Opera Limited Price & Performance (OPRA)

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 Frodo Jacobson, who will discuss our financials and expectations going forward. [indiscernible] Sure. Thanks, Matt. And 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 twenty twenty four, continued into the first quarter of twenty twenty five. In fact, our year over year revenue growth increased from 29% in the fourth quarter to 40% in the fourth quarter. Well above the 28 to 31% growth we had previously guided for the period. This translates to revenue of 143,000,000 a record for the fourth 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 96,000,000 and now representing two thirds of our total revenue, Within this, e commerce 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 $47,000,000 in the quarter, growing 8% year over year The browser serves as the 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 32,000,000 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 two ninety three million MAUs while remaining consistent with our ongoing strategy of focusing on node users with the highest value potential.

As a result, our annualized ARPU grew and then outstanding 44% year over year. After significant updates to both OPA1 and GX during the fourth quarter, the product launches in the fourth quarter, were improvements [indiscernible] recent refresh such as the addition of Blue Sky Discord and Flex Support to the sidebar 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 must 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 And 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 order this mouse, first 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 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 ARIA available across our full suite of browsers for both mobile and desktop users Now close to 300,000,000 people can enjoy the benefits of IRIA 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 34,000,000 stable. This is a strong release rate in the fourth quarter. Annual basis, we grew the GX user base by 14% with the 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 Rogue, Health Orbit, which is a competition where up to 25 players have to raise up a decimated and obstacle field wasteland near a high stakes battle.

During the fourth 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 text press [indiscernible] enthusiastic and in-depth coverage, and the way I in the process of fine tuning it ahead of increasing its marketing Still, in its first two months alone, Opera L has already been downloaded over half a million times and we're asking very encouraging usage consistent with our focus on the highest value users Opera L is targeting users in Western markets is still early days, but we like what we see To summarize, 2025 is off to an impressive start, scaling our business [indiscernible] than we had thought possible just a few months ago. The fact that we achieved this in the face of highly volatile macro backdrop say something about the appeal, of our broadening browser portfolio and our monetization [indiscernible] 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 saw to also mention that Opera is actually celebrating its thirtieth anniversary in 2025, [indiscernible] personally been part of the journey for nearly twenty three of those years.

We've 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 four of the Mitel telcos the emergency of the smartphones [indiscernible] 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 [indiscernible] 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 is 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.

Thanks, Song.

Staying on the topic of rapid scaling, with revenue coming in nearly 10,000,000 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 $2,000,000 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 34,000,000 from $41,000,000 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 18,000,000 up about $1,000,000 versus the Q4 level and more similar to the recent average quarterly cost level as expected. Other OpEx items combined were $8,000,000 up about $05,000,000 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 $16,000,000 in the quarter, representing 49% of adjusted EBITDA. Free cash flow from operations came in at $12,000,000 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 sixteenth 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 $2.4 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, 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, 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 pretty good relative position for whatever comes next. For 2025 as a whole, we now raise revenue guidance to $567,000,000 to $582,000,000 or 20% annual growth at the midpoint.

Up from $5.55 to five seventy milli. 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 RACE 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 135,000,000 to $140,000,000 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 OP [indiscernible] pre adjusted EBITDA of €437,000,000 at the midpoints. With a further amplification of the trends that we discussed last. Our baseline expectation remains that the margin headwind from growth 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 over performance. 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 the sum 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 $134,000,000 to 138,000,000 representing 24% growth at the midpoint. And Q2 adjusted EBITDA of 30,000,000 to 32,000,000 or a 23% margin at the midpoints. This represents a lift versus previous Q2 estimates as part of our formal full year guidance.

While also including a for volatility from e commerce advertisers targeting U. S. Consumers. Within the implied quarterly OpEx base of $105,000,000 at the midpoint, 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 $30,000,000 range and thereby relatively stable versus the first quarter And we expect cash compensation costs to increase about 1,000,000 to 2,000,000 versus the Q1 level inclusive of annual salary adjustments and potentially a weaker U. S. Dollars relative to the main currencies of our salary expense. All other OpEx items pre adjusted EBITDA are expected to remain quite stable and 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.

Quality.

We'll take our first question from Naved Khan with B. Riley Securities. Please go ahead.

Great. Thank you so much, and congrats on the quarter and the risk guidance. I just have a couple of questions. Maybe one is just on the the search growth during the quarter. [indiscernible] from the sort of you know, teens growth rate that we had 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? 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 macro in the XR pool? Thank you.

Yeah, so it's Soni Hill. I think I'll just try to answer both of the questions. So I think for Soni I think [indiscernible] That, you know, basically what we see is that overall, the whole industry is actually shifting towards a more would say, intent based targeting and advertisement. And we just want to grasp that opportunity. So even though, of course, search is always a very, very important part of the browser revenue, the moment we can identify user intents, we have possibility of bringing user the other form of, let's say, advertisements with clickstream. So I would say this partly explains why there's some more like that's probably why actually you saw so fast growing over advertisements overall. And then even though such is below the double digit, it's still a nice growth that we're happy with. Yeah. So like, 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 such moving forward. It's just that we will always be optimistic to see that in that chance, it does more it makes more sense ROI wise, let's say, and also any point of view to let them expose to even more ads in different form in the form and shapes, we will be very happy to do it.

And as overall macro, that's probably benefit us. Much more than anything else. So there's on that. And then I think for GX is a bit similar that first of all, I think GX is a business analogy because Q1 is also a bit on others. So there is that. And then I guess there is also a matter of now we actually also with the help of AI with help of this high intent advertisement or whatever, actually have many more options where we show that. It can potentially be JIX. 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 GFS, we don't really count them as GFS 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.

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? [indiscernible] US dollar continues to provide a headwind in terms of cost currency. So our growth would have been five to six percentage points higher on constant currency. We see on a sequential basis, the impact is quite muted. So, 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 Vitanza from TD Cowen. 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?

Lance, you're right. It's only how Okay, I'll just complete. You can take over. That is what we meant. It's the underlying growth 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 No, no. I think what further described is right. So I think overall, of course, always have seasonality. It should be the case. But then of course, whenever we saw some aspects which are growing very fast, and then that is almost a happy issue that it grows almost on optimality. I think the only thing maybe I'll emphasize is that, of course, the total e commerce market is such a huge market. So we're talking about $100,000,000,000 market, And even if we grow to be $1,000,000,000 in revenue, well, only 1% of it, So I would almost say that yes, you should always assume the seasonality as always. The growth potential are 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 quite aggressive rules of 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 getting harder to round up to 300,000,000 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?

Lena, I can begin. The thing is, there is not a single person in the company that is measured on the MAU count itself, because what's important is the buy product, by day, etcetera, engagement and stuff that actually drives the revenue. I think similar to past quarters was the movements we are seeing is typically emerging markets as 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 it's up so much or 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 the broader ecosystem evolving and what that could mean for Opera's businesses both on the browser side and also in ad tech?

Yeah. Yeah. It's only help. Yes. Yes. I could. So I'll just comment, right? So we can't really comment on particular litigation. I guess But I would just say that overall, I think we have been seeing really like even without this mitigation, we saw that there is a major shiftings of how advertisers do business. That they focus on this high intent click streams, which previously is only available I guess, on a certain product like such. But now with the help of AI, it's much more likely available. So why is it even a topic? So I would almost say that my view, our view is that of course, that's really benefiting to Opera as a company, the trend, Because of course, as mentioned, audio browser is becoming one of the topic, Even from all those litigation or whatever, there's lot of talks about browser, right? Like it is hotter than ever. We've never seen it's almost back to those days, where it's the beginning of the internet. That everybody's talking 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 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 or whatever, they, of course, ask you for opening up for competition or whatever. Right or wrong, in general, that overall trend is positive class, I would say, that there are being opening up and then we are so we are still, as an agile company, we are coming from a place. It means that we have many, many times growth potential and we are very positive about directions. Thank you, Thank you. And our 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. Could you give us a little bit of color of either the vertical exposure or the geographic exposure of your e commerce advertisers today to think about the diversification of that mix looking out over the next twelve to eighteen months? And when you talk to these advertisers and there's elements of them widening out the array of advertising with you as a platform, how do you think about some of the gaining 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 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 [indiscernible] And approaching search in terms of financial importance. It's a very, it's a globally distributed opportunity still, as we talked about on this call, in particular, we think The US opportunity is a lot of it is still ahead of us. And it's also we like in general about the growth of advertising is of the increased diversification of the partner base. So, I think these are positive directions for 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.

Yes. 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 special [indiscernible] One of the what are the levers you need to see that growth start to happen in The U. S?

Yes, it's only Hill, right? So [indiscernible] [indiscernible] I think for us, our strength is really on performance. [indiscernible] focuses more on performance, focus more on incrementality. Typically, where actually a very good partner to work with. And again, very similar as those advertisers, which previously they probably invested more in, I would say, either brand or either in some search advertising. Then I think if you want to catch the 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, US is big, despite of some volatility, I think there is still major potential then where 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 way at this stage, we choose to work with perhaps not long tail, but over the bigger playoffs, it just those are typically the ones that have scale and have an impact. [indiscernible] 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, people don't realize we are from Norway.

Are from a country where there's only 5,000,000 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 US, we also see big growth opportunity In Asia, for instance, we're growing very fast in Southeast Asia. We're growing fast in We grew fast, hopefully, in Korea. We also have a very good growth in LatAm and in many other countries. So I think to us, we just view that this is the 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.

So is it safe to say the environment in a kind of more tepid or slowing environment, say, 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 wait and see approach here near term?

Yeah, so I would almost say that I think typically in those kind of volatility environment, you probably [indiscernible] or those that, let's say, more brand focused on the platforms, probably suck on 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 in volatility environment, because we only get paid when Adam has a performance. So in such 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 [indiscernible] enable us to continue the growth in the quarters to come.

Great. Thanks guys.

Thank you. 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, think in the past, you called out a benefit from choice screens in Europe. Is there any sort of trends to note there?

Sure. So, yes. I I would say yes. Yes. I don't think we actually publish particular European surgical also, but yes, I think the answer is very true that if you look at, if you really dive down into our performance, wherever we actually have choice, going to ask that 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 will 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. [indiscernible] 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 worth kind of calling out or talking to?

I would say as we when we look from the change from the prior Q4 and to Q1, we had a spike in Q4 with the bigger releases of both Opera one and Opera Opera GX. And then I think the sequential change was primarily around the sort of online campaigns promoting the apps through sort of campaigns. Whereas the broader brand building initiatives, working with content makers, influencers, etcetera, Those things are more stable. Quarter to quarter. And as I guided, we look ahead, we we expect q two will be relatively similar before we 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.