Opera Limited (OPRA) Earnings Call Transcript & Summary

Great. Well, let's get started here. I'm Ron Josey. I lead the Internet coverage here at Citi Research. And I'm psyched to have with us Frode Jacobsen. Frode, I always want to make sure I get the name correct, from Opera. Opera is a browser. I think most people know what Opera does, been around for a while, started on mobile, now going to really everywhere. And there's a lot of key drivers going on within Opera, the mix shift to Western MAUs, newer AI browsers coming on, newer capabilities and everything else, all of which we will get into today. So, Frode, thank you for coming. Welcome to the conference.

Thanks for having me.

Maybe we can kick off with just talk to us about Opera. Talk to us specifically about what gets you excited about the business from a product perspective?

I mean to introduce Opera, we are the biggest independent browser. So, the non-standard browser that people have to choose to install on their computer or on their phone. And what we do is we check...

Making sure the mic is on.

Is that better?

Okay, up now.

Great. So, we are the biggest independent browser. We -- to get people to choose Opera and install it, we have to make it different and better than whatever standard browser would be. So, more feature-rich, more functionality in the browser, more customizations, et cetera. And then by doing that, we attract the most engaged, let's say, people, the people that even consider that, oh, I could change my browser. And that's also the population that has the highest monetization potential, spend the most money online that we can drive the most transactions. So, the way we generate revenue is to essentially send traffic to partners. It's either the user is looking for something. So, we call that query revenue. We send it to search partners or directly to an e-commerce player that sells the product that they are looking for or it's more kind of lean back that we can show native ads in our products, so the advertising category. And that one also includes targeting people outside our own product. So, we buy inventory and show ads on websites or in apps, for example. So that's how we drive revenue. We've been growing at over 20% for the past decade per year. And we do it while keeping sort of good solid profitability. So, we pay both dividend and buybacks. And in terms of the era that we are in now with all of these new AI tools coming in and these huge productivity boosts for everyone, that is a new level of dynamic ecosystem around us, much more -- the most interesting situation we've been in for a very, very long time because these tools, they kind of started out just like search, like a website or a dedicated app, right? But they have the AI and LLMs have the additional potential that if you lift them above the website level and into the native browser itself, then they can act at the user level across whatever the user is doing. And people have, over time, been spending more and more time in their browsers just because more and more tools are becoming kind of web-based like ERP systems, presentation, spreadsheets, calendars, e-mail and all of that. And you are logged into all the services that you maybe subscribe to, et cetera. And then if you lift the AI tools up to that level, you can have both a very informed companion and research assistant, but also you have the opportunity to have like that agentic support, which is a completely new thing.

So, we've been impressed with just the consistent 20% growth. And before we sort of dive a little bit deeper on the advertising side, Frode, I wanted to get your take on just the product strategy within Opera. There's a lot of different browsers out there, each with a different purpose, I think, within the Opera like catalog of browsers, there's Opera One, there's GX, there's Neon, there's Air. Just talk to us about the differentiation across these products and specifically where we are investing in going forward. So, talk about the browser -- the broader browser strategy, if you will.

Sure. So the flagship browser is the Opera One. And that's the one that most directly competes for attention from a standard browser -- but trying -- adding on more to make it attractive. And then what we found is that with taking the same essentially technology core, we can create different versions of the browser that are more tailored to specific audiences. So, GX is the one that's tailored to gamers. So, when you launch it, you see news about upcoming games, hardware, things that interest and the whole look design and some of the features of it is tailored for that particular segment. Opera Neon is a browser for the AI enthusiast. So, the agentic browser, right? We want the agentic browser, and I can talk about that after, but that's something we want everyone to have access to, and we have progressed quite far on that. But for sort of the R&D of it where we get the most feedback and the most demanding people, it's Opera Air -- sorry, it's Opera Neon.

Neon from an AI perspective?

Yes. Because Neon is a subscription browser, which essentially allows us to run all the compute on the back end. So, you get the browser with completely native agentic capabilities into it. And then the user base is -- I mean, the people that are going after an agentic AI browser is still a very niche segment. Most people use AI tools, but sort of the -- having the AI tool be an agent on your behalf, it's still very early days.

This is an example of what an agentic browser means because I think most of the conversations that we have about the product set is we have the flagship with Opera One. I think we understand what GX is. Neon is a subscription-based and getting the agentic benefits of them of what Neon brings, that's always a question that we get. So, talk to us about the benefits of Neon. I mean, what [indiscernible]?

Yes. I mean you essentially -- you essentially have an assistant to kill some of the tasks that would be tedious for the human to do. So, for example, you've integrated all your platforms, you're logged into everything. And then you would say, like here are the 20 companies that I like to follow, populate my calendar with their next earnings dates. And then the agent would search them, go to the Investor Relations sites, pick the dates, put them in your calendar, put a summary, et cetera. That stuff works pretty well. Summarize this, send it to my team in a Slack message, send an e-mail. That works pretty well. I think where it's still quite early days is I need to go to New York for 3 days, find a good combination of flight and hotel and create a schedule.

The full-on agent.

Yes, that stuff, I think, still have ways to go. But there are definitely people who are enthusiastic about this and invest the time to try it out, right? Whereas most people, they just book that travel as the way they always did. So, those capabilities will improve probably much faster than we expect today. And what we want is to -- I mean, we want to bring this to everyone as soon as possible. We -- and that will happen in our free browsers in the flagship in Opera One and Opera GX -- where it's free. So, the strategy we have is we use Opera Neon to learn how people use it, what they appreciate, what they don't like. You will see that the way it structures its tasks in separate groups. And then within each task, for example, it can have separate tabs. So when you are a human and you work with your agent to get support, you can see, okay, so the agent is opening new tabs, it's researching flights and trains or whatever, but it's all within one task. So you as a human can sort of follow along. So we learn from this. And then in terms of bringing it into the free products, the way we do it is we essentially want Opera One and Opera GX to be the best orchestration layer for whatever AI service the user wants to use. We are independent. We're not competing against any of these players. We would happily partner with all of them, right? So already, we have integrated Google and Gemini as a long-term partner. ChatGPT, Claude as either back-end MCP-based or you can put the plug in so that you can bring it up directly in the interface. And then also very big opportunity is just using local models. That's still very complicated. It's not mainstream, but it should be very easy. Just click here and the browser pick -- picks an open source model, downloads it to your machine and then you can have the agentic experience without paying any subscription. So -- but going back a bit to integrating with all these other ecosystems is that means if the user already has a ChatGPT subscription, they can use that to essentially be the LLM behind making the Opera browser agentic. You don't have to pay separately for the browser, right? We don't -- it doesn't really matter to us if the user prefers one or the other. What we want to do is to make sure that the Opera browser is the best place for them to natively use whichever tools they want. And I think that can be quite unique because in the browser space, most browsers are more strongly affiliated with one platform than another, but the Opera browser is kind of open to everyone.

One last question on the browser product side and on AI specifically. I think OpenAI has decided not to release their browser -- AI-labeled browser. Chrome has talked about new AI capabilities, but I don't think we've quite seen it yet. How does that change the market? Does that change the market? You all have the only sort of AI-based browser. That's question 1. And then question 2 is, I think engagement rates on Neon are higher. And so bigger picture, how do we take that and put that into one or the other browsers. One is competition and two...

Yes. I understand. So on the first part of it, I think everyone can appreciate to have a browser with a native link to whatever AI tool they like the most. But before you get to that, the browser itself, like the core browser functionality that everyone is used to and have been using for decades, right, that has to be good. That has to be -- if you have a mediocre browser with an excellent AI native link, it doesn't really work because you're going to use it for everything. And most likely, people aren't going to want to have like 1 browser for ChatGPT, 1 for Gemini and 1 for whichever other tool they want, right? So on the Atlas browser from ChatGPT, it was probably quite similar to them as Opera Neon is to us that it's a good tech development. It's a good learning path, but it's not really a product for the masses. Opera Neon at least is a fully fledged browser at its core, adding the integrations. And still, it attracts a certain segment. So I think that's why we think it's very important that you create the product that the user can use with any service. So you don't need to have different browsers for different things because the whole idea is since it's the web, you can have kind of 1 layer and you can work with whatever tool you want to help you in that. That was the first part of the question. The second part was on engagement. Yes. So what we see is that the users who use these features, right, to use Opera's own built-in AI assistant or connect their existing subscriptions to the browser, they are the most engaged user base. They spend more time. They even search more than the average. So when we do this and let the user benefit from whatever subscription they already have, what we want to build over time is sort of the position as the best open orchestration layer. But along the way, we are attracting exactly the kind of highest ARPU users into the growth of our products.

Got it. So we'll be monitoring, right, like the progression of not only Neon users, but then the capabilities that go into the other browsers within Opera as Neon continues to grow. I think that product strategy is pretty interesting as you sort of launch newer browsers. So let's talk about who's using these browsers. And one of the things that we focus on quite a bit is on the Western MAUs and the Western users, and we've seen consistent growth here. So specifically, I wanted to understand a little bit more or talk to us a little bit more about the focus and the strategy on driving Western users. And then ultimately, what is driving that, I guess, focus strategy and the driver?

I mean the core of the strategy is we want to grow in the highest ARPU populations. So Western is a very good indicator because relative to users in other regions of the world, the monetization potential is much higher. The gaming browser is there because as a group, gamers monetize much better than average, et cetera. And of course, the AI enthusiasts we talked about, but also very high monetization potential. So the way we do it is we tailor the products to be sort of the best for the most demanding users that is these groups. And then we direct our brand building and our marketing dollars in the same direction. And the reason we do it, I mean, marketing in the U.S. will cost probably relative to how many people you reach, it's probably 20, 30x more expensive than in an emerging market, right? But the revenue is also that much higher. So what we see is that the best ROI on our marketing and growth is in the highest ARPU segments. And so we go after that. And we keep over-indexing on that, like we spend a greater share of our marketing budget on high ARPU segments relative to what they represent as a revenue, and we've been growing that over many years.

And this past quarter, we saw some success with certain mobile -- with Android and iOS MAU specifically. Was there anything specific that the team did to drive? I think the comment was 40% from Android and iOS MAU growth, I think, is what it was in the U.S. last quarter, 66% in London. Just talk to us about -- understood why you want to go to Western markets. The question is, how do we grow that penetration?

Yes. So we've always been strongest, I would say, on the PC side as our legacy in Western markets. And then what we see is that our Opera One for Android and iOS is picking up momentum. There are benefits of using both, right, for the same person. An extra tailwind that happened is up until quite recently, we could really only compete on Android because iOS -- I mean, you -- we had Opera on the Apple App Store, but Apple didn't allow the user to set any other browser as the default browser than Safari. So then even if the user want to use Opera, if every time they click a link in an e-mail or something like that, it opens up Safari's like constant uphill. So we didn't spend any effort on the platform. And then there's been a lot of regulatory attention to this in terms of like leveling the playing field, both here in the U.S. and in Europe. And those things have led to, for example, that now an iOS user can choose their browser. And with that suddenly, it became interesting, right? Because then that's half the market and a very high ARPU potential user. So then we spent much more attention on creating the iOS product to be beautiful and to be very functional. We direct the marketing activities in that direction. And I mean, we've grown the iOS base to represent about 10% of our smartphone base, up from 0-point-something percent, right? But it's still not 50%, but it's got a very good trajectory. So that essentially, in a way, you could say that our market in Western markets kind of market potential doubled, right? We sort of maybe can address both ecosystems.