Opera Ltd

NASDAQ:OPRA

Q1-2025 Earnings Call

[Operator]

Welcome to the Opera Limited First Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's call is being recorded. [Operator Instructions] I would now like to turn the call over to your speaker today, Matt Wolfson, Head of Investor Relations. Please begin.

[Matthew Wolfson, executive]

Thank you for joining us. This morning, I am joined by our co-CEO, Song Lin; and our CFO, Frode Jacobsen. 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 on Form 20-F, 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 then Frode Jacobsen, who will discuss our financials and expectations going forward. Song?

[Lin Song, executive]

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% in the fourth quarter to 40% in the first quarter, well above the 28% to 31% 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 63% in the first quarter, reaching $96 million and now representing 2/3 of our total revenue. Within this, e-commerce was the fastest-growing vertical and over 100% annualized 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 serves 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 annualized ARPU grew an outstanding 44% year-over-year. After significant updates to both Opera One and GX during the fourth quarter, the product launches in the fourth quarter were improvements on the recent refresh such as the addition of Bluesky, Discord and Slack support to the side bar of Opera One.



Even more relevant and Mobile World Congress, Opera became the first 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 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's fourth live demo of browser operator, we 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 the 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 Aria to Opera Mini. This makes Aria 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 very strong and we reiterated in the fourth quarter. On an annual basis, we grew the GX user base by 14% with a current annualized ARPU 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 Roblox, Hell's Obby, which is a competition where up to 25 players have to race up a desolated 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 2 months alone, Opera Air has already been downloaded over 0.5 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 thought 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 4 of the mightiest telcos, the emergency of smartphones and the globalization of Internet access, we've dealt with changing environments and competition from companies 1,000 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 on 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 on 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 Frode for additional details.

[Frode Jacobsen, executive]

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 7 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 $0.5 million versus the Q4 level and also as expected. Year-over-year, all of these cost categories increased in dollars but reduced as a 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 company 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 to our strengths. Apart from having guided cautiously as the year commenced, there are a couple of 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 million to $582 million or 20% annual growth at the midpoint, up from $555 million to $570 million. That means we are already adding 3 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 2-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 million to $140 million for the year as a whole, continuing to represent a 24% margin at the midpoint, 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 midpoint 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 a 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 OpEx 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 some of the other smaller OpEx 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 million to $138 million, representing 24% growth at the midpoint and Q2 adjusted EBITDA of $30 million to $32 million or a 23% margin at the midpoint. This represents a lift versus previous Q2 estimates as part of our formal 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 midpoint, we expect that cost of revenue items as a 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 million to $2 million versus the Q1 level, inclusive of annual salary adjustments and potentially a weaker U.S. dollar 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.

[Operator]

[Operator Instructions] We'll take our first question from Naved Khan with B. Riley Securities.

[Naved Khan, analyst]

Great. Thank you so much and congrats on the quarter and the raised guidance. I just have a couple of questions. Maybe one just on the search growth during the quarter. Is the 8% slowdown from the sort of teens growth rate that we have been seeing. Is that because you're able 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 declined 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 and GX ARPU? Thank you.

[Unknown Executive]

Yes. So, it's Tony Hill. I think I'll just try to answer. Yes, both of the questions. So I think for search, I think basically, you are right that basically, what we see is that overall, the whole industry is actually shifting towards a more, I would say, intent-based targeting advertisement, and we just want to grasp that opportunity. So like even though, of course, search is always a very, very important part of the browser revenue, the moment we can identify user intent, we have possibility of bringing other form of, let's say, advertisements with the click stream. So I would say this partly explains why there's some -- more like -- that's probably why actually you saw so fast growth of advertisement overall. And then even though search is below the double digit, it's still a nice growth that we're happy with.



Yes. So like I think basically the overall trend is 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 the chance -- it makes more sense ROI-wise, let's say, and also from an point of view to let them exposed to even more ads in different form and shapes, we will be very happy to do it. So -- and as overall macro, that's probably benefit us much more than anything else. So there is on that. And then I think for GX it's a bit similar that, first of all, I think GX is a bit seasonality because Q1 is also a bit holiday season on others. So there is that. And then I guess there's also a matter of now we actually -- also with the help of AI, with the help of this high-intent advertisement whatever, we actually have many more options where we show those ads. It can potentially be GX, but then there might also be some other place to show those ads with the same effect. And then of course, as far as those are not showed 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. Yes, I think that's the short answer of those 2 questions.

[Naved Khan, analyst]

And on GX, I forgot to ask about currency, if currency played a role because the dollar is pretty strong in Q1. So how should we think about that?

[Frode Jacobsen, executive]

U.S. dollar continues to be or provide a headwind in terms of constant currency. So our growth would have been, we estimate 5 to 6 percentage points higher on constant currency. We see on a 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.

[Operator]

We'll take our next question from Lance Vitanza from TD Cowen.

[Lance Vitanza, analyst]

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?

[Frode Jacobsen, executive]

Lance, you're right. Okay. I'll just complete then 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. Song, I'll hand it over to you.

[Lin Song, executive]

No, no, I think what Frode described is right, right? So I think overall, of course, revenue always have seasonality. It should be the case. But then, of course, whenever we saw some aspects which are growing very fast, and that is almost a happy issue that it grow almost 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 we're talking about $100 billion market. And even if we grow to be $1 billion in 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 ground of e-commerce. So I think we'll continue to focus on it. And hopefully, we can maintain a quite aggressive growth speed in the next quarters to come.

[Lance Vitanza, analyst]

Got it. 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?

[Frode Jacobsen, executive]

Lance, 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 market 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 or 45% or so in the past year.

[Lance Vitanza, analyst]

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?

[Lin Song, executive]

Yes, it's Song. Yes, I could. So I'll just comment, right? So we can't really comment on particular litigation. I guess I would just say that overall, I think we have been seeing really like even without this litigation, we saw that there is some major shifts of how advertisers do business that they focus on the high-intent 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 this is even a topic. So I would only say that our view is that, of course, that's really benefiting to Opera as a company, the trend because, of course, as mentioned earlier, our browser is becoming more and more the topic even from all those litigation or whatever, there's a lot of talks about browser, right? Like it is hotter than ever. We've never seen -- it's almost back to the old days where like it's the beginning of the Internet that everybody talked 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 good 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, right? So that in isolation is a very positive trend. I guess those legislation is almost reflecting part of it.



And then like also the various whatever, they are, of course, asking for opening up for competition or whatever right around, in general, that overall trend is positive for us, I would say, that they are been opening up, and we are still as an agile company, we are coming from a small place. It means we have many, many times growth potential, and we are very positive about the directions.

[Operator]

And our next question will be from Eric Sheridan with Goldman Sachs.

[Eric Sheridan, analyst]

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? 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 widening out the array of advertising we do as a platform, how do you think about some of the gating factors that you're trying to solve for with them to increase their overall budget exposure?

[Frode Jacobsen, executive]

Eric, I can begin to describe the e-commerce opportunity. So as Tom 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 is a lot of it is still ahead of us. And it's also what we like in general about the growth of advertising is sort of the increased diversification of the partner base. So I think these are positive directions for the revenue mix as we also look ahead.

[Operator]

And we'll go next to Mark Argento from Lake Street.

[Mark Argento, analyst]

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.

[Lin Song, executive]

Yes, it's here, right? So yes, so I guess, first just to comment that it's still early days for us to see it. I think for us, our strength is really on performance, as mentioned, so which means any advertiser which focus more on performance, focus more on incrementality. Typically, we are actually a very good partner to work with. And again, very similar as those advertisers, which previously they probably invest 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, U.S. is big despite of some volatility, I think there is still major potential then 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, at this stage, we choose to work with perhaps not long tail, but 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, our strategy.



But I would just also say that I 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 like 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 the U.S., 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 LATAM and in many other countries. So I think to us, we just view that this is a bigger opportunity, a major macro trend that we can take advantage on, and we'll focus on it both inside U.S. but also globally.

[Mark Argento, analyst]

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 and as much as the opportunity to drive more wallet share, focus more on performance in the U.S. market? Or is that something that people are taking a wait-and-see approach here near term?

[Lin Song, executive]

Yes. So I would almost say that I think typically, in those kind of volatility environment, you probably saw those typically brand advertisers or those, let's say, more brand platforms probably suffer most. Because those are the ones which are typically a bit more easy to get out, I would say.



While I think you are right that we see that in the volatility environment because we only get paid when advertiser 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. And at least that's what we saw in Q1 that drive such a high growth. And hopefully, that will enable us to continue the growth in the quarters to come.

[Operator]

We'll go next to James Callahan with Piper Sandler.

[James Callahan, analyst]

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?

[Lin Song, executive]

Sure. So yes, I would say yes, yes. I don't think we actually published particular European search growth level. But yes, I think the answer is very true that if you really dive down into our performance, wherever we actually have choice screen, we have much bigger growth than what the average growth is.



The only thing as I mentioned is 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 continue.

[James Callahan, analyst]

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. there any sort of like channel allocation changes this year? Anything that's working well that's worth kind of calling out or talking to?

[Frode Jacobsen, executive]

I would say when we look from the change from the prior Q4 into Q1, we had a spike in Q4 with the bigger releases of both Opera One and Opera GX. 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 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.

[Operator]

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.

[Lin Song, executive]

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.

[Operator]

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