Opera Limited
Q4 2020 Earnings Call Transcript

Published: 27 Feb 2021

[Derrick Nueman:]

Thanks to everyone for joining us today. With me today on the call I have our Co-CEO, Song Lin and our CFO, Frode Jacobsen. Before I hand over the call to Song Lin, I would like to remind everyone that in the conference call today, the company will be making statements about its future results and expectations, which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Such statements are based on current expectations and how we perceive the current economic environment and are inherently subject to economic, competitive and other uncertainties and contingencies beyond the control of management. You should be cautioned that these statements are not guarantees of future performance. You may refer to the Safe Harbor statement in the company's earnings release for more details.

[Lin Song:]

Sure. Thank you, Derek. So, like first I want to say that thank you everyone for joining us today. This is Song Lin here. 2020 had presented us with special challenges for many people business alike. Despite of that, I'm pleased to report that, despite those challenges, the fourth quarter substantially exceeded all expectations for Opera with accelerating year-over-year revenue growth rates and strong margins in our core business. We are really excited as a company about the road ahead and health wise. So number one, our core business, both the Opera Browser and Opera News have demonstrated not just resilience but strengths. This means we are now operating with more users and at greater scale in our key markets, seeing greater user engagement and an increasing ability to monetize. So this along with the recovery from COVID-19 impacts led to accelerating revenue growth and an even stronger trajectory than we expected as Opera enters 2021. And the second, the strength of our core business puts Opera in a position to not only benefit from our ability to create value through these core products, but to leverage that strength by investing where we see clear opportunities for growth. We have multiple growth initiatives in rapidly expanding categories with high potential, including gaming, payments and news in developed markets and each of which benefits from our existing market position and each of which represents significant upside.

[Frode Jacobsen:]

Thanks, Song Lin. The fourth quarter was very strong, exceeding our expectations and placing us on an elevated growth trajectory for 2021 and beyond. Let me cover some highlights of the quarter and then provide some details on our growth plans. Revenue for the fourth quarter was $50.4 million. This compares to $42.4 million of revenue in the prior quarter or a sequential growth of 19%. Specifically, in the quarter, search was $25.7 million, up 13% year-over-year and 21% sequentially. This was driven by our record desktop users and recovering monetization. Advertising was $23.3 million, up 16% year-over-year and 23% sequentially. This was driven by accelerating monetization from Opera News and by strong mobile browser monetization. Finally tech and other revenue was $1.5 million. Year-over-year, this revenue category has been reduced by $4.5 million although with almost no impact to profits as the decline relates primarily to low-margin professional services to OPay. Our operating expenses were $46.4 million, up 19% sequentially, primarily explained by increased marketing spend and a write down of receivables related to Powerbet, which was a small joint venture that we dissolved in Q4. Adjusted EBITDA was $14.3 million in the quarter. This represented a 28% adjusted EBITDA margin, highlighting the strong profitability of our core, search and advertising business. Other items of note include other income of $3.9 million related to a cash refund of VAT that had been recognized as other expenses over the past years, $5.2 million share of profit from Nanobank and $8 million increase in the book value of our preference shares in Starmaker and OPay and $5.9 million realized finance gains on public securities held as part of our treasury function. All items included, net income was $25.4 million.

[Operator:]

Thank you. . We'll take our first question from Mark Argento with Lake Street Capital Markets.

[Mark Argento:]

Hey, good morning guys and congrats on a strong quarter. Just had a handful of questions. Particular -- on the advertising side, it looks like business has bounced back nicely there, talk a little bit about what are some of the properties where you're monetizing the highest in terms of advertising, is it through the browser in particular or some of the new products? Maybe just touch on kind of where you're seeing that strength in advertising coming from? Thanks.

[Lin Song:]

Yes. It's Song Lin, I guess maybe I'll just comment a bit on the general line and then Frode can probably comment a bit on the numbers. So I think high level as we also mentioned in our Q4 results, that obviously, we see a very strong growth on the news, which is highlighted by the fact that news alone grows around 50% year-over-year and the 60% compared to the third quarter, so obviously that's very strong and above -- even above the average growth of ads, right. So, but on top of that, we do also have quite strong growth on the browser as well. But yes, I think news has been instrumental and we see that trend will continue that move into the New Year. So maybe Frode can also complement.

[Frode Jacobsen:]

Yes. I would say, overall we benefit from a normalization in terms of demand post-COVID impacts earlier in the year giving return to year-over-year growth now. For the fourth quarter relative to the third quarter, approximately half of our advertising growth was driven by the upper news app and the other half driven by the browser side.

[Mark Argento:]

Great. It's helpful. And then in terms of -- in terms of the Opera Mini browser, I know that business has picked up, that product has really proliferated nicely. Are you able to generate ad revenues out of the Mini browser as well and what is the -- what's the anticipation in terms of scaling that out into other markets?

[Lin Song:]

Yes. So maybe I'll just comment here. So I've said that, so first clarifying that, of course, Opera Mini is actually the major ones, the browser side generating good ad revenues. It's still because Opera Mini is the emerging markets offering, so it is intrinsically quite big in emerging markets, like Africa. So it is already, very -- virtual engagement and a big chunk of the ads revenue. If we set aside news, then Opera Mini itself is actually is one of the major ads generation opportunity. So I think the next actually opportunity -- is actually Opera full enjoys, it is a bit more high-end one, which will also now have been working really well in more developed markets like Europe and the U.S. and I think, hopefully within this year 2021, you will be able to see a very strong ads monetization potential for Opera for Android and also Opera Touch this year in more developed markets.

[Derrick Nueman:]

And Mark, this is Derrick. I mean, I would -- going back to Opera Mini, just as a reminder for everyone on the call, we have a 100 million users on Opera Mini and our focus there is creating more and more features and functionality that drive more engagement. And you've seen over the last 12 months, we've dropped a bunch of new features there and our focus is going to be to try to make the browser better and better. Obviously, the same thing with Opera for Android and Opera Touch as Song Lin said.

[Mark Argento:]

All right. And then in terms of the -- you think you guys are pushing all the chips back in terms of the reinvestment this year, what is the -- I know Song you talked through a few of the different areas, where you're going to spend, but maybe you could highlight out of the top water, two places that you're really focused on getting the right to reinvest in that capital back in?

[Lin Song:]

Yes. So, just be a bit high-level right and then Frode probably the below line, just to chime in on the numbers, but I would just say that, in terms of the major growth area, which will have direct impact on the numbers even for this year 2021, I would say that the probably Opera News, because that's a very material product and it's very good potentials, we see how it's performing in African markets and we have as also mentioned that we have actually launched that already in some of the key new markets, which you can also see and it's performing really well. So for us, to be honest it is almost a very simple decision that if you have a product with very high user engagement, very high user retention and a very good market, then, of course, there is no reason why we should not plan to invest to make sure it grows properly to be a very, a product with scale. So I would say that probably constitutes the by far majority of our investment in terms of money, while the other two directions, while gaming itself is already very profitable and also more Dify more like aiming at a bigger scale, but slightly long-term.

[Frode Jacobsen:]

Yes, let me chime in. A brief note at the end, of course, very pleased that we're able to guide about 40% revenue growth at the midpoint and vast majority of that growth is coming from our core businesses as Song explains with Opera News and the potential that we see to scale that, but also the browser business is doing-- doing really well. And I would say that the amount of investment really depends on how successful we are and the better we do, the more we will invest to seize that opportunity and that is what we have provided for in our ranges today.

[Mark Argento:]

And then just last one from me, it looks like some of your minority investments including Nanobank are really get performing at a high level. Is there any talk or thoughts, in terms of linking for liquidity for any of those assets either in an IPO or an outright sale of the stakes. Just wanted to better understand your long-term thinking around not majority assets?

[Frode Jacobsen:]

Sure. I mean we are -- we are very rational, when it comes to that and focusing on how we maximize the value for our brand and our shareholders. So -- but we don't have anything specific to announce, for now, just very pleased that all of these businesses are performing really well.

[Derrick Nueman:]

And Mark, this is Derrick, Mark, I would add on our investments, obviously we're not running those businesses, but the individual management teams of each business are really excited during 2021 and they think they can generate strong growth rate. So that's a good thing as far as we're concerned in terms of our optionality.

[Mark Argento:]

Just one follow-up there, any of those three assets taken in any capital or are there have been any valuation marks on any of those recently?

[Derrick Nueman:]

No, not externally. Obviously, we took a gain on those investments from fair value of this quarter.

[Mark Argento:]

Great, thanks guys. Congrats again on a good quarter.

[Derrick Nueman:]

Thanks Mark.

[Operator:]

Our next question comes from the line of Vicky Wei with Citi.

[Vicky Wei:]

Good morning, management. Thanks for taking my questions and congratulations on the strong results. This is Vicky Wei on behalf of Alicia Yap. So my first question is our Opera gaming. So I want to ask, what is the strategic target for Opera gaming in 2021 and management comment on the competition landscape of the online games in your business regions? Thank you.

[Lin Song:]

Yes. So it's Song Lin. Maybe I will just comment a bit. So just to comment of course is it's new for us as we just announced the acquisition in January, but however, I would say that we have already demonstrated the strength of Opera on gaming by the GX -- by the Opera GX, which are -- gaming, you have 7 million monthly active users just a little bit more than one year, you have above 300% year-over-year, that's of course tremendous. And as also quoted that this is already becoming quite profitable. So as a highlight, right, so you probably know that was adding of the GNS gaming engine, it will be the first time in that we have a community, which both have plenty of gamers, fast growing very quickly over year, where also gaining engine that we're linking -- like again make our communities, like the people who are creating games, so linking both player and creating a game together. And I would almost say that in terms of that, it's probably easier to compare that with the likes of maybe Beam or Roblox. The only difference of course is that we are targeting it a slightly niche segments, which is independent gaming developer and also a particular niche of the market. So, yes, so I would say, but the high level, there are a lot of potentials that we feel that the combining those together, building up on community or we obviously the one-stop shop could be very relevant. But, yes, so we're very excited about it. However, just to comment that, because this is just a cloud in January with way to fresh that we probably just announced. You'll see new products coming out and also for new press release that we are going have. But, however, we are very excited about the opportunities.

[Vicky Wei:]

Thank you. And for the competition, please?

[Lin Song:]

Yes. So as I said, what I briefly mentioned that, I would say if you -- if you look at the level globally has the trends of both playoff and gaming creators, then you are really look at the likes of Beam, of course, the biggest one or even the likes of Roblox, which is a solid building community for both players and creators. And I think those two are probably more similar as what do we are having. Remember that we are more -- for now that we have our desktop, then more PC than mobile. So I would say those two are probably are more similarity, but of course those are all very huge companies. So I think it's more like how we can grow faster, make our step into the game.

[Vicky Wei:]

I see. Thank you very much. Very clear.

[Operator:]

Your next question is from Sarah Simon with Berenberg.

[Sarah Simon:]

Yes. Good morning. I apologize if these are stupid questions, but it's the first time I've listened to an Opera call. But, I've got three. So the first one is, with regard to monetizing the browser, do you think that you will benefit from the removal of cookies by other browsers, notably chrome obviously next year and whether you've seen that already with other browsers dropping the cookie thing? And I guess related to that, do you feel any pressure to remove support for third-party cookies yourself? And then the other question would be OPay. Did I hear you say that you did process $2 billion of payments and I think that was just in a month, right? So, who are your main competitors for OPay and am I right in thinking to just really Nigeria for that at the moment? Thanks.

[Lin Song:]

Yes. I think -- it's Song Lin. Thanks for the question. It's very, very good question actually. So maybe I'll just starting by answering OPay because that's I remember last. So for OPay, I would like just to clarify of course that invested the Company, so they of course know their own business better than us, but as an investor maybe the comment would just be that, yes you are right that they are making to $2 billion transactions volumes a month, very huge. And yes, you are also right that for now they are primarily operating in Nigeria, that's where they have their license. They do have plan to expand into other regions in Africa, but it just well off of them to announce that. Yes. But for now -- and this will take of Q4 last year, all these transaction volumes are recorded in Nigeria. Yes. So like, through our best knowledge, they are the number one in the market in terms of payments in Nigeria with that volume and have a have a major size of the market share to count. So that's a comment. For OPay, you've very good question about cookies and also remove yourself cookie, I guess my -- our high level commentary that, as you know, we worked very close there from Google and some of the major players in other areas. So I would almost say that we have weekly meeting with them to thinking up. So, yes -- so I think the high level comment will just be that we're closely monitoring this. We are following all the major practice in the ecosystem and we want to just to be part of that same ecosystem moving forward. I guess that's the best answer probably for now.

[Derrick Nueman:]

And, Sarah. I mean just at a high level comment. We are a Norwegian browser company and a comment that I would make is Norway has very strict data laws, so a lot of the privacy stuff within our browser, we've been practicing for a long time. And when it comes to our browser revenue, it's really search revenue and it's advertising revenue, but it's done through affiliate deals. So for example, if we have bookmark and if you book and travel through booking. So obviously we are less impacted because of that versus other folks. I mean obviously there is still lot to be seen and we'll see how it rolls out and see where the impacts happen or don't happened, but I think given where today the majority of our revenue is coming from, I think we feel pretty confident we're in a good place.

[Sarah Simon:]

Okay. And can I just ask of OPay, how -- how do you distribute it? So -- what's your marketing strategy, how come it's so big? Who are your distribution partners?

[Lin Song:]

Yes. So, yes, it's Song Lin. And again like it's almost should be answered by OPay guys, but since I'm looking at all Nigeria all the time, my commentary would just be that, OPay is actually, it's been, I think it's acts a bit different than then whatever in developed markets. So how it works through that is actually a model well, because in Nigeria that there is a lack of infrastructure and there's no banks, no branches and this is. So actually OPay works by creating a huge network by distributor 300,000 of them. There might be will actually, but for my number,. they have more than 300,000 distributors -- give them as a separate bank branch almost across Nigeria. So, well, whenever people want to do some transaction, they just go to those agents and then you can do what you like, like get money out, get money in, transfer money, buy, pay electricity, pay whatever. So I think that's actually the starting point that they actually solved the major issue of the infrastructure that they're facilitating transaction of cash into electronic money and vis-à-vis and also even money transfer among other things. So I think that's what we are doing. And on poke because they have that huge infrastructural, they provide all the other services like, then you can of course natural to pay electricity or transfer money in the same way as I love to do -- as you want it. So, yeah, but I think my that's so big is actually because the infrastructure that they are providing. So which is huge. Not only just say e-commerce or some others, which are bit on the pokes.

[Derrick Nueman:]

Yes, Sarah, just to clarify. So there is the online wallet users, which generate a certain transaction volume and then they generate transaction volume through point of sale, through the Song said that just the beginning of the call.

[Lin Song:]

Yes. So the strength in order to managing from offline to online.

[Derrick Nueman:]

The other thing I'll say is I think -- I think in the near term, there'll probably be a little more public with some of the things we're doing and talk a little more. So we'll let them do that, but we're really pleased with what they're doing and the growth has been phenomenal.

[Sarah Simon:]

Yes. Okay, that's super helpful. Thank you very much.

[Lin Song:]

Thank you.

[Operator:]

Our next question comes from Zaudan Zeng with CICC.

[Zaudan Zeng:]

Okay. Thanks management for taking my questions. And this is Zaudan from CICC Research and congratulations on the strong fourth quarter results. So my first question is regarding our full year 2021 guidance. So I just wonder if it has incorporate the revenue contribution from our new initiatives such as the newly acquired gaming company? And my second question is regarding our near to mid-term business strategy, so just wonder going forward what will be the primary focus in terms of like building a ecosystem or doing investments in the next few years? Thanks.

[Frode Jacobsen:]

Hi, Frode here. Maybe I can begin. So relative to our growth in 2021 and as Song Lin discussed, this is predominantly driven by our existing products, our existing core, Opera News, most importantly and geographic expansion and monetization efforts that we are doing around Opera News and our browsers. We have been very cautious to build in much upside from new initiatives, such as gaming and European Fintech in 2021. We include all the cost that we expect to have, but those two, I would say financially speaking, I would expect to be more material next year rather than this year. So in terms of near-term strategy comment from you is really set these new businesses up for success and for ramp and then operational focus around our core and how we can expand that. I don't know Song, if you have anything to add.

[Zaudan Zeng:]

Thanks.

[Lin Song:]

Yes. No, it's just exactly as I was saying through that. Yes, I think it's just -- we see great opportunity to grow our core business, both for Browser and the News, while incubating gaming and can take the initiatives.

[Zaudan Zeng:]

Okay, thank you.

[Derrick Nueman:]

All right.

[Operator:]

At this time there are no additional questions. I would like to hand the call back over to Song Lin for additional closing remarks.

[Lin Song:]

Yes, sure. So like you know, all right. That's all for today. We've ended 2020 really strongly and 2021 is really off to a good start. And our core business continue to do really well. And as discussed our new opportunities have a ton of promise. So we look forward to keeping you updated along the way. And again, thanks for all the support that has been given in the past few years. And have a good rest of day, everyone. Thank you.