Welcome, everybody, to our Fireside Chat with Frode Jacobsen, CFO of Opera Limited. I'm Lance Vitanza, Senior Media Analyst at TD Cowen. Thank you very much, Frode, for coming all the way from Norway to help us kick off our 52nd annual TMT Conference. For those who don't know, Frode has been the CFO of Opera since 2016 and joined in 2013. I guess what I'd like to do, I sort of thought we could start with sort of the user base, then get into the browsers, talk a little bit about the revenue mix, your recent performance and outlook, and then if there's time, maybe we could talk a little bit at the end about capital allocation and strategic decisions and so forth.
Okay. Sounds good.
Great. So I guess, you know, in terms of the user base, the key question for me is, you've got 300 million users, and yet I talk to a lot of people who only are vaguely aware of, you know, Opera. And I guess in a world where Safari and Chrome come preloaded on virtually every device on the planet, you know, what do these 300 million users of Opera look like? Is there sort of a most likely candidate for an Opera user? Does it skew, relatively more or less as we think about Android versus iOS, developed versus developing, you know, those types of issues?
I mean, Opera is what we represent, an alternative to default. And in order to get people to try another browser, there has to be a hook. Like, there has to be a messaging that speaks to that person. So it will be different reasons and different, let's say, the user base will look different in different pockets. One of the most successful products we've had recently is the gaming browser.
Mm-hmm.
That is a browser tailored for gamers, PC, but also mobile, that has scaled really well, become our highest-order product, etc. And of course, then we have a feeling of what that user base is, right? That these are the people that spend time on computers in particular, playing games, like to be online at the same time, etc., and no other browser really catered to that. It still doesn't really cater to that audience. Other parts of the user base can be, let's say, a bit more the tech-savvy, type of users, privacy-oriented also. And then we also have products in emerging markets that do well due to, you know, saving data, working on less-than-ideal network conditions, etc. So different mix of reasons, I would say.
So do you have any data on the amount of overlap, right? I mean, I imagine that an Opera user is not using Opera exclusively and that they may be using or is that not correct? Or is your sense that people are using Opera to the exclusion of the other browsers, or did they split their time between, you know, a mainstream browser for one use and Opera for, you know, only when they're playing games, for example?
There's definitely both, I think. Both people splitting their time and people that are sticking to one browser and one browser only. I don't know exactly the details. The way we measure this internally and how we evaluate our own performance is about daily usage, time, you know, daily time spent, daily interactions, daily activities that we measure. So we don't really like the metric of monthly active user is, you know, it's a very classic reporting metric, and it makes it very simple, and it's comparable, let's say, across all the apps, etc., but it doesn't, it's not really something we look at internally. Then it's more the time spent, and that is what we always work on making better.
Whether that is because we make the product so good that people actually just spend more time online, you know, spend more time in a browser, due to whatever, AI integrations or other reasons, or because we take share from other browsers that the user also has, that it doesn't really matter, in terms of the impact to us.
So you anticipated my next question, which was going to be just that, you know, the level of engagement. And, you know, as specific or as general terms as you would like, you know, how would you describe the level of engagement that you're seeing, with your user base? And, you know, because to your point, right, you could have 300 million users flat, and the business could be becoming more or less relevant, right? So is Opera becoming more or less relevant, and how can you as, as public-side, you know, analysts and investors, how can we sort of monitor that? Is ARPU growth a very good proxy for that? Is that basically what it all boils down to?
That's where I was going to begin. So I think the fact that our ARPU is growing, both on a total basis but also region by region, is a pretty good indication of what I'm about to say, which is it is a high-engagement product. A browser is, I mean, people spend, you know, it can be hours in that product every day. It's a highly strategic product, right, because you get to follow the user on whatever journey they have for some information they seek or products that they're buying, etc., and you need to. I mean, the browser's job is to facilitate that, right? So it needs to monitor it, let's say. So high-engagement product, and I think we keep doing better on that.
So, okay, so then let's get into the browsers in a little bit more detail. And I actually, I know you mentioned GX, but I want to start with Opera One, sort of your flagship browser, and obviously where you've incorporated Aria and AI. And I guess, you know, AI is sort of the general overarching theme of this event here that we're sponsoring. So I'd be remiss if I didn't bring it up. But as a skeptic might ask, you know, is AI really moving the needle for Opera, or is it just buzz? And can you support the idea that AI matters with specific, you know, hard data? Or how should we think about that?
We have data on our users that start to use our AI assistant, Aria. So what we see on those users is that they do spend more time in the product. They have better retention. And they actually search more too on Google, which is a bit counterintuitive, but I think it just means that they like the product and they spend more time with it, almost going back to your first topic. We are extremely excited about AI in the browser, and I'm sure you'll have 15 other companies here saying how excited they are about AI. So we're not the only one.
But the fact that this is a service which is so compatible to be reached through a browser, that it's such a useful companion to browser usage, that you have this ability to interact with an AI, that you allow permission to see what you're seeing on the web, what you're looking for, help guide you, help summarize, help create, we think is very exciting. With the launch of Opera One, which is just the newest version of our PC product last year, that's when we launched Aria. And we've been keeping rolling out new features, new integrations, and capabilities to it. I think the surprise, I would say, is it takes more work for people to remember that that service is there.
So people come into the product because they hear about it, they think it's great, you know, and they try it, and they like it, so we keep them. But many people, and I've experienced the same myself, it's like old habits die hard. So then, I think you'll see in our next versions of Opera One that Aria becomes a bit better at saying, "I can summarize this page for you if you like.
They remember me after you.
You know, yeah, yeah, I'm here. Because that is, I catch myself looking for information in other ways, and then it's like, "Oh, yeah, Aria." So I ask, you know, like, "What's the GDP in this country? And what's the price level across these countries compared, etc.?" And you just get such nice distilled answers. You still have to double-check them. But it helps.
No, that resonates with me as well. But so, okay, so then the summary for me is the AI that you're developing is actually translating very clearly to better engagement, to better retention, and therefore better revenue growth. And so, okay, so.
Well, okay, we can move on. But also in terms of monetization, targeting capabilities, being able to sort of raise relevant services to a user, also very interesting in terms of or also something that we look at with AI.
You mentioned some of the new developments. Obviously, yesterday you made an announcement that you're partnering with Google Cloud, and you are going to be incorporating their Gemini models. Could you talk a little bit about that? Maybe for those that are less familiar with Google Cloud, you know, what are these Gemini models, and why does their inclusion help you? Whom does it help you with? Is it focused on the developers, or is this also focused on the everyday user?
Yeah, absolutely everyday user. So I think the benefit of Aria or the strength that we are sort of cultivating is that we are an independent player. So we don't have to have all Google or all OpenAI or all something else. So when you use Aria, you can actually you will tap into different things on the back end, and you can actually also download in a very easy way third-party LLMs and have them on your machine. So when you're on a flight, for example, you can still interact with it. Or if you're wanting to process data that you don't want to end up in some server somewhere, you can actually run it locally on your own machine.
So I think the integration of Gemini and the work we do with Google, it's, I think, a function of the partnership we've had with them or the collaboration we've had with them for decades now. It's a search partner, but also more broadly, I would say. And for us, of course, it's great. We think they will be a very important company also in the future with AI and being able to integrate also their technology into Aria and lifting it that way. Yeah, of course, we do it to benefit our users, right?
Does Google appreciate that you're becoming more relevant to them as well, as your own engagement levels are increasing and so forth?
I'd like to hope so. I'd like to think so. I mean, we are. I think our brand awareness among gamers, for example, in the U.S., is at like 30%. We measured it at 33% by the end of 2023. I mean, that's still because you always ask me, "What's the potential? What's the potential?" So, okay, so still two-thirds of people didn't know about us. But the year before, it was 11% or something.
It went from 11%-33% in.
Yeah, from some point in 2022 to the end of 2020.
So at most 23 months, you could say. Okay, so that's actually a good segue to get to GX, which, you know, is the other, you know, big browser product that you have. There's no question that it's resonating. And even before you told me about the 33%, that doesn't shock me. But can you why exactly? What are the features? And you mentioned in your opening remarks that no one's going to be using GX if it doesn't have a hook. So what exactly, from a technical standpoint or is it a technical thing? Is it more a look and a feel? Is it a technical aspect? Is it both?
I think it's a total package. So I think what we have learned is that if you launch a browser and say and start listing the technical reasons, like most people, they just move on.
Tune out.
Yeah. So you have to be, "Oh, you're a gamer. Then we have a browser for you." And then people are, "Why?" You know? And then you start so but it's a combination. So it has to be a total package. It's everything from like the softer, like design, look and feel, sort of home screen, colors of the product. Then there is certainly the technical side of it, where it has all of these, you know, how the browser code, let's say, co-runs with games in parallel, how memory is allocated, CPU power, etc. And then it's community, more and more, actually. I'm almost the community.
The community.
Very active user community. Just go on, I guess, not Twitter, but X and have a look. It's a unique style, I would say, quite a humorous type of positioning, but unique for a corporate listed company kind of. But it's a young gang, right? It's a young gang of user base who spend a lot of time online and I think are particularly open to not take that default browser, not take whatever everybody else has, but sort of make their own choice.
Gotcha. So let's dive into the revenue mix, right? You had search and advertising. I think maybe if we could just sort of break those down a little bit further. On the search side, and we've already talked a little bit about Google as a collaborative partner, but they're obviously your big search partner as well. You recently announced, well, maybe before we get into the renewal, you know, just where do you see the trends in that business? What are the drivers for growth in that business? Why have you been outperforming some of the peers in your space that we also track?
You mean revenue broadly speaking for Opera?
Well, for search in particular.
For search. So I think we've benefited from growing our user base in Western markets and growing the user base amongst high-ARPU populations, such as gamers. And it turns out people are interested in AI. So that has benefited us a lot over the past years. I think we've had sort of mid-teens search revenue growth for a good while, 14%, I think it was, in Q1. So growing the user base and growing the time spend. And then because as a small, I mean, as a small player, we have at least the luxury that there is so much room to grow into that we're not constrained by, let's say, the underlying market drops. If we do smart things, then we can climb, essentially, in share.
How big does Google represent what percentage of that business? Are there any other major players that matter? How are those relationships? We know that the Google relationship is very strong, but.
Vast majority of it is Google. We have a long relationship with Yandex, which is that Eastern European search engine. But that's, for many reasons, sort of been less and less financially important over the years. And then on the advertising side, I think it's a long list of partners. I think we are doing a pretty good job at being relatively well connected in our ecosystem.
So how does the advertising work? I mean, in the context of the website, but as the browser, right, are we talking about just the placement of the speed buttons and so forth? Or I know you have Opera Ads, right? And actually, there was a nice announcement. I mean, I know it wasn't an announcement per se, but just noting their fifth anniversary, I believe it was. And maybe you could talk a little bit about how Opera Ads fits in and what portion of the business that represents. And is that essentially really just sort of your programmatic brand, or is there anything more to it than that?
So I mean, advertising is about 60% of our revenue mix, search the other 40%. Advertising has been growing even faster than search. It was 17% or so year-over-year, now in Q1. Our advertising revenue, if I go far enough back to my early days in the company, it was the bookmarks on the home screen of the browser. We still have it. We still monetize that. We can promote partners that way, drive traffic to them. And typically, we collect a revenue share on that traffic. So that is one part of it. The other part of it is native ads that we show where we have inventory. If people scroll through news stories in our news content, etc., we put ads. Or we otherwise promote partners in various stages of integration, actually.
We created Opera Ads as a platform to do better targeting within our own user base. And then we started to test it also on third-party inventory. And that has also become a leg of it. So essentially, when we have advertiser demand, to the extent we can take advantage of also third-party inventory, we will do that as well.
Does it make sense you mentioned advertising is 60% of revenues? Does it make sense to ask what portion of advertising is coming from Opera Ads versus the other portion?
Yeah, we don't disclose the splits. The one thing that you will see is sort of because if we use third-party inventory, then we have a cost of inventory sold. So that you can see in the P&L. But that's a relatively the vast majority of our advertising revenue is O&O and relates to our own inventory. Whereas the third-party part is more it actually worked very well. We have some data advantages, some targeting benefits from being a browser and having such a big user base. And so it would almost be a miss to not try to take full advantage of that position. But O&O is the vast majority of the revenue.
OK. Then just sort of shifting to recent performance and outlook. We talked about a couple of these. You anticipated this question. I do ask this every time that we get together. But you've got 52 million or so, I think, on your website, 52 million MAUs in Western markets. That's about 17% of your total. Are you getting close to a saturation point there?
I mean, our Western user base keeps ticking up. That's combined with other forms of high ARPU user bases. That is what we focus on, growing the base and growing the engagement in those audiences. But we're still like low-ish single digits market share. So we certainly like to think that this is still early days, we hope, for us in terms of that Western growth. But I'm not really. I think I just have to point to the trajectory. We expect to see a continuation of that. It's very hard for us to say, yes, we think we'll get to a 7% market share or a 9% market share or whatever, because it's new territory for us.
I think so long as we are raising awareness of our products, and they do stand out from the technical design of these aspects, then I think we will continue to do well.
Could we maybe just double-click on the recent iOS opening in the EU and the Digital Markets Act? How big a deal is that? You talked about that recently on your public earnings call. Could you share any additional results, perhaps, since then? Do you expect the U.S. to follow suit? How should we be thinking about that?
I mean, to us, we were positively surprised that just the fact that the choice screen got pushed out led to a quite meaningful uptick in the inflow of new iOS users without us really doing anything, right?
No promote.
Yeah, we never get anything for free. So that one was like, oh, wow, nice surprise. But still, I mean, from the vast majority of our mobile user base, it's Android. Because iOS has always been inherently limited to us because we could not use our own technology. So I think the European legislation, the ultimate potential of that, is that in Europe, for now, in Europe, we have just almost, you could say, doubled our addressable market and added, at least ARPU-wise, because I think iOS is like a third market share in Europe and Android two-thirds. It's, of course, very exciting if the U.S. does the same. If they're, I think iOS is two-thirds of the market. So then we will be talking about a material expansion of the addressable market for us on mobile browsers.
But we still have to do the work of actually making, then, a native Opera-owned tech product on iOS. So that is something we are working very hard on and are very excited to launch.
So the users and the revenue won't fall into your lap. On the other hand, when you said a moment ago that your, I think you said, your penetration was kind of in the mid-single digits. But if we split that into iOS versus Android, it might be 50 basis points on the iOS side and 10% on the Android side. And now you've got an opportunity that you didn't have in iOS.
Yeah, yeah. Now we can actually make an iOS product that has our own technology, where we can really make it unique and stand out. So you could almost like say to bring Opera One to iOS, to bring the full experience to iOS. Very exciting to us.
Did you need to bring in a new team to sort of begin to develop the iOS product?
We needed to strengthen the team, add more capacity to it, essentially. We had a great team, actually, but a small iOS team. So I think we've been focusing on making sure that we put enough resources on it to have a good trajectory on getting an iOS product out.
Is that something we notice? Do we see sort of like a spike in R&D or SG&A?
I think more internal. OK.
Reallocating resources. OK. And then maybe marketing spend. Oh, you know what? We're getting close to, I think, we have another couple of minutes. But on marketing spend, and then we'll move to capital allocation. But I believe you spent $30 million in the first quarter. You've guided to sequentially higher numbers over the balance of the year as the quarters roll through. Where is the money going? How much lead time do you have in terms of ramping up and ramping down? Is that sort of like a you could decide today what you're going to spend tomorrow? Or do you need to make these plans months in advance? And I'm just trying to understand how nimble you can be in the face of a changing consumer environment.
Scaling spend down is really fast. Scaling spend up is, you could say, also really fast. But scaling spend up with strong ROI, that is why we don't or then it takes more time, I would say. So you have to test new partners, test new approaches. It's different country by country. And so you learn a bit as you go. And that is why we have said, well, you'll see sort of sequential step-ups quarter by quarter. But we don't expect any big swings.
Maybe I'll just jump to my last question. It's kind of a long one, I think. But when I first launched coverage, the Opera story was much more complicated. You had microlending in Kenya. You had minority investments in privately held consumer tech startups, some of which you incubated. But you've simplified the story meaningfully since then. You're down to just the small stake in OPay, although I guess it's not that small. It's 20% of your market cap. What should we expect going forward? And did you recently shift OPay, the OPay stake? You'd already sold some of it. Did you shift what was left from being an asset held for sale to no longer being held for sale? And should we be reading anything into that? Are you going to go back into being more of an investment incubator? Or what's happening there?
Ah, you're right. We've had many various holdings in other private companies. They have been great investments. But the market has never appreciated it. So we went through a transition of monetization, selling, and simplifying. You're right that we are left with just one, OPay. I don't think we have much appreciation by the market yet for it. So I don't really think it's 15% or 20% of our actual market cap. But at least the fair value estimated of it is like some $250 million. So it's a very meaningful stake. And I mean, our OPay, just to illustrate, it began by investing $12 million in being a founding member. And we've already monetized $50 million worth of it. It's a great, great investment. Yeah, but I think we only get the benefit when people see the cash. We're not planning to go in that direction, no.
The reason we moved it from held for sale to just investment in OPay, without really changing the commentary, which is very pleased on the investment, we're not operationally involved. We will monetize that stake at the best opportunity. But it's just, in at least IFRS, unless you have specific plans to sell within the next 12 months, and that we can't say, then we should not call it held for sale. But for all practical purposes, at the right time, we will sell it.
I could talk to you all morning, but we're out of time. So.