes, noted. Yes, noted. So we try to do that because, I mean, the outlets of where people find information. So one good thing about -- I mean, not going after like the grandparents and 12-year olds, but going after very specific groups is that for a large part, you know where to find them. Like you don't have to go TV, 7:00 p.m., everyone, it's very expensive. You can go to gaming sites and you can work with PewDiePie and Mr. Beast and the people that are actually watched by that segment and promote it that way.

Very helpful. So let's -- so that's a very good deeper dive in browsers, on Google, on MAUs and focus. Let's talk about the other side of the business. It's now about 2/3 of revenue, and that's the advertising -- like the actual advertising side outside of Google. Would love to hear more thoughts on just the approach. And then as a CFO, the greater the visibility that you have in this business, and I'll tack on to that. So approach visibility, e-commerce has been a home run here more recently, so drivers there.

I mean, since -- I think when we went public, we had something like 70%, 80% of our revenue was search, and that has grown since then, but the advertising has just grown so much faster because -- I mean search was the original monetization. And I think we, as I mentioned before, kind of came up with it. And then advertising, we began by -- we promote some partners. They can click an icon, the user and we collect the rev share or we had a monthly fixed fee to be there kind of thing. And then -- so that's evolved a lot. We have many more partnerships. We've gotten -- we have content in the browser, which is personalized, and we can show normal ads. We started targeting. So not presenting everyone with the same, but essentially looking at -- we have an advantage on that, right, because we see what people are doing. So we have a chance to show them relevant things. And then we even use that to target people outside the Opera browser through our Opera Ads network, which is getting quite big. So that's been an evolution and that's why the advertising revenue stream has grown so much faster and become now 2/3 of revenue instead of minority. I mean, of course, it's all, in a sense, the same. It's about driving traffic to partners. We've split it up in that way. You could also consider it as we look ahead, right? We talk about what's the future of search and AI. But the search for revenue stream, I mean, it's an expression of the revenue we generate when the user is actually looking for something, right? They are typing in something they are looking for in the future saying it or whatever, right? And then we work with partners to answer their queries and direct them to certain products, and that's the user initiated, whereas an advertising can be more like yes, I was looking at memory from a game yesterday. Yes, you reminded me. So I click that, right? But it's more -- it's a bit different, right? So I think both revenue streams will be important going forward. I actually think the search revenue stream are sort of the user initiated, like we can -- where it's almost like we're coming to a point where advertising was 6, 7 years ago, like the search opportunity could kind of come back into that because now we're going to take a much more active role in the user sort of initiate the product discovery, for example.

Because of agentic and because of seeing the entire browser experience across the tabs. And so as we think about e-commerce close to 50% of overall advertising revenues, I believe, makes it very large, growing around 100%-ish? Any specific callouts to make there or...

We can tie it back to the product strategy or the geographic strategy before like the focusing on Western markets, higher ARPU. So what we found was that suddenly, we were at a size big enough in the U.S. and in key European markets that we became a more interesting partner to e-commerce players. And we were able to drive meaningful amounts of traffic, and they are also thinking diversification. So if they can have more partners driving traffic to their site or not rely too much on a very few big ones, it's interesting to them. So that became -- I mean, e-commerce was always part of our revenue mix, but it just kind of took off, and it's been growing at more than 100% year-over-year now for the past 4 quarters, I guess, or 3 at least, accelerated about a year ago, mid-last year was when we really started to scale it. So that was a strategy that we've been working on for some time before that, and it's been very nice to see it play out. And then you asked about visibility, et cetera. So I mean in our history as a public company, I think we've never missed revenue guidance, and we missed EBITDA guidance one time when COVID hit, Q1 2020, we took some provisions. But other than that, it's always been meet or exceed. So at least that's a good proof of what I'm about to say, which is that since our revenue is generated by like billions of queries, billions of clicks, views, et cetera, like it's such large numbers, that there is a good degree of predictability into that. So as we run, for example, marketing campaigns, as I mentioned, it's our biggest OpEx category. And we know within a few days, like what's the ROI on a certain campaign because we see the profile of the users that are coming in by country, we see the engagement, the daily, the clicks, et cetera. And we can very quickly sort of calculate that curve for the next 2 years on that segment and look at it compared to the money that we spent to drive that, and we look at the organic uplift of okay, so we got these people click and then we rose in the rankings and so we got some extra and what's the incremental value. So I mean, it's like the BI team at Opera and sort of the [indiscernible] is a great place to be because you have such vast amounts of data that you can actually be quite good at predicting. Having said that, I think we've had a positive problem of having, in particular, e-commerce scale so quickly that we didn't dare to guide what would it look like just because when something is that new and growing that fast, then it's big numbers or not, it becomes more difficult.

Makes sense. Makes perfect sense. We have about a minute or 2 left. Any questions in the audience? Yes?

Just curious on the earlier you mentioned...

There's a mic right behind you. Hopefully it's on.

Yes. Earlier, you mentioned 1 billion knowledge users doing work in the browser all the time. I think that's not lost in enterprise software, too. Atlassian just announced the acquisition of The Browser Company, has 2 different browsers. And I guess the angle there is it's more secure, more enterprise-oriented. Can you talk about sort of differentiated offerings for enterprise specifically? And how do you tap into that? And if you're familiar with The Browser Company, how is that different than sort of what you can offer in the enterprise?

Yes. We have operated for the past more than a decade as a very B2C-oriented business. We monetize the user base we have, and that's what we -- how we generate revenue. Our history is actually B2B with operators and sort of payments, et cetera, if you go way, way back. I think the products we are making, they are made to appeal -- like Neon is made to appeal to the knowledge worker. That might open up some opportunities, but we're not really running those calculations. But of course if every analyst at Citi is like, "I love this product, like we should have that in our..." that can be interesting. But for now, it's -- we want to get the product out. We want to see how it works. Of course, I realize it's the first iteration, but I certainly hope people will recognize the difference between that and the product of a company that's just launching their first browser. In terms of that acquisition, I mean, I guess they started out as a very -- for very tech-savvy people and got a good following on that. But as they said themselves, it was very hard to scale. So we don't really see them pop up in like step count or anything in terms of -- so maybe they have less than 0.1% market share then, if that's as low as it goes. So it's still a small company, so it was clearly acquired because of interest in the technology in that space. But yes, we could be valued on the same multiples, then we will happily do that. So...

Do you have the compliance and security features...

We're -- and we're in over time. So I sort of have to -- let's make it quick, and we can follow up in the hall or...

I'm not familiar with how they distinguish themselves from us. But I mean we're a Norwegian European company operating under the European rules for privacy and all of that. So I think on that front, we're probably quite good.

So that, Frode, we didn't get to talk about payments or about profitability or not a lot, but there's a lot going on. So thank you for joining us today and looking forward to testing up Neon.

Yes. Thanks.

Thank you.