Opera Limited (OPRA) Earnings Call Transcript & Summary

All right. I think in the interest of time, we're going to get started with our next one. It's my pleasure to have the team from Opera here today at the conference, Frode Jacobsen, CFO. Frode, thank you so much for being part of the conference.

Thanks for having us.

So for those who are less familiar with Opera, why don't you start with taking a step back and giving a little bit of an overview of the platform that's being built, the evolution you guys have been on from the product side and sort of the vision going forward.

Sure. I mean Opera has been around for 30 years. We still act like we are a start-up, and it still feels like we are a start-up. But it's a Norwegian company from the 1990s, started out as a Netscape competitor or Netscape became our, I don't know. And we make web browsers for computers, for phones, an independent player in that space. We built up a user base of close to 300 million monthly users, both in emerging markets, but also where we grow the most is in the Western markets. So we have browsers that are tailored for -- they are made to be different than what comes with a computer or what comes with a phone, more feature-rich, tailored to specific segments. Like we have a browser for gamers and yes. And then company-wise, close to $600 million revenue, 23% midpoint guidance for growth this year. I think EBITDA margin, the same percentage. And we've had a nice track record of good growth for many years. So I mean it's in a very exciting space.

Yes. All true. Yes, agree. I want to break that down a little bit, though. If you think about the user base you have, is there a way to break down by either product or geography or demographic? How do you think about who your user base is across the array of products you try to bring to market?

I mean if we begin with geographies, we have about 20% of the user base in what we call western markets. So from North America, the European, the developed, those countries, that's up from 6%, 7% of the base when we started really focusing on building that and much higher monetization. So that's been fueling our revenue growth and ARPU growth that is like 3x over the past 4 years. In terms of types of users, probably the typical Opera -- user of Opera One, for example, the flagship product, is probably a bit more tech savvy than the average person. They care more. They know that they can install a browser that's not the one that came with the device, and they appreciate the richer feature set, so -- because we don't have to make a product that works for both grandparents and grandchildren, and we can make something that's appreciated a lot by some. Then we have a gamer browser, the only one in the world, I think, that exists. That is...

My son's an avid user. My gaming 18-year-old son is an avid user, yes.

Yes, very good. And that's the perfect target audience set. We have over 30 million users. It's the highest -- it's a very highly rated product, the highest ARPU product we have. It's obviously a very lucrative segment of people that are happy to make online purchases, and that drives revenue to us.

Yes, understood. How could that mix evolve over time? When you think about the landscape evolving or your product set evolving, what might that mix look like in 3 to 5 years' time?

We're still investing in the trends of -- we focus on high-value potential users more than the absolute user number. So if you, for example, take the regional split, I think we still spend 80%, 90% of our marketing dollars on that type of user growth, and it still represents less than that in terms of our revenue mix. So we are still cultivating the continuation of that trend, which I think, especially now with sort of the inflow of AI opportunities, including in the browser itself with sort of more computing on the back end, et cetera, but also much more opportunities on revenue generation, is a very good place to be. So that's what we'll keep doing.

Okay. Over the last sort of 6 to 12 months, there's been 2 sort of interesting developments. The first one I want to talk about is the EU competitive landscape. So obviously, there were changes made with the Digital Markets Act. I wanted to understand better how that impacted your business, what kind of market opportunity it opened up. And what have you seen in the European Union since some of those regulatory actions?

Yes. Both in the EU and in the U.S., I think we've seen government bodies focus on promoting competition. And as an independent player among giants, like we tend to be very happy with that and appreciate those types of things to level the playing field. But we're also not kind of -- we're not naive in the sense that it's -- we are still a challenger and we still have to win our users, and we still have to innovate faster than sort of the big system OS players to get users download us. But in the EU one outcome was that also on iPhones, people were given a choice of which browser they want to use. So every time you buy a new iPhone in the EU, you're asked that. That already exists on Android. And we saw from a low starting point, we've been focusing on Android as the platform that we had the greatest chance to compete, but still kind of more or less overnight, we saw a doubling in the inflow of new iOS users to Opera in the EU. So it's a step in a positive direction for us.

Right. Do you think that will be an area where you continue to invest time and effort over time that if you see these regulatory sort of pro-competition rulings come that you'll sort of lean in from the investment side?

From -- I think it's -- there isn't -- we still have to work for it, [ Kyle ]. So we don't get anything for free. But in the case of Apple, for example, for the longest time, iOS was locked. You had to use Safari as your default browser. That has opened up. People are informed about the alternatives. And the next one will be that we can use our own rendering technology that gets very technical. That is possible on Android, and that is why we focused on Android as the platform with the biggest opportunity. And now we see it's moving in the right direction on iOS. So like sort of best case scenario is our TAM is twice as big, but -- so yes, we are investing in growing iOS in Europe as a consequence.

Got it. Okay. You've also talked about the U.S. You have a current working relationship with Google on the search revenue side. For those who are a little bit less familiar, why don't you talk a little bit about that relationship between Google and yourself? And then obviously, there's been a number of regulatory rulings with respect to search recently in the U.S. as well.

Yes. The relationship dates back 25 years. So for 25 years, we've sort of consistently been in a partnership set up with Google as our preferred search partner. The way it works is, well, the same as Apple generates Google revenues that we have users want -- typing in a search in the address bar or in the search box and we send that to Google, and we get a revenue share in exchange for the traffic. So yes, there's been a case between the DOJ and Google about search distribution. And I guess the only part of it that was directly relevant to us was if somehow Google would be prohibited for -- to pay for traffic. And it came out that they wouldn't be in the ruling. It would have been very strange now that all these AI players are heating up. Bing is growing, if somehow one player Google would not be allowed to compete for traffic and all the other ones would be. So it was maybe not so surprising. But as said, it was relevant for the U.S. part of our user base, so not -- it's a smaller part, but still good to get clarity on that, I think.

And just to make -- put a fine point on this, so as a result of that ruling is your interpretation that very little, if nothing, will change with the relationship you have with Google today, the way it's structured.

Correct. I still -- we operate -- we've been extending our contract yearly. That was one of the things that came in the ruling, that there should be annual contracts. So that's -- we don't operate with exclusivity. So that was another part of it. So I think in practical terms, this doesn't really alter our relationship with Google.

Okay. Understood. I want to pivot to artificial intelligence. Why don't you talk us through what you built around Aria and AI integration into the browser? I think there's a lot of technology investors that believe the next big secular theme is going to be AI infused into browser experience and sort of how that changes consumer habits over time.

Yes. It's an example of we tend to be very quick at adopting new opportunities and coming up with innovation ourselves. In the -- in line with this, we have to give people a reason to use Opera. They have to appreciate the technology of Opera. So very early on, we built in AI functionality in the browser, meaning that you could essentially chat with an agent. We worked with both Google and OpenAI on the back end. You can have a native chat in the browser. You can make it aware of what website you're on, ask questions about that. You can also command certain browser features, et cetera. So that's been an early implementation of AI that we rolled out in Opera One, the flagship browser, and it's now available in all our browsers. So that was step one. And then -- but you probably have questions about Opera Neon, which is this AI-native browser we're coming out with. So maybe I'll pause there.

Yes. Well, obviously, that was the big announcement on this last earnings call. I thought that was sort of the splashy new change in terms of the narrative overall. Why don't you talk a little bit about that shift? What was the genesis of going down this road? And obviously, we're going to get more information about that as the year progresses and into 2026 but set the table for us on where that might take the company.

We think -- we are so excited about it, and we're coming out with a new browser now this fall. We're just wrapping it up and get it ready for a release called Opera Neon. And maybe to introduce it, I'll say that, I mean, I'm using all of these AI services. I'm paying $20 to all of them, everyone, and I use them for different things. I have ideas in my head about what they're all best for, et cetera. But they're all websites, right? They are a website, and I have excellent dialogues with them and I get information and it makes me effective, but it's constrained to that dialogue. And if I close that tab, it's gone. And either of them -- none of them are aware of what else I'm doing, right? So what we find so exciting as a browser maker is to elevate the AI functionality, let's say, above the tabs to be native in the browser itself at a level where it can actually control your tabs and interact with your websites and perform actions for you on the Internet. So it will be a combination of local and cloud powered, but it exists at the same level as the person using a browser, meaning that when you are logged into your e-mail, your calendar, your Wall Street Journal and Economist subscription and all of that, your agent in Opera Neon has access to those things. So that enables you to essentially create summaries and information from websites that are not crawlable from a big LLM that is central. You can research information. You can have the agent then summarize that, share it with your team through your e-mail, set up a meeting through your calendar and get stuff done, like the tedious stuff handled. And I think our benefit -- we're not the only ones that are thinking about this. But I think our benefit relative to some of the owners of the LLMs themselves is that we don't try to compete at the level of the LLM. We'll use partners' models on that. But we have decades' worth of experience in making a really unique high-quality browser, and we know how people use browsers, how they work with tabs, how they structure their tasks. And we want to create something that fits with the existing flow of how people actually work online but assists it and speeds it up.

Understood. Okay. You referenced there sort of what you build versus what you partner. You've talked about making targeted investments in the AI infrastructure on the CapEx side of the equation. But talk a little bit about what that landscape looks like. So where would there be avenues of exploring AI where you would partner? It sounds like on the foundational model side. And what do you feel the need to sort of invest in and own and operate yourself?

We'll play to our strengths, which is to make a really good browser. And then the slight differences between models in terms of how you can structure a task in the browser and execute a command is not so critical in what we believe is our success formula. In terms of investment, we -- and the computing behind that, what can be done locally on the device will actually run it locally, not in the cloud. Then we have our own hosting infrastructure that we can -- where we can run our own models, and then we partner with Google for Gemini, OpenAI and others on the back end where that is useful. And we want to give the user also control over where their queries are being processed. But yes, so that's our setup. I don't know if that answers...

No, it does. That's helpful. In terms of incremental investments going forward, is there anything to flag in terms of like changing the mix of like incremental margins or incremental free cash flow generation of the business? Or are we on a pretty steady path at this point?

I would say we are on a quite steady path. We did one very early hardware investment in these NVIDIA H100 cards just to build up enough internal capacity to run initial stage, internal testing and those kinds of things. We chose to just cash pay. It was $19 million, which is a relatively sizable amount for us. But we have plenty of opportunities to finance that in other ways, right? And I think as this scales, we just -- we optimize for like maximum profitability. If we come into a case where we see that, okay, we can keep scaling this up, right, and now we have the business case, we're also driving the revenue, the product is in the market, et cetera, then we will consider that OpEx just like any other and optimize for that. But I would expect it to be a more monthly cost type of cash flow nature than onetime major purchases.

Understood. Okay. You talked earlier about the gaming opportunity and the gaming browser. When you look about where the gaming landscape could go over the next 3 to 5 years, what are some of the more interesting opportunities to drive growth either on the monetization side or on scaling the user side of the equation when you tie your browser products back into the end market of gaming overall?

I think both are exciting opportunities for us. If we do the -- on the growth of users first, we have 33 million GX users. It's a mix of western and emerging. Average ARPU is $3.50, so it's nearly like twice of all the other products. And so it already represents like close to or about 20% of our revenue with that product. When we look -- that 33 million is part of the total gaming -- addressable gaming market out there, even in like the younger age demographics that we do best in, et cetera. And the product scores so well, and it has great user feedback. It's the best retention we have in addition to the highest ARPU. So we -- our journey on that is to keep raising awareness. And in terms of geographic focus, we are expanding now also into some key Asian gaming opportunities like Japan, South Korea that we think are -- I mean, they're obviously potential -- huge potentials. On the monetization side, we -- you have seen us launch various partnerships, and what we are cautious about is that the product has a genuine gaming feel throughout. So for example, we'd like to -- of course, we'd like to promote new game releases, hardware, games, even content that's relevant for the segment but in a way that's very native in the product and is also useful and interesting for the user base.

Understood. Okay. I want to pivot now to sort of growth investments. You've talked a lot about deploying money behind different growth initiatives inside the company. Is there a way to sort of rank order what the highest priorities are for incremental growth investments when you look out over the next 6 to 18 months?

I think the strategy in terms of the type of users we focus on, the way we reach them, how we work with content and influencers and various marketing channels and all of that, we -- it's performing very well, and I think we'll continue doing that. On the product side, it's what we talk about. So it's sort of the next versions of both Opera One and Opera GX but Opera Neon as the big news this fall. But these are not investments like we're going to -- here's CapEx of the quarter. This is just what does our team spend time on and how do we allocate our marketing budget. So it's within like the normal P&L of the company on a recurring basis, I would say.

So -- but sticking with the marketing budget, for instance, like how does the ROI of marketing continue to evolve? How is the thought process as a company about where you can optimize for return or how you can optimize different channels to generate outcomes on the marketing side continue to evolve as well?

I think we see really good effects of promoting the brand, making sure that people are just raising awareness essentially that we exist, that we have products that are interesting to various segments. It's very data-driven because, I mean, a browser business is a business of millions and hundreds of millions of people, billions of clicks at the cents level, right? So law of big numbers and all that. When we run a campaign, we immediately see -- of course, we see the direct downloads that come as a consequence. We see the uplift in organic traffic, and then we can follow the -- all the cohorts by product, country campaign. Over -- within a few days, we sort of see the profile of that user base that come in, their activity level, their retention curve and the revenue generation. So we have an ROI assessment of every single campaign and very quick feedback loop to sort of teach us to double down on something, scale back on something and optimize for -- I mean, in theory, as an analytical answer, we should just -- we should balance our budget so that the ROI is equal on absolutely everything, like the marginal dollar generates the same amount. Of course, in practice, it's not that theoretical, but that's the guiding principle.

It might be premature to ask this, but when you think about launching something potentially as scaled as a change product like a Neon, would that alter maybe the way you think about spending marketing dollars to not only raise the awareness of the company's brand but continue to alert customers to a new product? How do you think about striking the right balance there?

I mean ROI is ROI. So we quickly see how do we -- I mean, it comes with -- and it won't all be at perfect operations on day 1. But the potential of where the browser itself is natively giving advice to the user, presenting choice, making recommendations, of course, it comes with a great revenue potential, right, to direct traffic to our advertising partners. We've talked a lot about e-commerce opportunities over the past 3, 4 quarters and how we have scaled that. And I think this is just a continuation of that type of opportunity and with ARPU growth, the sort of the ability to step on marketing. But we manage this -- we manage the profitability we think we should have, and then we balance investment in growth with that. And then I would just say that just in terms of awareness, like the tech media is very aware of Opera. And we cultivate those relationships, right? We make sure that the journalists have early insights and access to our products that they get to learn about them, that we gather them and give demonstrations, et cetera. And so if we have done it right, it will be very visible in the tech media when Opera Neon goes live.

Understood. Yes. Look forward to those reviews. Got it. Okay. You guys have been very regular returners of capital to shareholders in a couple of different formats. When you take the whole discussion we've had today, where you think product is going over the long run, the growth investments you want to make, how do you think about balancing investments back into the business in the name of growth versus the potential that exists to continue to return capital to shareholders?

First is context because we just added it up. I mean we have returned nearly $0.5 billion now since 2020 to our shareholders. So relative to our market cap, that's something to be proud of. Like we run the company like classic stewardship of shareholders' money in a sense, half of it in buybacks and half of it in dividends. And we have a dividend as like the preferred method of return now just because it doesn't touch our free floats. We like the liquidity in the stock, et cetera. And so you asked how we think about it going forward or...

Yes, yes. What might change that mix? What might change the focus of it?

Right. We -- I mean we run a -- it's 100% essentially organic growth. Our investments is our team that we pay salaries and marketing, which we do on a daily basis, and we generate the profit. And we have a good conversion of that to cash. And then we -- I mean, we're already running at good profitability. We don't want to -- we want to keep doing that. Like it's not -- we are launching Opera Neon and we have created that within our daily operations. So we can always -- and every year, we discuss okay, how would we like to see -- how do we do the trade-off between do we want to staff up in certain teams or do we want to spend more active marketing in certain regions, et cetera, versus near-term profitability. And so I think you've seen over the last 3 years that we've essentially managed that to a quite stable to slightly ticking up EBITDA margin but then 20-plus percent revenue growth. And so we've landed at that as like a compromise almost, right? We could have spent more money and maybe grown a bit faster and vice versa, and then that's where we landed.

Okay. One follow-up to that, that I do get from some investors is you highlighted that you've traditionally preferred dividend, but you have bought back stock. How do you think about the buyback relative to the float dynamic with it? Is that why you're landing on the dividend, is it doesn't impact as much the liquidity around the stock?

Right. We've done buybacks at -- like many times, it has maybe seen that way. But sometimes it's just been too extreme to ignore that we've launched buyback programs. And then -- but the single biggest one we did was we bought up the pre-IPO shareholder at $5.50 per share before we paid like $2.50 in dividends so far, right? So -- or $2.60, I don't remember about that since then. So the net price of that, I mean, it was already attractive. So of course, that's one we're proud of having achieved. And then we have had some rounds in the market. But yes, look, that's why we lean to the dividend. That's like the recurring underlying method of returning value to shareholders. But then I mean, we're, I guess, getting versed in both, and we can take the opportunities.

Okay. Last one just to bring it all together, when you look out over the next 3 to 5 years and you guys sit as a management team, what would be the biggest priorities you're the most focused on executing against? And how do -- should we be thinking about you aligning sort of investments to deliver on those strategic priorities on a multiyear view?

3 to 5 years is a long time in our space.

We'll still be having this conversation if you want to.

Okay. So when we're a 35-year-old company. So at least in our history, it's -- No, I think it's an extremely exciting moment in time, right? Because I remember back in the day, people asking like, will the browser have a future? Will there be an Internet browser. Now I'm seeing -- people are spending more time in a browser, right? You have your e-mail, your calendar, maybe you're not in the Excel and Word, but you're in like online tools that does the same for collaboration. So in addition to new ways of finding information and taking advantage of the full web to do research, et cetera. So I think that is an extremely exciting context that we enter that 3- to 5-year period as we look ahead. And so I guess, aspirations for that time is that we can show with Opera Neon, its first and subsequent versions, that actually creating a browser is not so easy and having the company knowledge that we do actually puts us in a very good position to make something that people will appreciate. And I think that's the type of product in this period where the browser and these AI tools has so much attention that can make more people just even aware that we exist and that there are alternatives, so yes, taking advantage of this and then continue what we're doing. We're quite happy with what we've been doing also.

Yes. Understood. Okay. Well, why don't we leave it there. Thanks so much for being part of the conference. Please join me in thanking the team from Opera for being part of the conference this year.

Thank you.