Q4 2022 Opera Ltd Earnings Call
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Speaker 2: Welcome to the OPERA Limited fourth quarter and full year 2022 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this period, you will need to press the star key followed by the
Speaker 2: pound on your touch tone phone. If you want to remove yourself from the queue, please press the pound key. Please be advised that today's call is being recorded. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to your speaker, Matt Wolfson, head of investor relations. Please begin.
Speaker 3: Thank you for joining us. As usual, I have with me today our co-CEO Song Lin and our CFO , Berta 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
Speaker 3: 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 guaranteed at future performance.
Speaker 3: You may refer to the Safe Harbor Statement in the company's earnings release for details. Our commentary today will also include non-IFRS financial measures, including adjusted EBITDA, which are different from our consolidated financial statements that are prepared or presented based on IFRS. We believe that the use of our non-IFRS financial measures provides an additional tool for investors to use.
Speaker 3: and 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 IFRS. We have also posted unaudited quarterly historic financial results of OPERA on our investor relations website.
Speaker 3: We'll be live tweeting highlights from the call at Investor Opera, so please follow along there during the call and in the future. With that, let me turn the call over to our co-CEO Sung Lin, who will cover our operational highlights and strategy, and then Frodo will discuss our financials and expectations going forward.
Speaker 3: I'm live tweeting highlights from the call at Investor Opera, so please follow along there during the call and in the future. With that, let me turn the call over to our co-CEO Song Lin, who will cover our operational highlights and strategy, and then Frodo will discuss our financials and expectations going forward. Song? Dawn.
Speaker 4: Thank you everyone for joining us today. We are very pleased to announce our record results of the fourth column, which well exceeded our previous issue guidance of both revenue and profitability.
Speaker 4: Revenue reached 96.3 million and increase of 3% over the previous year.
Speaker 4: adjusted EBITDA, came in and
Speaker 4: 22.8 mm or 24% margin. Looking back and the caller and 22 as a whole, we were able to exit our revenue expectations as a result of better than anticipated monetization of both our browser and new user base.
Speaker 4: and faster than anticipated scaling off the overall audience extension business. Combined with a predictable and carefully managed old text base, we have been able to convert our strong revenue trajectory to a strong profitability trajectory even ahead of our ambitions.
Speaker 4: So to recap, the full year revenue was 331 million with adjusted EBITDA of 68 million.
Speaker 4: Revenue's grow 33% while EBITDA was up 135% as four year margins expanded from 12% to 21%.
Speaker 4: The impact of our ongoing focus on those users which provide the most value can best be seen in our analyzed output.
Speaker 4: Analyze Apple was $1.18 in the first color and increase of 12% from the short total and 42% increase compared to last year.
Speaker 4: Out of the annual revenue growth 55% compale to last year, now representing 59% of total revenue.
Speaker 4: Our owned and operated sites continue to benefit from the continued shift in our user base towards developed markets with their greatest monetization potential.
Speaker 4: In addition, Opera's audience extension initiatives will stand out success, leveraging our high-performance leading infrastructure and first-party signals to reach the right audiences across personal evenhp disasters.
Speaker 4: These efforts, which really took off in 2022, are an excellent complement to our O&O advertising inventory.
Speaker 4: This segment has offered stable incremental margins and is shaping up to be a material component of our revenue and EDNA growth. Such revenue grew 12% in the fourth column, which was also better than planned, driven by the growth of our PC footprint in Western markets, particularly North America. As a company, we are post conscious and operate a lean organization.
Speaker 4: and that is exactly what we achieved. And Evidamages expanded from 12% to 21%. But perhaps most important now come into our products and innovation focus. So Opera as a company has a more than 25 year history.
Speaker 4: of being at the forefront of growth and innovation. We have built out more than 300 million universities by always pushing the limits of what's possible on the web.
Speaker 4: The math interest in generative AI tools and the also impressive capabilities that these tools already have.
Speaker 4: certainly marks the beginning of a new chapter in the evolution of not only the Internet, but the knowledge base, economy, and large. For authors, that represents a huge opportunity, perhaps similar to the emergence of mobile web and smartphones.
Speaker 4: And that independent browser we are firing on all cylinders to become the best gateway to an AI power
Speaker 4: building and rolling out new expressions in web browsing that not very long ago seemed impossible to achieve. For instance, we are adding popular AI generated content service to the browser sidebar. On top of that, the company is also working on augmenting the browsing experience with new features.
Speaker 4: that will interact with this new generative AI power capabilities.
Speaker 4: Among the first features to be tested is a new small, but super useful shortened button in the address bar that will be able to use AI to generate short summaries of any webpage or article.
Speaker 4: Not all of you may be aware that AI has been essential to open news from the beginning, more than 5 years ago, to solve our stories and content relevant to our users in a personalized way.
Speaker 4: In 2023, we are going to ramp up our AI NUDE efforts. It will start with using AI to assist content creation. For instance, AI will be able to help summarize the top stories of the day and then generate short articles to keep users informed.
Speaker 4: of local and national news. These stories will cover subjects such as sports, weather, primary ports, energy and fuel prices, and other information relevant to their lives. These features are being pushed out as we speak.
Speaker 4: We believe AI will soon be an indispensable tool in assisting people across industries. And with our experienced talent pool in that field, we are naturally very excited about the future.
Speaker 4: Both our hot-shot advertising revenues also benefit from increased engagement, and we are seeing that across all of our products.
Speaker 4: The emerging markets, or Pramini, has benefited from the integration of real-time football scores, leading to increased frequency of use, and were replicated in this feature in South Asia with cricket.
Speaker 4: To celebrate the most recent World Cup in Q4, we have launched also a campaign we call Shake and Win. The campaign pushed Opera Mini to the number one position in the Google Play Store in several of our key countries in Africa, while we again are also replicating the 60s to Latin America in key countries like Brazil.
Speaker 4: with all the sticks already in view. In terms of view, those, our total base was 324 million mAUs in the fourth floor, a 9-serti-quinsure increase.
Speaker 4: So for the past years we have repeated our focus on high value users of the investor markets but also have distinguished between user opportunities in emerging markets.
Speaker 4: So we have let the best monetizable users show up while focusing growth on acquiring fuel, but higher value users. We are very pleased to see our strategic growth more than offset reductions in less strategic areas, putting us in a great starting point for 2021-23 and beyond.
Speaker 4: GX continues to grow its user base, particularly in developed markets.
Speaker 4: As we have announced in December , the gaming browser now has over 20 million images.
Speaker 4: As we said before Despite being our best multi-link browser where they're up to up 11% sequentially to $3.3 Dollars we are in the early stage of unlocking the flow potential of the GX the gaming browser So they believe GX is at a perfect crossroad
Speaker 4: by being the most popular gaming browser and entry point for those users. It allows us to combine multiple next generation technologies to be more popular.
Speaker 4: From building decentralized, the half-throw, web3, and blockchain to using AI to assist in game creation with our game maker studio.
Speaker 4: It's a great example of where we see multiple new technologies from the past few years converging around a young audience base.
Speaker 4: creating a future that is super exciting and have the potential to exit everyone's imagination.
Speaker 4: So with that, let me tell you a call over to further for details.
Speaker 3: Thanks, Hank. On some of the operational color, I'll turn to the numbers. It was a great quarter rounding off the year well ahead of our expectations. Q4 revenue came in as much as 5 million above the top end of our fourth quarter guidance.
Speaker 3: a record 96.3 million representing 33% year-over-year growth.
Speaker 3: That is something we are really proud of, especially in light of the fact that we had already raised guidance after both Q2 and Q3 and in the face of ongoing macroeconomic challenges.
Speaker 3: Similar to last quarter, the outperformance primarily came from the continued growth of users in Western markets and the ongoing ramp in our audience extension business that simply scaled faster than we dared anticipate. Adjusted EBITDA was about...
Speaker 3: 4 million above the top end of guidance coming in at 22.8 million or a 24% margin. Profitability benefited from our revenue over performance combined with continued cost discipline and opex coming in a bit below expectations.
Speaker 3: Cost of revenue scales with our audience extension-related advertising, but associated gross margins have been stable to even improving through 2022, resulting in material profitability contributions.
Speaker 3: During the quarter, we repurchased 0.6 million ADSs for $3.2 million under our regular buyback program.
Speaker 3: That comes in addition to our separately announced major buyback of 23.4 million ADS equivalents from a pre IPO shareholder as 5.50 per ADS or 4.70 per ADS is comparing to the current share price which is meant.
Speaker 3: of our recent 80 cent dividend.
Speaker 3: For 2022 as a whole, we executed a total return of capital of $146 million, taking 26.7 million ADS equivalents off the market and effectively increasing each remaining shares relative ownership of opera.
Speaker 3: by about 30%. We have been taking advantage of our strong balance sheet to elevate the ROI for our investors.
Speaker 3: As of today, we still have over $30 million remaining under our current buyback authorization.
Speaker 3: In terms of cash generation, we had a straightforward quarter with working capital items, netting out and operating cash flow coming in at $23.5 million, quite in line with adjusted EBITDA.
Speaker 3: Next of our stock repurchases in the quarter that amounted to 132 million, we ended the year with 118 million of cash and marketable securities.
In addition, 13 million of other receivables were sales of marketable securities, with settlement in the first days of the year, leading to an underlying cash balance of 131 million as we started 2023.
We were very pleased to issue a special 80 cent dividend earlier this year, which translates to a 71 million expense at the reduced share count.
and leaving us with a strong balance sheet of 60 million cash before cash flows in 2023 as well as 59 million in remaining installments from the sale of StarEx and finally our stake in OPAY as an asset held for sale which increased from 6.4%
to 9.5% following the immediate settlement of our receivable from the sale of NanoBank as laid out in our press release.
Now, turning to our guidance for the full year 2023 and the first quarter.
For the full year, we guide revenue to be between 370 and 390 million, representing 15% year-over-year growth at the midpoints. With the adjusted EBITDA guided between 71 and 81 million.
or 20% margin at the min points.
In terms of cost expectations, we model cost of revenue items just above 20% of revenue following the growth of our audience extension offering, and we maintain our previous expectation of around 30 million in average quarterly marketing costs.
For both, we expect the trajectory to start below average in the beginning of the year and then move gradually higher. Cash compensation cost is expected to drop slightly into Q1 but increase year over year, mainly from salary adjustments. And finally, all other OPEX items before adjusted in the top are expected to drop to Q1.
seasonality of a rapidly growing advertising business.
We guided just the EBITDA to be between 17 and 19 million, a 21% margin at the midpoint.
In summary, 2022 was a record year for Opera and we are thrilled with the operating and financial results.
The outperformance we experienced coupled with our efforts to realize values and turn all focus to our core business has set us up for continued success in 2023 and beyond and has allowed us to conduct major repurchases as well as pay our first dividend. With that.
I would like to turn the call back over to the operator for your questions.
Thank you and as a reminder to ask a question please press star then the number one on your telephone keypad. To withdraw your question please press the pound key. When posing your question we ask that you please pick up your handset for optimal sound quality. We'll take our first question from Lance Betanza of Cohen. Please go ahead.
Good morning. This is Jonathan on finance. Congrats on the strong quarter. Very good. My first question comes is where did the user base growth of $324 million, where did it come from?
Good morning. This is Jonathan on finance. Congrats on the strong quarter. Very good. My first question comes is where did the user base grow to $324 million? Where did it come from? In terms of region.
Hi, this is Frodo here. I'll chime in. The western markets is the key growing area for us, both in terms of users and in terms of revenue. But we did see growth across all regions revenue-wise from Q3 to Q4.
to where our strategy of focusing on high value users led to also a growing total user base in the fourth quarter. 4Q is sort of a strong quarter in terms of engagement, time spent and so on. So I think I'd expect it to be quite stable.
broadly speaking.
And the last one for me, the GX browser, impressive growth there on an R2 basis, right? Just wondering.
At what margins do they come in, and what can we expect from the GS browser in 23 that will continue to improve revenue growth? In terms of cost of revenue on the browser side, it is very low. So we consider more our marketing cost to almost be the cost of revenue, and we try to optimize.
expectations. Song, I think he got kicked off or dropped off the call, but I think we'll guide specific numbers, but we are very excited about the products, about the next versions of it. And so we do expect the product to continue to grow both user-wise and user-wise.
We have been seeing a rather strong user growth. More like, I think the new strategy that we're really focused on is more like the high ARPA users instead of the total user number. But the fact has just been that we have actually indeed quite a strong user growth, both for GX and also across the board. So we're quite optimistic about that. But again, the focus will be on the high ARPA users.
work. I just wanted to drill down a little bit more in the opportunity and potentially, you know, what do you see ultimately in the, you know, the most logical business model using that technology? It's drive user growth of the browser, is there a whole motor standalone?
product you could potentially charge subscription to, that base model, or you could at least give us some of your initial thoughts.
Yeah, I think this only helps. So maybe a just cognitively start with and through the council champion, especially for revenue, right? So, so I think for now to be honest, I think the most distinctive impact which we're hoping is for user engagement, right? What I'm for driving a user update.
So I think good example being that of course where we actually do see even if we're just announced it And you may be still on the stage. We see that the user interest on the browser has actually increased quite a bit You know because originally people just looking for regular system people browser as always our biggest challenge right that that You know they just use it, but not you
technology. We actually see all of the same as the other stage of mobile, right, as we quoted, that there's a lot more interest for people to actually look for good growth, which can be a very differentiated experience. And waiting that is actually probably the biggest short-term potential. And we see that it's definitely having impact on the user base. I mean, that's also why we see quite positive growth.
But then of course, and then use our growth, of course, for response with more user engagement and hopefully more modernization potentials. However, of course, going deeper, if your problem has a even more profound impact on the whole ecosystem, and that is almost beyond the upper right? But then for that, my guess would be that the problem will be perhaps really more towards
You know, maybe like again higher paid model subscription or something along the lines for especially some of our partners But then in line that will be able to drill down into into opera So so I think we feel that they're well going to be a lot of changes in the industry and for For player like opera probably means more opportunity than anything else
So, quite excited. Okay, then, one for Frota. Obviously, free cash, low generation has been strong and we've been returning to Apples, shareholders. We think about the guidance for 2023, the 71-81 million.
an adjusted even ah should we you know is this still like kind of uh almost 100 flow through the pre-cash flow or how should we think about pre-cash and generation in 2020.
Well, for 2022, I guess we converted about 87%. I looked at just now of our adjusted EBITDA to operating cash flow. So the delta is the taxes paid of about 3.1 million in the year and...
I think it's a relatively fair indication. And in terms of taxes, our effective tax rate.
If you take our P&L, take our operating profit and add back the equity compensation cost and look at taxes relative to that, since the equity cost is not tax-deductible, then our effective tax rate is about 18%.
the next couple of weeks. All right, that's helpful. And then when in terms of did you say $30 million in CapEx or excuse me in CapEx for 2023? $30 million in CapEx.
And now in the other operating items so from like hosting, legal, travel, office costs, etc. So the stuff that I commented on the cost of revenue items combined, the marketing cost and the cash compensation cost and then I just commented on the total for everything else.
prior to just leave it on the P&L. All right, that makes sense. And then in terms of the focus of incremental spend going forward, I'm assuming you're gonna continue to target Western markets.
It looks like where you're getting a lot of growth and a lot of extension and that consistent in 23 I Think dollar wise that I mean that strategy remains it's proven very successful for us and we still see a lot of room to grow
And as Song also talked about, there are definitely very attractive pockets and good growth to be had also in emerging markets. And so we have been, we are investing in that too, but we have gotten better at focusing on monetizable users there. So they are of course massive markets and we...
we will focus globally. Great, thanks guys and congrats again. Thank you. And as a reminder, that is star and one for your questions. We will take our next question from Alicia with Yap with Citigroup, please go ahead. Hi, thank you. So good morning management. Thanks for taking my questions. Also congrats on the strong results and the guidance. I have two questions. First is,
I wanted to follow up on this, you know, your partnership with OpenAI on AIGC. I think you touched a little bit in the earlier question. I'm just wondering, you know, the benefit that you're going to see, one part of it is the higher user time span, right? And then in what kind of content...
that you believe that would be improved on the targeting effort that you can reach out to the user and so far, or has that already launched and then so far, is it more obvious that you see the improved in user engagement on the more...
two kinds of AI, right? So one is the discriminative AI, which is actually what I've been using. And it's also the one being used in the usual accommodation, comfortable accommodation, and all the pilot places. And the other is the generative AI, which is what's been popular now. So I would say that we're moving forward, we're probably both.
becoming more and more relevant and we see a little bit more focus, right? So, the first one, discriminative AI will be able to give you more relevant content. I think that's the way already actually is always ongoing. People will just perhaps didn't notice it, but then it's becoming much more visible, right? And then, I think the generative AI are more like in the ground where people will be able to see content with their own flavor, right? More like, you know, one, you need to have your experience and catch one's that did that. You can add it to the channel.
of ways how you want to see the news or articles, you can of course always ask AI to give you a summary based on your flavor. So I think I would say that's more like one algorithm is to be able to give you the relevant content. The other is to turn the content into what you might like. So I think both are going to be very relevant. Like I said, it's still very audisage, but that's proven to be very clicking.
for capturing what was coming to view.
So, do you expect that we'll be helping on increasing revenue opportunity within this year that you will already see it or will we have to wait a little bit longer? Yeah, so I think it's a bit of a question, right? What's that impact going to down the road to Neil?
higher revenue. It just is quite obvious. So we don't want to maybe guess on that. But I think it's a very interesting opportunity for us. I see. Okay, great. Thanks, Tom. Second question, I think company comment on the press release about the EU sanction package that happened in December 22.
So which of you budgeted a 10 million hat reads, right? So without that, is that fair for us to assume the meat point on your guidance would have been 18% dissure instead of the 15%. Right. And then also related to that is can you remind us?
in 2022, how much exactly was the negative have we that you experienced from Russia in total? Because I remember, um, you know, back in the first quarter, uh, last year, which is around me, uh, you mentioned that, um, the Russia, I'm not sure if I remember correctly, it was potentially about 10%, but you only see about half of that impact. Yeah.
something on it. You are correct that adding back that 10 that we did up to directly, we put the midpoint at 18%. Then I think on top of that, the situation at large of course also leads us to add more conservative.
or cautious to the guidance that we put out there. So I would say directly correct, but also broadly speaking, the broader macro picture is also adding, I would say, incremental caution, but we haven't put a...
number on it, but as we come from a connection with the guidance. In terms of Russia and Eastern Europe , I would say we did see of course the impact last year as well, but then currency rates also fluctuated quite a bit.
I see. Okay. All right. Well, thank you so much. Thank you.
Well, thank you so much. Thank you.
And there appears to be no further questions at this time. I will turn the call back over to Song Lin for any closing or additional remarks. Sure. So again, I think thanks, everyone, for joining our conference call. You know, you all turn it to the two. We have been able to do with the good results. We are very, very excited about it. I think that's all for now.
2020 is also going to be very, very interesting. You know, both the arts performance were already experienced and coupled with our efforts to realize more values and all focus into our co-painting has been able to put up in a good position for the 2016-2003. So yeah, we're very afraid about it. And I would also like to thank all of those operating employees.
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