Opera Limited

Welcome to the Opera Limited first quarter 2025 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this period, you will need to press the star 1 on your telephone keypad. If you want to remove yourself from the queue, please press star 2. Please be advised that today's call is being recorded. Lastly, if you should need operator assistance, please press star 0. I would now like to turn the call over to your speaker today, Matt Wilson, Head of Investor Relations. Please begin.

Thank you for joining us. This morning, I am joined by our co-CEO, Song Lin, and our CFO, Frodo Jacobson. Before I hand over the call to Song Lin, I would like to remind you that some of the statements that we make today regarding our business, operations, and financial performance may be considered forward-looking. Such statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties. Actual results could differ materially. Please refer to the Safe Harbor Statement in our earnings press release, as well as our annual report, Form 20F, including the risk factors. We undertake no obligation to update any forward-looking statements. During this call, we will present both IFRS and non-IFRS financial measures. A reconciliation of non-IFRS to IFRS measures is included in today's earnings press release, which is distributed and available to the public through our investor relations website located at investor.opera.com. Our comments will be on year-over-year comparisons unless we state otherwise. With that, let me turn the call over to our co-CEO, Song Lin, who will cover our first quarter operational highlights and strategy and And then Frodo Jacobson, who will discuss our financials and expectations going forward. Strong?

Sure. Thanks, Matt. And thank you to everyone for joining us today. I'm excited to share our strong first quarter results with you and to provide an update on our recent business activity. The accelerating business momentum we experienced in the second half of 2024 continued into the first quarter of 2025. In fact, our year-over-year revenue growth increased from 29 percent in the first quarter to 40 percent in the first quarter, well above the 28 to 31 percent growth we had previously guided for the period. This translates to revenue of 143 million, a record, for the first quarter. Once again, our outperformance relative to our previously issued guidance was primarily driven by advertising and, in particular, the e-commerce opportunities we are focusing on. In fact, advertising revenue growth was 3% in the first quarter, reaching $96 million and now representing two-thirds of our total revenue. Within this, eCommerce was the fastest growing vertical and over 100% analyzed growth, which in turn offset the underlying seasonality pattern we expect to see from Q4 to Q1. Search revenue was 47 million in the quarter, growing 8% year over year. The browser served as a crucial access point for search, and we are pleased to see continued growth in search revenue. By leveraging AI, we can effectively identify high user intent, enabling us to optimize the click stream. This optimization allows us to deliver the best possible experience for both end users and partners, fostering the simultaneous growth of search and advertising. Revenue outperformance leads to increased profitability as demonstrated by adjusted EBITDA of 32 million, also well above the high end of our previously issued range. The corresponding margin was 23%, meaning that we were able to accelerate our top line growth without sacrificing the expected profit margin percentage. Our user base continues to be relatively stable, and 293 million MAUs while remaining consistent with our ongoing strategy of focusing on those users with the highest value potential. As a result, our analyst output grew at an outstanding 44% year over year. After significant updates to both Opera 1 and GX during the fourth quarter, the product launches in the fourth quarter were improvements On the recent refresh, such as the addition of blue sky, Discord, and Slack support to the sidebar of Opera 1, even more relevant and mobile world congress, Opera became the fourth major browser to present AI-agentic browsing through the browser operator. The browser operator marks the first step towards broadening the role of the browser to an application that is also agentic and can perform tasks for its users. While working on completing a task, browser operator lets users see what's going on at any point in the process, as well as what steps it took to complete it. During this process, the user remains in full control and can take over or cancel the task at any given moment. The best part is that browser operator works in the same environment as the user, the browser. And another event, just earlier this month, fourth live demo of browser operator, which showcased the browser operator's ability to make travel bookings and even order flowers to a particular hotel room in Lisbon. Given a handful of parameters in English, the browser found a retailer with a website in Portuguese filled the shopping cart with specified flowers, along with all relevant delivery and payment information, with only the final checkout to be clicked by the user. We are just starting to see what is possible with an agentic browsing experience. We also brought our browser AI area to Opera Mini. This makes area available across our full suite of browsers for both mobile and desktop users. Now, close to 300 million people can enjoy the benefits of ARIA, allowing even our most data conscious users to harness the power of AI in a data efficient manner. Turning to Opera GX, the browser made for gamers. Our GX user base was 34 million stable. This is the strong and release-oriented fourth quarter. On an annual basis, we grew the GX user base by 14%, with the current analyzed output of $3.41, slightly down from the seasonal peak of Q4. Engagement on GX remains high, with continued sequential growth in the number of GX games that are published, registered users, and the number of unique modes available to users. We also announced our first game for Rogues, Hell's Obby, which is a competition where up to 25 players have to race up a desolate and obstacle-filled wasteland in a high stakes battle. During the first quarter, we also released the latest member of the Opera browser family, Opera Air. This browser with mindfulness front and center has already received a warm welcome by the tech press with enthusiastic and in-depth coverage. And we are in the process of fine-tuning it ahead of increasing its marketing. Still, in its first two months alone, Opera Air has already been downloaded over half a million times. And we are seeing very encouraging usage. Consistent with our focus on the highest value users, Opera Air is targeting users in Western markets It is still early days, but we like what we see. To summarize, 2025 is off to an impressive start, scaling our business faster than we had thought possible just a few months ago. The fact that we achieved this in the face of a highly volatile macro backdrop says something about the appeal of our broadening browser portfolio and our monetization capabilities. And we'll certainly do our very best to keep it up. Finally, since a lot of our conversation today might center on the volatility affecting the broader market, I sought to also mention that Opera is actually celebrating its 30th anniversary in 2025. And I've personally been part of the journey for nearly 23 of those years. We found ourselves in the midst of some other major disruptions over that time, including the emergency of the web itself, our own pioneering of making the internet available on mobile phones, the fall of the mighty telcos, the emergency of smartphones, and the globalization of internet access. We've dealt with changing environments and competition from companies a thousand times bigger than ourselves. All that to say that we have a strong track record of navigating a rapidly evolving landscape and finding ways to benefit from it and to contribute to innovation. So while today it's natural that we focus our ability to grow even faster than what we told you to expect last time, this will always be made possible by our internal focus of how we develop our products and platforms to set ourselves up for success in the long run. With that, let me hand the call over to Frida for additional details.

Thanks, Song. Staying on the topic of rapid scaling, with revenue coming in nearly $10 million above the high end of our guidance range, we are certainly off to a solid start of the year with a 40% year-over-year growth rate in the quarter. That is 11 percentage points above both Q4 and the midpoint of guidance for Q1, and says something about the underlying commercial success of Opera as we enter a new period where an important geography like the U.S. is held back by greater uncertainty among many advertisers. Over our nearly seven years as a public company, we've scaled to become several times bigger versus where we started. And we've been careful to guide with caution, even though the underlying trend has consistently been a very positive one. While in retrospect, we could have been less conservative in terms of reflecting how headwinds could affect the first quarter, It is certainly rewarding that we are now able to raise guidance further, even if we believe that these headwinds might be more pronounced in the quarters to come. The underlying success of OPERA and our diverse geographic footprint both provide natural hedges. Beyond revenue, we are also very pleased that our adjusted EBITDA came in at the highest margin percentage indicated in guidance, adding more than 2 million on top of the high end of our EBITDA guidance range. In terms of costs, we saw cost of revenue items scale in line with the advertising revenue over performance. Apart from that, our OpEx items pre-adjusted EBITDA landed in accordance with our prior directional commentary. This included lowering our marketing spend to $34 million from $41 million in the fourth quarter, which was elevated due to multiple product launches. As in recent periods, we have focused our marketing spend on those users with the highest ARPU returns. Our cash compensation cost was $18 million, up about $1 million versus the Q4 level, and more similar to the recent average quarterly cost level, as expected. Other OpEx items combined were $8 million, up about half a million versus the Q4 level, and also as expected. Year over year, all of these cost categories increased in dollars, but reduced as percentage of revenue as we benefit from economies of scale. Our operating cash flow was $16 million in the quarter, representing 49% of adjusted EBITDA. Free cash flow from operations came in at $12 million, or 37% of adjusted EBITDA. As in prior years, we continue to expect fluctuations in cash conversion on a quarterly basis, which will stabilize as the year progresses towards the full-year value. For example, in this particular quarter, the fact that revenue remained unusually strong as we exited the peak shopping season of Q4 also meant that our accounts receivable did not contract as they did in Q1 last year. And the reduction in marketing costs drove a reduction in quarter-end payables. But of course, such effects benefit cash flow in future quarters, and so for the year as a whole, it's neutral. To conclude, Q1 marks our 16th consecutive quarter as a rule of 40 companies, and yet another quarter of meeting or exceeding our guidance. We are proud to combine solid growth with healthy profitability and have now entered our third year as a recurring dividend-paying company, which lets our shareholders directly benefit from our cash generation through a proper and meaningful yield. Since January 2023, we have distributed $2.40 of dividends per share with the next record date scheduled for July. Now, turning to guidance. Given political tensions and unresolved trade disputes, we expect to remain in a volatile period for the foreseeable future. But as a lean and fast-moving company with the ability to navigate growth pockets, we will do our best to play it to our strengths. Apart from having guided cautiously as the year commenced, There are a couple other reasons why we have some natural cushions from the current volatility as it relates to e-commerce and the U.S. First, while e-commerce is our fastest growing vertical, we still consider the U.S. e-commerce opportunity to be mostly ahead of us. In other words, we have less exposure than many others and believe that there is plenty of opportunity to scale this further in a more normalized environment. Second, almost all of our advertising revenue is performance-based as opposed to brand advertising. That means that the payment from the advertiser is tied to measurable results, which we believe makes the business more resilient. Taken together, we believe we are in a pretty good relative position for whatever comes next. For 2025 as a whole, we now raise revenue guidance to 567 to 582 million, or 20% annual growth at the midpoint, up from 555 to 570 million. That means we are already adding three incremental percentage points of full year growth, with the former high end of guidance now representing the lower part of our revised range. Similar to before, we have based our guidance on sequential modeling with the raised estimates capturing the Q1 overperformance, as well as a modest incremental uplift in what we had previously assumed for each remaining quarter of the year. As before, this results in a relatively stable trend of quarterly revenue growth measured on a two-year CAGR, which captures the scale we have built in recent quarters while also evening out our forward-looking growth profile. In terms of adjusted EBITDA, we now guide 135 to 140 million for the year as a whole, continuing to represent a 24% margin at the midpoints, but raised to reflect the incremental revenue. Cost-wise, we then implicitly guide to a full year OPEX base, pre-adjusted EBITDA, of $437 million at the midpoints, with a further amplification of the trends that we discussed last. Our baseline expectation remains that the margin headwind from growth in cost of revenue items will be offset by margin tailwinds from economies of scale in the remainder of our cost base, leading to a stable EBITDA margin on top of a rapidly scaling revenue base. We now expect cost of revenue items combined will reach 32% to 33% of revenue in 2025, scaling with our overperformance. We expect that marketing costs will grow at the year-over-year percentage in the high single digits with a relatively stable level from Q1 to Q2 before ticking up somewhat higher in the second half of the year. We expect both cash compensation and all other ROPEX items pre-adjusted EBITDA combined to grow at year-over-year percentage rates in the mid to high single digits. In other words, marketing, compensation, and the sum of the other small ROPICS items are all expected to continue to decline as a percentage of revenue in 2025. In line with all this, we guide Q2 revenue of $134 to $138 million, representing 24% growth at the midpoint. and Q2 adjusted EBITDA of 30 to 32 million, or a 23% margin at the midpoints. This represents a lift versus previous Q2 estimates as part of our former full-year guidance, while also including a buffer for volatility from e-commerce advertisers targeting U.S. consumers. Within the implied quarterly OPEX base of 105 million at the midpoints, we expect that cost of revenue items as percentage of revenue will be in the low 30s in the quarter, just below our full year expectations. We expect marketing costs in the mid to low 30 million range and thereby relatively stable versus the first quarter. And we expect cash compensation costs to increase about 1 to 2 million versus the Q1 level inclusive of annual salary adjustments and potentially a weaker US dollars relative to the main currencies of our salary expense. All other OpEx items pre-adjusted EBITDA are expected to remain quite stable in totality. All in all, we are very pleased with the continued success of our business and how we are taking advantage of opportunities to scale faster even in the face of macro challenges that for now might delay some of our growth potential. With that, I'll turn the call back to the operator for questions.

Thank you. As a reminder, to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 2. When posing your question, we ask that you please pick up your handset for optimal sound quality. We'll take our first question from Navid Khan with B Reilly Securities. Please go ahead.

Great. Thank you so much, and congrats on the quarter and the race guides. I just have a couple of questions. Maybe one just on the surge growth during the quarter. You know, the 8% of the slowdown from the sort of, you know, teens growth that we have been seeing, is that because you're able to to funnel some of this into e-commerce advertising, and this is a net result of that. What's the right way to think about search for the full year? And the second question I have is on GX. ARPU declines sequentially. I get it. There is seasonality, but it also seems like it is below the levels in the quarter before that. How much of a factor is the macro in GX ARPU?

Thank you. Yeah. So, so it's only hell.

I think that's just try to answer, um, yeah, both of the questions. So I think for so much, I think basically you are right that, you know, basically what we see is that overall, uh, the whole industry is actually shifting towards a more, I would say intent based talking and advertisement, and we just want to grasp for that opportunity. Um, so like, even though of course, storage is always a very, very important part of the browser revenue. the moment we can identify user intent, we have possibility of bringing user, you know, other form of, let's say, advertisements with the clickstream. So I would say this partly explains why there's some, more like, that's probably why actually you saw so fast the world of the advertisements overall. And then, you know, even though search is a bit of a double digit, it's still a nice growth that we're happy with. Yeah, so like, I think, Basically the overall trend is a bit what we're describing, but then of course in the coming quarters, I think we still actually see there will be a very strong growth of search moving forward. It's just that we will always be optimistic to see that if there's a chance, it makes more sense ROI-wise, let's say, and also from any other point of view to let them expose to even more ads in different form, in different shapes, we will be very happy to do it. Um, so, and, and as all the macro that's probably benefit us, uh, much more than anything else. Um, so there is on that. And then. I think for GX is a bit similar that first of all, I think GX is a business and additive because, um, QI is also a bit harder to see the models. So there is that. And then I guess that is also a matter of, um, now we actually also with the help of AI, with the help of this high intent advertisement or whatever, we actually have many more options will always shoulder that. It can potentially be in GX, but then there might also be some other place to shoulder that with the same effect. And then, of course, as far as those are not shored in GX, we don't really count them as GX revenue. So that's the other part of it, mechanics. But I would say overall it's actually benefiting for Opera as a company for totality. Yeah, I think that's the short answer of those two questions.

On GAX, I forgot to ask about currency. If currency played a role because the dollar is pretty strong in Q1, how should we think about that?

From here, US dollar continues to be or provide a headwind in terms of constant currency. So our growth would have been, we estimate, five to six percentage points higher on constant currency. We've seen the sequential basis. The impact is quite muted. So, of course, in the quarters ahead, that might turn to a positive tailwind. But for now, it's still been a headwind.

Thanks so much.

Thank you. We'll take our next question from Lance Vitonza from TD Catwin. Please go ahead.

Thanks, guys. Congratulations on the strong quarter. A few questions here. The first, on the e-commerce growth, you mentioned that it offset the typical seasonality. I assume that's just because it's growing so quickly, right? I mean, what I'm getting at is that Once the e-commerce business reaches maturity, so to speak, I assume that it, too, would be seasonal, or do you think we should expect a return to the typical seasonality that we've seen at Opera in the first quarter of next year?

Hey, Lance. Yeah, you're right.

It's only hell. Okay, I'll just complete. Go ahead. You can take over. That is what we meant. It's the underlying growth of the e-commerce opportunity has been so strong that we didn't see a seasonality factor that we would normally expect. Sang, I'll hand it over to you.

No, no, I think what Ferda described is right. So I think overall, of course, revenue always has seasonality. It should be the case. But then, of course... whenever we saw some aspects which have grown very fast, and then that is almost a happy issue, that it's grown almost out of seasonality. I think the only thing maybe I'll emphasize is that, of course, the total e-commerce market is such a huge market, right? So like, you know, we're talking about $100 billion market, and even if we grow to be a billion dollar revenue, we're only 1% of it. So I would almost say that, yes, you should always assume seasonality as always, The growth potential is so huge for the company like us, especially on the grounds of e-commerce. So I think we'll continue to focus on it and hopefully we can maintain quite aggressive growth speed in the next quarters to come.

Got it. Thanks. And then the overall user base, it's drifting a little bit lower. It feels like it's getting harder to round up to 300 million MAUs. And I'm just wondering, is there any cause for concern there, if not now, perhaps in the future? Is there a level of total MAUs at which you don't want to be below?

I can begin.

The thing is, there's not a single person in the company that is measured on the MAU count itself, because what's important is the byproduct, by day, et cetera, engagement, and stuff that actually drives the revenue. So I think similar to past quarters, what the movements we are seeing is typically emerging markets, mobile users, that are churning faster, and then we are focusing our marketing spend and growth initiatives on the user base that has the highest ARPU potential. Even though that comes with the trade-off of fewer users coming in, but driving a lot higher revenue, and this is why what you see in our ARPU too, right, that it's up so much, 45% or so in the past year.

Okay, and then just one last one for me. Switching gears a little bit, but there's been a lot of news flow recently around U.S. antitrust actions affecting Alphabet and the rest of big tech. Could you talk for a few minutes about how you see the broader ecosystem evolving and what that could mean for Opera's businesses, both on the browser side and also in ad tech?

Um, yeah, yeah.

It's only hell. Um, yes, yes, I could. So I just comment, right. So we can't really comment on particular litigation, I guess, but I would just say that, uh, overall, um, I think we have been seeing really like, even without the litigation, we saw that there is some major shipments or, you know, how advertiser do business that, you know, they're focused on this, you know, high, high intent, uh, click streams, which previously is only available. I guess, on certain products like search, but now with the help of AI, it's much more widely available, right? So why is it even a topic? So I would almost say that my view, our view is that, you know, of course, that's really benefiting to our price, the company, the trend, because of course, as I mentioned earlier, our browser is becoming more and more the topic, even from all those, you know, dedication or whatever, there's a lot of talks about browser, right? Like it is, it is hotter than ever. We've never, we've never seen It's almost back to the old days where it's the beginning of the internet that everybody talks about it. So to us as a browser company, of course, that's as good as it gets for the attention and focus. So I think we are also very visible to innovate, both in terms of browser, but also in terms of how it can be monetized based on the user intent and click stream and relevant items. So that in isolation is a very positive trend. I guess those legislations is almost a reflecting part of it. And then, you know, like also the various, the objectives or whatever, they of course ask you for opening up for competition or whatever. You know, right or wrong, in general, that overall trend is positive plus, I would say, that, you know, there are big opening up and we are still, you know, we are still as an agile company. We are coming from a small, small place. It means we have many, many times growth potential and we are very positive about the directions.

Thank you, gentlemen.

Thank you. And our next question will be from Eric Sheridan with Goldman Sachs. Please go ahead.

Thanks so much for taking the question. I wanted to go a little bit deeper into the e-commerce opportunity. Can you give us a little bit of color of either the vertical exposure or the geographic exposure of your e-commerce advertisers today and how to think about the diversification of that mix looking out over the next 12 to 18 months. And when you talk to these advertisers and there's elements of them winding out the array of advertising we do as a platform, how do you think about some of the gaining factors that you're trying to solve for with them to increase their overall budget exposure? Thank you.

Hi, Eric.

I can begin to describe the e-commerce opportunity. So as Song mentioned, I think, on the call, it's growing very quickly. It continues to grow at over 100% year-over-year rates, meaning that it's becoming a sizable part of our advertising revenue and approaching search in terms of financial importance. It's a globally distributed opportunity still, as we talked about on this call. In particular, we think the U.S. opportunity, a lot of it is still ahead of us. And it's also what we like in general about the growth of advertising is the increased diversification of the partner base. So I think these are positive directions for the revenue mix as we also look ahead.

Great, thank you.

Thank you, and we'll go next to Mark Argentino from Lake Street.

Yeah, thanks, good morning. Yeah, maybe we take another stab at that e-commerce question in terms of better understanding kind of the levers there. You said in particular the U.S. opportunity is still fairly nascent. To actually start to develop that opportunity more, do you have to attract specific platforms, in particular retailers or e-commerce retailers? What are the levers you need to see that growth start to happen in the U.S.?

Yeah, it's only a hill, Rod. So, yeah, so I guess first just to comment that it's still holidays for us this year. I think for us, our strength is really on performance, as I mentioned, which means any advertiser which focuses more on performance, focuses more on incrementality, typically we are actually a very good partner to work with. And again, very similar as those advertisers which previously probably invested more in, I would say, either brand or some search advertising. Then I think if you want to catch a similar amount of high user intent, I think we normally see we actually excel in those areas. So that's very good. And as mentioned, like the whole e-commerce market is huge, the U.S. is big. despite some volatility, I think there is still major potential that we are just scratching the surface of it. So I think those are all the areas which we focus on. And maybe I'll just mention that, of course, we, at this stage, we choose to work with perhaps not long-tail, but focus on all the bigger players, just because those are typically the ones that have scale and have an impact, while later on, the long-tail retailers will probably follow along So that's in general strategy. But I would just also say that, just want to mention that Opera, of course, many people don't realize we are from Norway. We are from a country where there's only 5 million people. So we don't really have a domestic market to start with. We're always trying to find opportunity globally in a global market. So while, yes, we are growing very fast in US, we also see big growth opportunity In Asia, for instance, we grow very fast in Southeast Asia. We grow fast in Japan. We grow fast, hopefully, in Korea. We also have very good growth in Latin and in many other countries. So I think to us, we just view that this is a big opportunity, a major macro trend that we can take advantage of, and we'll focus on it both inside the U.S. but also globally. Okay.

So is it safe to say the environment in a kind of more tepid or slowing environment that we're in right now in the U.S., is that almost more favorable for you guys than as much as the opportunity to drive more wallet share, focus more on performance in the U.S. market? Or is it something that people are taking a wait-and-see approach here near term?

Yeah. So I would almost say that I think typically in those kind of volatility environments, you probably saw those the brand that typically brand that of those, or those that let's say more brand focus, the platforms probably suffer most because those are the ones which are typically a bit more easy to be get out. I would say, while I think you are right that we see that, you know, volatility environment because we only get paid when Adam has a has performance. So in such an environment, I would say they almost prefer to work with us because it's more like you only pay us when you have performance, so you don't worry about it. At least that's what we saw in Q1, that's a drug such a high growth, and hopefully that will enable us to continue the growth in the callers to come.

Great. Thanks, guys.

Thank you. And as a reminder, if you'd like to ask a question, it is C-star and 1 on your touch-tone telephone. We'll go next to Jim Callahan with Piper Sandler. Please go ahead. Your line is open.

Hi. Thanks for taking the question. In search, I think in the past you've called out a benefit from choice screens in Europe. Is there any sort of trends to note there?

Sure.

So yes, I would say yes. Yes. Um, I don't think we actually published particular, um, European social growth or whatever, but, but yes, I think the answer is very true that, um, if you look at, if you really dive down into our performance, um, wherever we actually have choice, we have that much, much bigger growth than what the average growth is. Um, the only thing, as I mentioned that, of course, there's also some double effect that we were also able to take advantage. to turn some of the search revenue into advertisement revenue, which doesn't really show up in the States properly. But yes, you're 100% right. That choice screen has a major help on us on the search revenue, and we hope that will come too.

Got it. Okay, that's helpful. And then second kind of similar vein on the marketing expense, talking to sort of like high single-digit growth year-over-year, is there any sort of like channel allocation changes this year, anything that's working well that's worthwhile? kind of calling out or talking to.

I would say when we look from the change from the prior Q4 into Q1, We had a spike in Q4 with the big releases of both UpperOne and UpperGX. And then I think the sequential change was primarily around the sort of online campaigns promoting the apps through sort of click-based campaigns, whereas the broader brand-building initiatives, working with content makers, influencers, et cetera, those things are more stable now. quarter to quarter. And as I guided, as we look ahead, we expect Q2 will be relatively similar before we pick up a bit quarter by quarter in the second half of the year.

Okay, great. Thank you.

Thank you. At this time, we have no further questions. I'd like to turn it back over to Mr. Song Lin for any additional or closing remarks.

Sure.

So thank you all for joining us today. Q1 really showed the potential of our continued growth acceleration, and we will focus our attention on the best opportunities for the times ahead. Have a good rest of the day, and we look forward to reconnecting on our Q2 results.

We'd like to thank everybody for joining us on today's call. Please feel free to disconnect your line at any time.