Q3 2021 Opera Ltd Earnings Call
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Welcome to the Opera limited third quarter 2021 earnings call.
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I would now like to turn the call over to your Speaker today, Matt Wilson head of Investor Relations. Please begin.
Thanks for joining us with me today I have our co CEO song Lin and our CFO Proto Jacobson 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.
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 details.
Commentary today will also include non I FRS financial measures, including adjusted EBITDA, which are different from our consolidated financial statements are prepared and presented based on ISR S. We believe that the use of non <unk> financial measures provides an additional tool for investors to use in evaluating ongoing operating results.
These measures should not be considered in isolation or as a substitute for financial information prepared in accordance with Ifr S. We've.
We've also posted unaudited supplemental information on our Investor Relations website that includes historical financial results of opera antibodies investing that a bank will be live tweeting highlights from a call at Investor Opera. So please follow along there during the call and in the future with that let me turn the conference call over to our co CEO song Lin.
Who will cover our operational highlights and strategy and then protocol finish up with financials and our expectations going forward.
Song.
Sure.
And you know this is Tony Thank you everyone for joining us today. So I'm pleased to report that ultra once again outperformed delivering financial results for the corner that exceeded the high end of those revenue and EBITDA guidance So revenue.
<unk> was up 57% year over year and represented a continuation of our strong growth trajectory.
11% sequential growth when comparing.
The previous caller.
It also represents and earlier than expected so that all of our margin expansion weighs 12% adjusted EBITDA margin well ahead, although breakeven guidance.
Looking ahead, we are confident that our strong performance will continue.
Remain on track to have.
Record deal for the company as such and advertising revenues, both set new high watermarks.
Revenue growth continues to be driven by advertising and search generating 98% of.
Quarterly revenue on <unk>.
And the basis for the first time in ultra history advertising has surpassed sorry to your revenues in terms of mix.
So in the soft cooler start you had now grow approximately 45% year over year, while advertising was nearly double that rate and 84% growth.
Our advertising revenue is accelerating.
New products and features and crazy user engagement and focus on growing high value units and final their rates to us that for advertisers to target and connect with our audiences.
We continue to focus on products and so this is not highlight <unk>.
Russell and how it's Jason the services, which we of course, but also plus have you been able to in house people. So I like the service.
On mobile we have continued to expand our offerings in Africa, so even though they already have.
The 40 million monthly active users in Africa and to represent one of the most relevant internet companies in the region. We believe this region. Because this is great growth potential as they will ask the 800 million users that are not online.
We were pleased to see one of our key partners, Google has announced a $1 billion investment also the small company that optimism is well deserved.
Our messaging App hype, which were designed in collaboration with local office in marketable African geographies and the building to the opera mini mobile browser is showing strong adoption.
<unk> launched a hype clubs all this is which allowed us to participate in conversations about the most topics such as football or music. So while hype is scaling its early stages it has more than tripled.
I just said that you lost during these saltwater.
Another. Good example would be opera news, which is the number one news App in Africa and it Hasnt been lost in several countries in Europe and the U S.
Can you just grow international significance.
Advertising revenue from opera news and our broader platform offerings now make up almost half of our total advertising revenue following a 200% year over year growth.
We see tremendous potential in the AI driven content aggregation space with planned rollout in new forms and new markets around the world.
For example, we have leveraged our dominant position in App. It has the biggest markets to launch a specialized ultra FTSE. Russell. This is using the same technology that powers all panels. So when's the English Premier League in full swing.
Very high engagement waste correlate activity with us growing more than 50% from the previous calls.
Moving to pieces will continue to invest in innovations and to make it more relevant to argue those so one. Good example is our in browser shopping solutions Dubai and after a parcel launching spend is not the time to and talk several new market in Europe, starting with Poland, which happened to be well I'll dive in.
Intel is a base and he's also while the faster growing nearly economies in Europe.
Additional countries to follow in addition, water to cashback, where have also added additional features including coupon offerings to match this emotion, even more attractive to our NDA.
So the early results are promising and we look for a walk to a show in more details in a few charts.
Combination of those offerings. So as a good example of how the brasov being the Hubble Minnesota.
Connections all for so many points of engagement and they'll back monetization opportunities.
Again represents also an extraordinary opportunity for opera billions on people globally, who are spending money on games and related activities.
Our Gx browser is excellent example, all the designing Brussels ways the strength in mind and how we are able to build on our core assets to expand into adjacent areas.
As of now we have over 13 million Gx yourself across both mobile and PC and that number continues to grow so during the quarter. We also hosted our ultra do you actually gaining gen focused.
Game developers, who in turn submitted more than 900 games created with Altra again make us the ideal although a few weeks, indicating the power of creation.
So we are now also announcing gx seats, it's a gaming and self publishing platform well new users can directly create and publish games filtrate using the game makeup studio.
These gains while theyre available to be played natively in the gx browser by some minutes of use us without having to install them again bosques shall we believe this latest addition to our France full game off is another strong indication of credentials in this vibrant space and also.
Of the opportunities ahead.
So stepping back I would also like to talk about secular trend that will benefit altra.
Many people believe that the history of the Broadsoft has already being written.
We believe the ultimate that's the way people use the internet is changing and that is the delta itself has never been more relevant or more important.
People love their online experience to be better suited to their individual needs. So at opera improving the user experience hasn't driven continuous innovation all doses and also related to products.
Consumers are increasingly recognizing the benefits of using our product designs for them. For example, ultra Gx browser is already very highly regarded within the gaming community differentiating itself from standardized products that Jeff and Ken bundled with the operating system.
All the device.
Simply.
Oprah has it become is it also a choice for the hundreds of millions of people, who want to choose they'll blossom and ramping the number of people who want to do so well continue to increase.
Our intention is to capture this growing market by offering the basketball experience for those that look for something more.
Introducing improvements and innovations that will drive user engagement audience wells and naturally our ability to increase monetization. So I will let <unk> speak to our financial results, but before I do.
I want to let I'll, let to know that this quarter's results continue to validate our belief that the auto business is a great business to be.
There is a huge opportunity ahead of us as hundreds of millions of consumers increasingly seek a draw song that allows them to have won a nice they are online lives and get the online experience, we choose to best meet their needs.
So in summary, ultra for growth is accelerating our profits and margins I spending and our products have never been more relevant to more people. So with this I'll hand over to you for them.
Thanks, Amit.
Our strategy of increasing the value of our user base by introducing adjacent products and opening new markets is producing record results for Oprah <unk>.
Results. This quarter are a strong validation of our browser plus strategy and we see this strength continuing through the fourth quarter.
As a result, I'm pleased to announced that we yet again raised our guidance for the full year revenue and adjusted EBITDA.
Revenue for the third quarter was a record $66 6 million up 57% year over year and up 11% versus the prior quarter.
After a few quarters of favorable comps due to COVID-19 the search and advertising revenues had returned to pre COVID-19 levels by the third quarter of 2020, making us extra pleased with the year over year achievement.
For the first time, our revenue mix skews towards advertising revenue, which is now 52% of the total a trend we expect to continue spin.
Specifically in the quarter search was $30 7 million growing 45% year over year. This was driven by a monetization gains for both PC and mobile browsers.
Advertising was $34 9 million growing 83% year over year. This was driven by strong monetization from opera news and our mobile browsers.
Our strategy to improve revenue and profitability by focusing on not just growth, but also improving the value of our user base is clearly demonstrated by offers consistent and continuing trend of growing our RFP.
One simple way to demonstrate this is to take our search and advertising revenue and divide it by our entire user base.
In the third quarter each user on average generated a record 75 on.
On an annualized basis up 19% sequentially and up 80% compared to the third quarter of 2020.
Great products and features and the increasing relevance of the browser itself I mean that over time upper continues to expand the profitability of each and every user.
In terms of our user base, we continue to direct our resources towards growing the users with the highest value and highest potential for opera.
For example user growth in the EU was up 9% compared to the third quarter of 2020 and in the Americas. We saw an increase of 30% led by North America up 46%.
At the same time, our users in Asia, which has historically represented our least profitable market continued to decline as we deemphasize that region.
Our record high revenue across all regions also reflect better monetization in every market, where we operate what this means is that we're doing a great job of improving the value of every user we have and that's something we intend to remain focused on.
In terms of gross margin the three cost items that scale with revenue our tech platform fees content costs and inventory cost.
Bind they add up to $3 3 million, resulting in a gross margin of $63 3 million or <unk> 95 per cent.
On the cost side. Most notable is that we managed to drive this growth with less investments in acceleration through marketing and distribution expenses versus what we have considered as basis for our prior guidance marketing and distribution expenses remain elevated as we continue our rapid <unk>.
Pension, but slightly decreased from the prior quarter.
As a consequence, we generated better than expected adjusted EBITDA of $8 2 million.
Our core margins are very high and when our investments come in below plan such such as it did this quarter you can see the start of our trajectory towards a more normalized profitability.
C level.
Net income for the quarter was $23 5 million predominantly driven by the step up and validation for the old pay ordinary shares we had not previously recorded at fair value.
Our operating cash flow was negative at $3 4 million for the quarter largely explained by a catch up in the accounts payable balance following the plateauing of marketing costs.
Combined with smaller non operating items, such as lease payments and development expenditure, we reduced our total cash and marketable securities by 8 million ending the period at $193 million.
Now moving to our forward looking commentary.
Our core business continues to perform and grow ahead of expectations, increasing our confidence in our outlook for the rest of the year.
We believe our browsers are well positioned to continue to grow both our high margin search and advertising revenues.
For the fourth quarter, we expect revenue of $70 million to $72 million, representing 41% year over year growth at the midpoint.
Fourth quarter revenue growth is fueled by strong continued results from a per score search and advertising business and the underlying seasonality.
Adjusted EBITDA is expected to be between $11 million to $14 million in the quarter translating to a margin of 18% at the midpoint.
<unk> are expected to benefit from the combination of the additional scale, we have built during the year and the continuation towards a normalization of marketing and distribution spend.
However, I want to remind you that as in the past the fourth quarter profits also benefit from seasonality on the top line.
As a consequence, our full year 2021 revenue guidance adds up to $2 48 to $2 $50 million, representing 51% year over year growth at the midpoint.
That constitutes yet another lift versus prior guidance, which stood at 48% growth after the second quarter and was at 39% for the year. When we initially guided back in February.
For the full year, we expect adjusted EBITDA to be between 23 and $26 million, which is in the higher end of our initial expectations for the year and well above the expectations. We previously set in light of our even stronger revenue growth trajectory.
Overall and in some Q3 was another great quarter, leading to record revenue for both search and advertising. We are very pleased with these results and strongly believe we are pursuing the right strategy of innovating upon our high margin core browser business and investing in adjacent initiatives such.
News and gaming to drive continued growth into the future.
Thanks, I think we can now take questions.
Yeah.
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Take our first question from Lance.
<unk> with Cowen.
Yeah.
Thanks, Thanks, guys, it's Lance at Cowen.
A couple of questions for me first you call out in the headline that the headline in the press release that AD revenue exceeded search for the first time, but could you just stupid question, but could you explain why that is significantly why do we care net advertising revenues exceeding search revenue.
What's the implication of that.
Yeah.
So highlights.
I just had two quick comments to that number one I think is a demonstration of the combined success of opera news on top of the browser because.
The only revenue category, we drive from a produce this advertising number two of course the advertising revenues are.
Far more.
What's the word.
Let's cut are much less concentrated there's a much longer list of partners in that so so it means that the sum of very many is starting to add up to now be our biggest revenue stream.
Okay, Great and then so if I look back through the beginning of Covid 2019, I calculate a two year revenue CAGR of about 19%, which is outstanding but my question is how does that compare to other internet media players on a two year.
Basis isn't looking through Covid is also growing in line with its peers or is it growing faster or slower than peers.
I mean, I can only speak for us but.
In many ways 2020 from a revenue perspective was a bit of a <unk>.
Last year.
The declines in particular in Q2 Q3.
Essentially back to year over year flat and then we had a good Q4 again.
And so when we if you look at the growth rates.
From if you look at Q3 dollars 19 in Q3 2020. The revenue was about the same when you look at search and advertising.
So so I think.
Of course, we came out of it broader and we come out of it with good products and good good uptake, but the monetization gains were seeing now is relative to the same level that we had before COVID-19, but we only got back there by Q3 'twenty.
Okay.
Okay, I guess, what I'm trying to go with this question is I know, it's a little early I'm not going to ask for guidance, but as we think about our models in 2022.
Revenue growth I can't imagine that it continues.
And the 50% to 60% range, so I'm thinking about moderating from the 19% CAGR to something like kind of a mid teens growth rate is that a decent place to be modeling 2022 from a revenue perspective.
Okay.
As you say, it's also a little bit early for me to go out publicly with with guidance now we are we do feel great about the trajectory of the business.
I would agree with you that.
50 ish percent year over year growth is.
Is a is a fantastic performance that we've had in the.
So that the direction of the growth rate will be lower than what it was in 2021.
These are I think thats reasonable.
But it's hard to give something very specific.
We are doing.
We are investing in our business, we continue to invest at very high levels and grow in growing our.
Growing our business.
And we work on our initiatives that we've talked about before to sustain very attractive growth also looking ahead of course.
Okay. Just one last question for me and then I'll turn it over but okay.
Okay. You mentioned in your prepared remarks stepped up valuation now that you are.
Using a fair value approach, but didn't fair value of the asset itself also increase given that they had raised some money at a higher valuation I think from my notes and I am hoping you can confirm that for me.
<unk> raised 400 million at a one $5 billion valuation last may and then may be raised another 400 million at a $2 billion valuation late August is that right and then presumably you've been diluted by these raises so and I know there was a monetization as well so could you just.
What percentage of okay.
The company owns today thanks.
Sure sure so number one.
It's just the timing of different types of releases there has been one funding round for <unk>. This year and that's the one with about $2 billion.
Post money valuation, which is also the valuation that we divested a bit less than a third of our ownership at that valuation.
So there's been a there.
There's been one.
When it comes to the shares so the fair value. So the assumed value of overpay that that form the basis for our recognition of ownership.
Stated that at the end of the second quarter to reflect that funding round and Thats, we have not changed since the reason we have a gain now is that we have two types of shares ordinary and preference shares.
And from the past ordinary shares for a recorded under the equity method and a fair value. So it's just an accounting.
Topic, our ownership of OPEC.
Now since at 644% used to be $13, one and we sold 29% of our stake so that took us to $9. Three and then there was some equity set aside for employee grants held in a separate companies. So we take all of that dilution upfront taking it to eight two and.
And then there was the funding round that took it down to the $6 44.
Perfect. Thanks, so much for clarifying appreciate it congratulations on the quarter guys.
Thanks Clive.
We'll go next to Mark Argento with Lake Street.
Good morning, guys.
Two quick questions. One is it looks like you're getting some pretty good traction with the newest product in North America, maybe talk about kind of.
What penetration rate you're at where you think you can go with that and ultimately.
Monetization rates.
You could see there just in terms of trying to size up that opportunity.
Yes, okay. So its only help maybe I can just try to also be broader right. So I mean, I would say when it comes to new the Europe and North America.
So all those things you're considering.
It's a huge market itself right. So I mean.
Thank you Ron.
Round, two Sim penetration I would say we are just getting started.
You see we have a very good brand came very good retention.
Very good valuation and user engagement, so all the numbers already gets.
But yes, we will.
But then of course, I guess, well, it's a rational way we want to of course, just there being no listen I looked at the we know there's a lot of the OLED all alcohol shows and being very cognizant of Covid.
Hi, <unk>.
<unk> is also not just going into the broader user base, but we want to make sure all the targets that were originated very high engagement among others.
Well actually I guess to sum up I would say number one we are still in very early stage I think we at least have probably many times growth potentials, especially if you reference to our positioning Africa right. If you look at Africa.
Number one we are almost doubling in the region and the U S of course, you're also facing some of the.
Traditional media outlet, so I would just say yes.
Covid, many many times the opportunity relative loss, but on the other end I think yes, and I think we just also be very systematic about it but a lot of the hotels.
Well, making sure way, we're talking to the right audience.
The other comment that they will be also saying that we're also trying to focus different verticals.
Both the Africa, but also in other regions that where those strengths in many particular vertical by vertical and just make sure that on that particular political it may not be sports I mean, there'll be some others because the AI intelligence that they'll be able to differentiate <unk> from from the more normal source right. So I think that's our general approach.
So a high level I feel that there is still going to be a great growth opportunity ahead of it but on the other end that would also want to be very cautious and they move us that it hits.
Okay.
I know one of the previous and the idea was to spend aggressively on customer acquisition.
Maybe talk a little bit about the strategy shift there in particular.
Roy not where you wanted it and so you kind of retrenched, a little bit and focused on like you said some of the higher value.
Your verticals or what what happens with the strategy I guess, what did you see out there.
Yes, yes, maybe just high level comment further to just add on top right no no I don't think it's more like I don't think its a strategy shift we are still spending.
Very elevated levels comparable before and and.
Yes.
<unk> I don't think that our strategy of shifting I think it is a major difference like we have been continuously smuggle.
Previously.
We spent I guess less of a blessing.
Give up their agents and now the last spending now we just find that they are.
Also many interesting ways that we can buy with us that make us a lot more smartphone users without being too long I will just say the traditional user acquisition way just to not be surprised that you buy it and you may all the attention but now.
<unk> bye problematic waste, we're able to buy used also particular to that particular those potential value of it.
Instead of generic <unk> and the result of that that's allowed us to almost to be extremely.
<unk> and the use of monthly ones.
But then of course the way the potential death.
Maybe many of you obviously don't want and so we don't have to spend the money on it.
And I think that's what I was just thinking of why we see we are able to spend less but achieved almost a higher revenue coupled with a bandwidth, particularly well and we will continue with that trend.
Okay. That's helpful and just last one for me.
Of your search partnerships to remind us.
You know who you're partnered with on the search side.
Are those contracts that need to be renewed on a on a regular basis did a refresh us on that that'd be helpful. Thank you.
Further the incremental you want me to comment.
No I mean, most important search partners or a Google and Yandex, we typically enter a three four year contracts with them. We I believe we actually attach them to our.
Annual reports, but with all of the Juicy stuff grade out because that we cannot disclose.
They've been long long partnerships.
For 15.
15, plus years probably.
And the next time those are set to renew just like you saw.
And then kind of an auto renew situation or do you guys actually sit out and renegotiate those every year every three years.
We tried to negotiate them every time they renew so they typically don't auto renew.
There are some instances where the partner has the right to extend the contract let's say for another year of post initial term on the same terms.
And then beyond that.
We need to negotiate but they tend to be quite stable in terms of.
In terms of.
Important terms quite stable so.
And then of course, yes.
Yes.
Maybe I'll just comment that when I saw the most relevant ones.
Moving ahead, we don't expect any surprises and if entity will hopefully get to the upside.
And what are the next renewal or we got a renewal cycle this year or next year.
I think.
Google are renews.
No sorry, Google renewal would be for next year Yandex is and I think it's 2022 or 2023.
Great. Thanks, guys and congrats on a really strong quarter.
Thanks, Thanks, Mark. Thank you. Thank you.
We'll go next to Alicia Yap with Citigroup.
Hi.
Good evening, good morning management, Thanks for taking my questions and congrats on the strong quarter and guidance.
I have a couple of questions here.
One can you elaborate.
Drunk glossy distributions.
Your AD revenue so how big is that revenue contribution from the America.
And do you know.
In Asia, if you could share that.
All percentage and then also just curious.
If you could also share the growth rate of the AD revenue coming from our Mad car I guess given.
That is 83% growth.
I assume the America coffee Tonight.
When they put in a high triple digit growth.
Any specific and now you're talking that you wanted to reach in the U S.
Uh huh.
So at least maybe I can begin at least answering your question, we don't disclose revenues at the detailed level by country and geography, but roughly speaking.
Advertising is quite balanced between.
Between.
Europe and.
In the Americas versus the emerging markets.
In terms of in terms of opera news.
Of course, we are spending big marketing dollars, but that is also generating.
Good revenue growth for us and that is.
Then driven by them.
Actually both but of course, the most step up.
Due to sort of the growth from virtually nothing to actually starting to have a presence in western market, so that that benefits our advertising revenue stream.
And sort of explaining why is this growing faster than search.
Any color deck.
You can see our debt you know why not to flag up high net trading incomes of the user base.
Yes.
Yeah.
Yes, sorry, I think you touched on that before but maybe you just comment.
Sure, Yes, so yes, I would just say.
I think to be honest, it's I guess, it's probably less about more like I think overall, our overall strategy just that way we do on the touch user base in U S, where it's more like high engagement, when gigawatt, which field.
One natural with a product.
So yes.
I would say.
Yes.
Okay.
I think at least with the result that we have been saying, especially when it comes to.
Let's just say that the other fuel types right. So when it comes to open I would say those are more typical I would say high value users, which do have the news are eating habits.
What we see there tends to be I would say maybe slightly towards.
Middle age because those are the ones, which it has a lot of neat already newswire.
We are also growing very big in gaming you have to go out with the biggest amount of injection, but also unveil receipt olive teens young kids.
Not really a whole lot of deals that they do a lot of gaming. So yes. So at a high level I think were noncash smart in the way that way by of course different at all.
Different yourself about neutral and sell marketing by different means and we just see that as a very natural.
Natural mix among others.
I see.
And for your <unk> EBITDA guidance getting from that.
Is that right to assume that gross sales and marketing spend on the absolute dollar Tom.
<unk> revenue is actually coming down sequentially.
<unk>.
So.
What you can what youll see implicit in our guidance since the rest of the opex sort of moves.
With more limited steps is that.
We essentially expect marketing spend to be at about the same level as the third quarter I guess on the margin more likely a bit down.
But not the not the big not the big change relative to the third quarter.
I see okay, and then lastly.
Could you be my Eric.
Oh, the Android worse.
<unk>.
Okay.
I'm just wondering.
It has been an impact to your news and keeping them from the Iowa team.
Jay.
Yeah.
Yeah understood. So, yes, I would say by far majority of all about user base Susquehanna Android at National.
National Bank intention to just because we launched the <unk> laidlaw.
So yes, so philosophy.
That commentary there would be it will be still Andrew and Thats why we also.
Let's say positively impacted.
Elevated by the trend.
Of course, we do think it's making sense to continue to invest in the I'll ask but I guess now the good thing that says the monetization has it been challenges is also slightly need help us sell cloud was obviously, Alice so that matches out and hopefully it will just benefit or something.
Okay, Alright sounds good thank you.
Congrats again.
Sure. Thanks Felicia.
Thank you.
There are no further questions at this time I will turn the call over to song Lin for any additional or closing remarks.
Sure.
Okay, now I'll, just say that.
Yeah.
Thank you all of you for joining us today.
You also have hope that what I believe is well positioned to continue to grow and we are very excited about our new initiatives.
Your time, and we look forward to speaking with you again.
This does conclude today's program. Thank you for your participation you may disconnect at any time.
Yes.
Okay.
Okay.
Okay.
Okay.
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Okay.
Yes.
Yes.
[noise].
Okay.
Okay.
[music].
Yes.
[music].
[music].
Thanks for joining up with me today I have a co CEO song way and our CFO Proto Jacobson beforehand over the call to song when I would like to remind everyone. In the conference call today, the company, making statements about future results and expectations, which constitute forward looking statements within the meaning of the private security so.
Litigation Reformat 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 guarantee of future performance you may refer to the safe Harbor statement in the company's earnings release for details.
Or a commentary today will also include non I F. R. S financial measures, including adjusted EBITDA, which are different from Arkansas dated financial statements that are prepared and presented based on Ifr S. We believe that the use of non Ifr S. Financial measures provides an additional tool for investors to use in evaluating ongoing operating results.
And trends these measures should not be considered in isolation or as a substitute for financial information prepared in accordance with I F. R. S.
We've also posted unaudited supplemental information or Investor Relations website that includes historical financial results of opera and are are investing that a bank will be like tweeting highlights from the call at Investor Opera. So please fall along there during the call and in the future with that let me turn the conference call over to our Coast C. E O song.
Who will cover operational highlights and strategy and then photo finish up with financials and our expectations going forward.
[noise] song.
Sure and do that and you know this is only thank you Angela Ah so joined half a day.
So I'm pleased to report that ultra once again on performed delivering the natural result for the corner that indicated the high end all those all revenue and EBITDA guidance. So revenue was 57% Neil all the meal and represented accompanied.
Issues of our strong growth trajectory waste, 11% sequential growth one comparing life.
Caller.
Call also represents and only on that I expected. So that'll about Monday expansion weighs, 12% adjusted EBITDA margin well I had a break even guidance.
Looking ahead, we are confident that all strunk opponents well continue.
Might remain on track to have a record deal for the company as such and advertising revenues, both said new high walk on Max.
Revenue rose continues to be driven by advertising and such generating 98% of all corporate of revenue Uhm combined the bases and for the first time in opera history advertising has to pop song. She reveals in terms of me.
So in the short call sort you have nail grill, approximately 25%, yeah, although yeah, Wow advertising lost nearly doubled that right and 84% growth.
Advertising revenue is accelerating thanks to new products empty shows and Crazy you. The engagement are focused on growing high value your nose and finally, they raised to us that's for advertisers to target unconnected ways on all the answers.
We continue to focus on products and so this is not highlight the browser and how he tried to Jason. This all this is literally a cold, but also plush happy being able to in-house People's online service.
Uhm mobile would have continued to expand all all France in Africa, so even though they already have Oh, la Rhonda 40 million monthly activity with those in Africa, Andrew represent one of the most irrelevant none of the companies in the region like believe this region cause this is great gross.
Potential ask they'll ask the 800 million users that I'm not online.
Little please to see one of our key parthenos, Google has enough a 1 billion dollar investment audio this small company that optimism is well deserved.
Oh messaging App hype, which were designed in collaboration with local office magical African geographies and the building to the ultra Meanie mobile browser is showing strong adoption where have launched a had collapsed. All this is which allow them to participate in conversations about.
The last four weeks sarcasm football well Neil date, so while hype is skelly, it's all if they just it's more than tripled. So he just said that he was also doing the salt water.
Another good example would be ultra Nils which is the number one no the afternoon Africa and it hasn't been lost in several countries in Europe and the US continues to grow international significance.
Advertising revenue from Oprah meals, and all brought out platform offerings now make up almost half of all total advertising revenue following Oh about 200 per cent you over your growth.
Wasting tremendous potential in V, a I driven content or aggregation space, which can roll out the new forms and new markets around the world.
For example, we have an average out and dominate the position <unk> biggest the market to launch a specialized ultra football. So this is using the same technology that pass I'll tell nails, so where does the English friend I'm, leaving for Sweden were asking very high engagement ways Quantumly asking.
<unk> <unk> more than 50% from the previous calls.
Moving to pieces like continuing to invest innovations and to make it more relevant to argue those so one. Good example is all in but also shopian solution D by and <unk> fossil launching span is not their pain too and talk several new market in Europe, savvy ways, Poland, which happened to be well I'll give them.
Adult each base and he was also walls the faster growing economies Europe <unk> additional countries to follow you know did she also too cashback, where have also added additional features including coupon offerings to 19. This emotion, even more attractive to all any of those shows the audience.
All that promising and it looks for a walk to show you more details even for your chops you.
You can combination those offerings salt as a good examples of how the browser b the hobbled, Minnesota and connections all sources. So many points all the engagement and they'll back monetization opportunities.
Again, he represents also add a <unk> or the 20th at four Oprah wasted billions on people globally, who are spending money on games and related activities.
I'll I'll Gx ABRAZO is that excellent example, all the designing Brussels lace Z you'd like stripes in mind and the hall way.
<unk> to build I'll I'll call assets to expand into adjacent areas.
Uhm Apple now they have overall saltine Mira M G actually yourself when crossbows mobile N P C and that number continues to grow so give us a call toll. We also hosted the ultra do you actually gaining Jim <unk> game developers cool income submitted more than 900 games.
Could I did went so I'll try to get them make us do do Oh, well, a few weeks, indicating the power of creation.
Well not also announcing gx seat, it's a gaming and self publishing platform well, new <unk>, Ken directly create H and publish games poultry using the game makeup studio.
These games, while they're available to be played natively easy Gx umbrella song by some minutes <unk> without having to insult me get in Boston.
<unk> <unk> believe this latest addition to I'll I'll transfer full day, most is a novel showing indication all could I just ask you. This vibrant space and also off the opportunity to the head.
So that'd be a big batch I'd also like to talk about she kinda trend network benefit ultra menu.
Many people believe that the Houston Ultimate doll Salt has already been <unk>.
We believe the ultimate that's the way people use the internet is changing and that the belt itself has never been more relevant or more important.
People last bill online experience to the <unk> to the individual needs. So as ultra <unk> Z U like stairs passengers on continuous innovation, you all Dell sauce and also related products.
<unk> Crazy late this is amazing the benefit of using a product design for them. For example, all sorts of Gx is also is already very highly regarded within the game all community differentiating itself from a standardized product that's just <unk> bundled with the operating system.
All the device.
Simply.
Oprah has become does it also have choice for the handheld ultimate <unk> of people, who want to choose there'll be also and raping the normal people, who lumpy do so well continuing to increase.
My intention is to catch all this growing market by offering the basketball with my experience for those that to look for something more intuitive.
<unk> improvement and innovation that will drive you'd like engagement audience wealth and naturally our ability to increased monetization.
So I will that through the snake too often as a result.
Before I do.
I want to let all your best not to know that this call US a result continue to validate our beliefs that you'd also business is a great business to be.
That is a huge opportunity the handlebar as hundreds of me. That's what comes to you must be increasingly C. A draw song that allows them to have won a nice they all online lives and get the I like experience they choose to desperately they'll meet.
So in summary, all sorts of growth is accelerating all perfect and marches I spending and all products have never been more relevant to more people. So when this all handled doctor for them.
Thanks, I met S. O N said, our strategy of increasing the value of our user base by introducing adjacent products and opening new markets is producing record the results for opera <unk>.
Ah resolve this quarter or a strong validation of our browser plus strategy and we see the strength continuing through the fourth quarter.
As a result of police announced that we yet again race or guidance for the full year revenue and adjusted EBITDA.
Revenue for the third quarter with a record 66.6 million up 50.
57% year over year at 11% versus the prior quarter.
After a few quarters of favorable comps due to COVID-19 the search and advertising revenues had returned to pre COVID-19 levels by the third quarter of 2020, making of extra pleased with the year over year achievement.
For the first time, a revenue mix excuse towards advertising revenue, which is now 52% of the total a trend we expect to continue spin.
Specifically in the quarter search was 37 million growing 45% year over year. This was driven by monetization games for both P C and mobile browsers.
Advertising was 34.9 million growing 83 per cent you're over here. This was driven by strong monetization from a from yours and our mobile browsers.
Our strategy to improve revenue and profitability by focusing on not just growth, but also improving the value of our user base is clearly demonstrated by offers consistent and continuing trend of growing art.
One simple way to demonstrate this is to take our search and advertising revenue and divided by our entire user base.
And the third quarter each user on average generated a record 75 cents on an annualized basis up.
19% sequentially and up 80% compared to the third quarter of 2020.
Great products and features and the increasing relevance of the browser itself I mean that overtime upper continues to expand the profitability of each and every user.
In terms of our user base, we continued to direct our resources towards growing to users with the highest value and highest potential for opera.
For example use for growth in the U what's up 9% compared to the third quarter of 2020 and in the Americas. We saw an increase of 30% led by North America up 46% at.
At the same time, our users in Asia, which is historically represent that are least profitable market continues to decline as we deemphasize that region.
A record high revenue across all regions also reflect better monetization and every markets where are we up right. What this means is that we're doing a great job of improving the value of every user we have and that's something we intend to remain focused on.
In terms of gross margin the three cost items that scale with revenue our tech, but firm fees constant cost an inventory cost.
Combined they add up to $3.3 million, resulting in a gross margin of $63.3 million or 95%.
On the cost side. Most notable is that we managed to drive this growth with less investments and acceleration through marketing and distribution expenses versus once we have considered as basis for our prior guidance marketing and distribution expenses remain elevated as we continue our rapid.
Expansion, but slightly decreased from the prior quarter.
As a consequence, we generated better than expected adjusted EBITDA of $8.2 million.
Our core margins are very high end when our investments come in below plan such such as it did this quarter you can see the start of our trajectory towards some more normalized profitability.
<unk> level.
Our net income for the quarter was 23.5 million predominantly driven by the stuff up and validation for the old pay ordinary shares we had not previously recorded at fair value.
Are operating cash flow was negative at $3.4 million for the quarter largely explained by a ketchup and the accounts payable balance following the plateauing of marketing costs.
Combined with smaller none uprising items, such as lease payments and development expenditure, we reduced our total cash and marketable securities by 8 million ending in the period at 193 million.
Now moving to are forward looking commentary.
Our core business continues to perform and grow ahead of expectations, increasing our confidence and our outlook for the rest of the year.
We believe our browsers are well positioned to continue to grow both are high margin search and advertising revenues.
For the fourth quarter, we expect revenue of 70 to 72 million, representing 41% year over year growth at the midpoint.
The fourth quarter revenue growth is fueled by strong continued results from upper score search and advertising business and the underlying seasonality.
Adjusted EBITDA is expected to be between $11 million to $14 million in the quarter translating to a margin of 18% at the make points.
<unk> are expected to benefit from the combination of the additional scale, but built here every year and the concentration towards a normalization of marketing and distribution spent.
However, I want to remind you that S. In the past the fourth quarter profits also benefit from seasonality on the top line.
As a consequence are full year 2021 revenue guidance adds up to 248 to 250 million, representing 51% year over year growth at the midpoint.
That constitutes yes, another lift versus prior guidance, which stood at 48% growth after the second quarter and what's at 39% for the year. When we initially guided back in February.
For the full year, we expect adjusted EBITDA to be between 23 and $26 million, which is in the higher end of our initial expectations for the year and well above the expectations. We previously set in light of our even stronger revenue growth trajectory.
Overall and in some Q3 with another great quarter, leading to record revenue for both search and advertising. We are very pleased with these results and strongly believe we are pursuing the right strategy of innovating upon our high margin core browse for business and investing in adjacent initiatives such.
News and gaming to drive continued growth into the future.
Thanks, I think we can now take questions.
As a reminder to ask a question. Please press star one I need telephone keypad.
To install your question press the pound key we do ask that you. Please pick up the handset to uproot.
Sound quality.
We will take our first question from Lance.
Cohen.
Thanks, Thanks, guys, it's slanted Cowan.
A couple of questions for me first you call out in the headline that the headline of the press release that AD revenue exceeded search for the first time, but could you just.
Question, but could you explain why that is significant like why do we care.
That advertising revenues exceeding search revenue, what's the implication of that.
Yeah.
Alright, so highlights I've had two quick comments to that number one I think it's a demonstration of the combined success of opera news on top of the browser because the only revenue category. We drive from Upper news. This advertising number two of course, the advertising revenues are farm.
More what's the word.
Uhm.
Let's cut our much less concentrate that is a much longer list of partners in that so so that means that the sum of very many is starting to add up to now be our biggest revenue stream.
Okay, Great and then so if I look back through the beginning of Covid to 2019.
Calculate a two year revenue CAGR of about 19%, which is outstanding but my question is how does that compare to other internet media players I mean on a two year basis and looking through Covid is alpha growing in line with its peers or as you grow faster or slower than peers.
<unk>.
I mean, I can only speak for us but it.
In many ways Twenty-twenty from a revenue perspective was a bit of last.
Last year, given the decline in particular and Q2 Q3 it was.
Essentially back two year over year Flex and then we had a good cue for again.
And so what if you look at the growth rates from if you look at Q3 19 in Q3 2020. The revenue was about the same when you look at search and advertising.
So so I think of course, we came out of it broader and we come out of it with good products and good good uptake, but the monetization gains foreseeing now is relative to the same level that we had before COVID-19, but we only got back there by Q3 20.
Okay, I guess, where I'm trying to go with this question is I know, it's a little early I'm not gonna ask for guidance, but as we think about our models in 2022 revs.
Revenue growth I I can't imagine that it continues you know in the 50% to 60% range. So I'm thinking about moderating from the 19% cake or to something like kind of a mid teens growth rate is that a decent place to be modeling 2022 from a revenue per second.
As soon as you say, it's it's also a little bit the early for me to go out publicly with with guidance now we we we do feel great about the trajectory of the business I would agree with you that.
50 ish percent year over year growth is a is a is a fantastic.
Fantastic performance that we've had and I'll be so so that the direction of the growth rate will be lower than what it was in 2021 I think that's that's reasonable.
But it's hard to to give something very specific we we are doing we are investing in our business. We continue to invest at very high levels and grow and growing are.
Rolling our business and and we work on our initiatives that we've talked about before to sustain very attractive. The growth also looking ahead of course.
Okay. Just one last question for me and then I'll turn it over but Uhm auto pay you mentioned in your prepared remarks stepped up valuation now that you're.
Using a fair value approach, but didn't care value of the asset itself also increase given that they'd raised some money at a higher valuation I think from my notes and I'm, hoping you can confirm this for me that Oh paid raised 400 million at a 1.5 billion dollar valuation last may and then.
Maybe raised another $400 million at a $2 billion valuation late August is that right and then presumably you've been diluted by these raises so and I know there was a monetization as well so could you just confirm what percentage of okay. The company owns today. Thanks.
Sure sure. So number one it's just the timing of different types of releases. There has been one funding around four O pay this year and that's the one with about 2 billion dollar post money valuation, which is also the valuation that opera, we divested a bit less than a third of our ownership.
At that validation.
So so there's been there's been one when it comes to the shows so the fair value. So the assumed value of O pay that that form the basis for our recognition of ownership we updated that at the end of the second quarter two reflected funding around and then.
We have not changed since the reason we have a game now is that we have two types of shares ordinary in preference shares and and from the past the ordinary shares for a recorded under the equity method and not fair valleys assistant accounting topic.
Our ownership of O pay is Ah now since at 644% used to be $13, one and we sold 29% of our mistakes so that took us to 9.3.
And then there was some equity set aside for employee grant held in a separate companies, where we take all of that delusion upfront taking it to a point too and then there was the funding round that took it down to $6 44.
Perfect. Thanks, so much for clarifying I appreciate it congratulations on the court right.
Thanks.
We'll go next to Mark again tells Lake Street.
Good morning, guys secret questions. One is it looks like you're getting some pretty good traction with the the news product in North America, maybe talk about.
What penetration rate your at where do you think you can go with that and ultimately.
What kind of monetization rates that you could see there just in terms of trying to size up that opportunity.
Yeah. Okay. So it's it's the only help maybe I just tried to also be broad all right. So I mean, I would say when it comes to know the Europe and North America.
So I want to thank you for doing that.
A huge marketing sounds fries so.
Yeah, I think it's wrong to say penetration I would say we are just getting started but it's just good to see <unk>.
Very good around came very good origination very good evaluation I need the engagement, so order number ready to get it but yeah, well like but but then well of course I guess what else a rational way once you of course, just the being the thing that looked at the in all right. They belong to always be you know all I called shows and be very targeted fought with on those.
Hi to value and you would also not just go in for the Brotherhood of the day, So I Wanna make sure all the time, they they'll do that we're gonna need it very high engaged in Omaha, those so well actually I guess, if the sum up I would say number one I'll show you all the stage I think we these down probably many times gross potentials, not and especially if you're a reference to all position you accurate right.
Africa, but if I have a number one well just told me that the in the region and you also of course, you also basically so many traditional media outlets on all of those so I would just say yes.
Many many times the alternative ways, you've lost but on the other end I think yeah. Another and I think we just also be embarrassed isn't nothing about it but wanted to be cautious and we will make a show way with hunter. The right audience download told me that they will be also saying that we also tried to pull up a different the politicos.
You know <unk> I forgot, but also in other regions that that you know where those strengthening a minute that ticket or political biological and just make sure that you know on that particular political it made that this boltzmann that'd be something out of the AI intelligent Neil that there'll be able to differentiate him from from the more normal source right. So I think that's all general approach.
So high level I feel that there's still going to be a great relative but the other day I handled it but I know the end, but we also wanted to be very cautious and way mood lifted their heads.
I know one of the previous and the idea was to spend aggressively customer acquisition, maybe talk a little bit about the strategy shift there in particular.
Oh, why not where you wanted it so you gotta retrenched, a little bit and focused on like you said some of the higher value verticals or what what happened with the strategy.
Figure out there.
Yeah, Yeah, and I just made those high level pulled that out for that I can just add on Pulverised salt no. No I don't think it's more like I don't think it's a strategy shaped the way I'll still spending on the air very elevated levels compelling before and and I would like yeah. So that means I don't think there's a strategy shifting I think it's a major debate like we I've been talking to us to be a small coke.
Previously way way way spend I guess it must have been messing in you know you know that give up their ages and now the last spending mail would find that there are also many interesting ways that we can buy you those that'd make us a normal smile and hopefully you guys will.
It hasn't been too long I would just say the traditional user acquisition way just and I play in a be surprised that you buy it emailed attention, but now Ashley by problematic ways. We are able to buy you'll also particular did to that particular, you those potential value of it instead of generic by and you know the result of that I'll do that as well as to almost be exterminated.
A positive and the use of Luckily lungs.
But that was of course the way the potential that we find out maybe minute you'd also like <unk> and so we don't have to spend the money on it Ah mommy on it and I think that's what I was just taking a while you see we're not able to spend less but achieve almost the higher revenue how 'bout weighs about with particular, well and we will continue that trend.
Okay. That's helpful. I'm just lost one for me in terms of your search partnerships remind us.
Who you're partnered with on the search side and those contracts that need to be renewed on a on a regular basis could you refresh us on that'd be helpful. Thank you.
Sheltered they'll do uncle mentally let me pull it up.
No I mean, the most important search partners are a Google and Yandex.
We typically enter three four year contracts with them, we I believe we actually attach them to our annual.
Annual reports, but with all the juicy stuff grade out because that we cannot disclose.
So they've been long long partnerships 415.
15, plus years probably.
And the next time those are set to renew just like just started that I care about an auto renew situation or do you guys actually sit down and renegotiate those or read your over three years.
Does that mean, we tried to negotiate them everytime. They they were new so they typically don't auto renew there are some instances where the partner has the right to extend the contract. So let's say for another year of post initial term on the same terms.
And then beyond that we we need to negotiate but.
They tend to be quite stable in terms of in terms of important terms quite stable yeah. So in that and then of course, yeah like maybe.
Made out of it yeah that's it.
Maybe I'll just comment that yeah, well I suppose the most irrelevant once where I'm moving ahead why don't you send any surprises and if entity will hopefully get to be outside.
And what is an extra renewal or we gotta renewal cycle this year or next year.
I think.
Google or renews at the not the other new sorry, Google renewal would be for next year Yandex is and I think it's the 20th wanted two or 2023.
Great. Thanks, jogging, congrats on a really strong quarter.
Thanks, Thanks Marsha. Thank you. Thank you.
We'll go next to me she at the Citigroup.
Hi, Uhm cause anything good money management. Thanks for taking my questions Uhm. Congrats on this strong quite a diet and I have a couple of questions. Here number one can you elaborate uhm a drunk lassie dissipation Osteo Atkins Avenue so how.
<unk> if the AD revenue contribution from the America and do you know <unk> <unk>, if you could share a raft O H and then also just curious if you could also shed a growth rate. After at seven you were coming from I'm Mad card I guess given.
Yeah.
Studying 83 per cent growth, so I <unk> I assumed a diet Coke coffee Tonight.
<unk> put my height triple digit growth, so any specific and make new pocket that you wanted to reach in the U S.
So unless or maybe I can begin at least answering your your question, we don't disclose revenues at the detailed level by country and geography, but roughly speaking.
Advertising is quite balanced between between.
Europe and in the Americas versus the emerging markets.
In terms of in terms of Ah for news.
Of course, we we are spending big marketing dollars, but that this also generate thing good revenue growth for us and that has been driven by actually both but but of course the the most step up is due to sort of the growth from virtually nothing.
To actually starting to have a presence in western markets. So that that's benefits are are advertising revenue stream.
And sort of explaining why is this growing faster than search.
Uhm any color deck do you ensure that you don't want that to <expletive> a panic training comes off I'll tell you something something less.
Yeah. So long I think you touched on that before him. It may be you just comment.
Uhm sure, yes, so yeah I would just say.
I think to be honest I guess, it's a little bit less about <unk> I think over all all overall strategy just that way would you want to talk to you. The best in you estimated amount of time engagement when people, which feeling that people will natural with our product.
Alright, so yeah more like.
I would say.
Yes, My IRA anymore I tried like I did at least with the result that would have been the same especially when it comes to <unk> did you say.
Does it feel types right. So when it comes to open needles I wish that it does not more typical.
Say, hi battery was also which do have the new the reading habit. That's what we see that tends to be I would say maybe slightly towards middle.
Peter H, because those are the ones, which it has a lot of needle ready meals awhile, but you sense.
Also growing very D. D gaming and you have to go out with the biggest amount to inject it also and they always see it all up keys Young kids.
Not really a whole lot of Neil but they do a lot of gaming. So yeah. So I'll have high level I think well my smart in a way that the way by all of course different get all cloudy for you, though about influence Oh, well marketing by different means and we just see that is a very natural natural mix among I'm Alice.
Mmm.
And for your full to eat that bagging checking from that she is that alright to assume at garage sales and marketing.
<unk> on the absolute faller, Tom that's not as a percentage of revenue is actually coming down to quench any some too cute.
So.
What you can what you'll see implicit in in our guidance since the rest of the outback sort of moves with more limited steps that we essentially expect the marketing spent to be at about the same level as the third quarter I guess on the margin more likely a bit down.
But but not the not the big not the big change relative to the third quarter.
Mmm I see Okay, and then lastly could you be my area.
The Android bar says the iron last name Sir.
<unk> <unk> I'm just wondering if there have been an impact uhm to get news a P. P from the island, Yeah I can change it.
<unk>.
Yeah understood. So yeah, I would say by pharma drink how about you the best off going to enjoy it. That's my intention just because we launched the I'll S. A lot later.
So yeah, so philosophy.
About 500, there will be it will be still Andrea and that's why we also let's say pulled into Blair [laughter] not infected telling you the elevated by the trend I know of course, we do think it's making sense because I'm paying for your message I'll ask but I guess now Gucci that says the monetization hesitant challenges is also such an email popped off.
<unk>, so that matches, all and hopefully it will just benefit from it.
Okay, Alright sounds good thank you.
Congrats again.
[noise] shopping yet thankfully.
Okay.
There are no further questions at this time I'll turn the call over the phone line for any additional closing remarks.
Sure. Okay. Now I'll just said that you know thank you all of you for doing that today.
And you also have hoped that belief opera is well positioned to continue with the world and we are very excited about all new initiatives.
Well I appreciate your time and look forward to speaking with you again.