Opera Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 22, 2024

There are 9 speakers on the call.

Operator

Good day, and welcome to the Opera Limited Second Quarter 2024 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Call. I would now like to turn the call over to your speaker today, Matt Wolfson, Head of Investor Relations.

Operator

Please begin.

Speaker 1

Thank you for joining us. This morning, I am joined by our Co CEO, Song Lin and our CFO, Firdas Jacobsen. Before I hand over the call to Song Lin, I would like to remind you that some of the statements that we make today regarding our business, operations and financial performance may be considered forward looking. Such statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties. Actual results could differ materially.

Speaker 1

Please refer to the Safe Harbor statement in our earnings release and our Form 20 F, including the risk factors. We undertake no obligation to update any forward looking statements. During this call, we will present both IFRS and non IFRS financial measures. A reconciliation of non IFRS to IFRS measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website located at investor. Opera.com.

Speaker 1

Our comments will be on year over year comparisons unless we state otherwise. With that, let me turn the conference call over to our Co CEO, Song Lin, who will cover our Q2 operational highlights and strategy. And then Frode Jacobsen will discuss our financials and expectations going forward. Song?

Speaker 2

Thank you, Matt, and thanks to everyone joining us today for a business update and more color on our Q2. Our Q2 results were ahead of all expectations coming in above the higher note of both our revenue and adjusted EBITDA ranges. It is the continued momentum of our products and targeted user adoption that translates to growing and broadened revenue streams and strong financial results. In the Q2, revenue was $110,000,000 growing 17% year over year. Adjusted EBITDA was $27,000,000 translating to a margin of 24% and particular strength, this is our guidance of $22,000,000 to $25,000,000 In addition to the revenue over performance, our profitability benefited from Event Title focus on the most monetizable users as the quarter progressed when it comes to our marketing spend.

Speaker 2

As a result, we grew up 25% year over year now at an annualized $1.46 average across our products and geographies. Advertising revenue was $65,000,000 in the quarter, growing 20% year over year in a similar fashion as prior quarters. Our advertising revenue continues to benefit from the same underlying drivers of high ARPU user growth and expanding monetization opportunities, in particular, as our Western end gaming users represent an increasingly attractive audience for monetization partners. Our ability to drive targeted and high purchase intent traffic from our users directly to an expanding partnership base has proven to be scalable. We are taking advantage of our first party signals and our well developed ad text platform within Opera Ads while creating value to both partners and end users.

Speaker 2

We still consider ourselves to be in the early stages in taking advantage of these opportunities, especially as our AI offerings broaden and we increase the number of direct interactions between the browser itself and the end user. Search revenue was $45,000,000 in the quarter, up 15% year over year and also in line with our trajectory from prior quarters. We are proud to grow our most mature revenue stream at this pace as it directly demonstrates our ability to attract and retain highly engaged and monetizable users. We remain enthusiastic about the future of our search based revenue streams as well. There is certainly increased public focus on ensuring competition among search engines.

Speaker 2

Being an independent browser provider, we appreciate the broader recognition of the value and the importance of the search position provided by a browser, and we are very excited to work with key players to capture and further expand the potential of the massive amount of traffic that we can drive from our user base. Last quarter, also commented about the positive initial impact of the Digital Markets Act or DMA, which addresses many of the ways that the browser market is not always a level playing field. As separately disclosed, we take an active role in these processes and this summer we pointed out where we believe the DMA's gatekeeper designation principles have been applied too narrowly. The DMA momentum carried over into the Q2 where we saw significant strength in new user adoption of those Opera for Android and Opera for iOS throughout the EU as well as an increase in the number of smartphone users in the region who have made our mobile browsers the default. Beyond the regulatory matters, technology and services evolve as well.

Speaker 2

Recently, there has been a lot of focus around search and content platforms being redefined. To a great extent, we see how AI underpins the ability of such services to give the end user a better experience, whether it's from answering questions directly or elevating the quality of promoted content. We are enthusiastic about these trends as we believe it puts a greater emphasis on content providers to deliver true value and less leakage of our user monetization to low value publishers. The browser sits in a perfect spot and build vehicle of how end users connect with those AI elevated services, a powerful position to be in. We believe these changes are beneficial to our users as well as our high quality monetization partners and ultimately to Opera.

Speaker 2

Now turning a bit to the always high activity level within Opera. Our success has always been driven by innovation and speed, providing our users with unit products and improved experiences and stayed ahead of competition. Last year, we launched Opera 1, our fully redesigned flagship browser And in early Q2, we were proud to announce that Opera 1 received the prestigious IAP Design Awards to Live 24. We certainly lead with features and functionality, but to win users' hearts, our browsers must also look beautiful and provide elegant flows. The next major upgrade of Opera 1 referred to as R2 is now available for public testing and will roll out later this year.

Speaker 2

If you give it a try, you will see how we have improved, how people listen to music from popular services while browsing as well as continue to advance our browser AI area. With the ARPU release, we continue to build on the mobile design introduced in Opera 1 and have a new split screen mode that allow users to multitask more easily between 2 open tabs. Finally, R2 introduces a new type of SIM support where users can customize their browser with a set of high quality dynamic themes that provide immersive experiences, further differentiating the visual appearance of our browsers. Last week, we also launched Opera 1 for iOS prioritized as a direct consequence of the increased opportunity to compete on the platform. Compared with Safari, Opera's users can engage directly with the ARIA Browser AI.

Speaker 2

They can experience browsing in proper full screen and benefit from all our other integrated services like building free VPN and app blocking. With that, our product lineup for users with the greatest monetization potential is more complete and you will see us putting increased marketing dollars behind this lineup is a multi set to continue raising awareness of Opera as an alternative to the iOS default browser. Now shifting focus to Opera GX, our highly successful gaming browser. In April, Opera GX debuted the official Cyberpunk 2,070 browser mode created in collaboration with game developer CD Projekt Red. The mode allowed deep customization of the Opera GX browser with branded elements from the popular game.

Speaker 2

In total, there are over 7,500 different modes available for Opera GX. In June, we launched the browser from Vault, an official collaboration browser experience with the hit TV series, The Boys, alongside the premium of Season 4. While seasonality works against our product in the summertime, Opera GX added another 500 ks users in the quarter to pass 40,000,000 MAUs, achieving a year over year user growth of 27% combined with a year over year ARPU growth of 14% now and $3.55 on an annualized basis. As AI capabilities improve, the online journey of our consumer can be made both more productive and more informed. Having these tools built directly into the browser instead of a website or a browser extension makes the experience all the more seamless.

Speaker 2

The current landscape reminds me of how such has evolved since 1990s and before opening up the integration between search and browser over 20 years ago, from having to use the web page of search engine to search natively in the browser URL box. So now the ability to gather information, make informed decisions and both process and create content with the help of AI allows users to be even more productive. In the case of our AI assistant area, this is a fully integrated experience that exists naturally alongside the users' existing habits. Our role in this ecosystem is not to really make the individual tools available, but rather integrating both the back and the front end to give our users choice and elevated use cases whether to ARIA or other services. ARIA itself evolves at a rapid pace and this call alone removed multiple AI features from better stage in our feature growth program and into our flagship browsers, including command line prompts, page context awareness as well as voice and image generation capabilities.

Speaker 2

We are also offering an integrated and simplified way for users to download and use large language models locally on their computers currently available in R2. It's a fantastic game to have always earned access to the power of AI assistance regardless of Internet connection and with the certainty that your data does not leave your computer. As you can see, we are keeping busy. We might be a small company compared to our competition, but I think we are also the perfect size to innovate and seize opportunities. While we have more than tripled our revenue since our 2018 IPO, we have maintained an ever present startup mindset, free of the bureaucracy of large organizations, combined with the scaled business well solid financials allow us to invest in exciting products and healthy continued growth.

Speaker 2

With strength building throughout the year, we are excited to embark on the second half of twenty twenty four and what comes next. With that, I'll turn it over to Frode to dive deeper into the Q2 numbers and our guidance.

Speaker 3

Thank you, Sung. Now 4 months further into the year versus our last earnings call, it's fair to say that 2024 is shaping up to be another really nice year for Opera. We are growing ahead of expectations with internal excitement across the board on the topics Seung Min covered and more to come. Our financial results once again exceeded expectations, even the top of our ranges. In fact, over our 6 year history as a public company, we've never missed our revenue guidance and only missed our EBITDA guidance once when the COVID pandemic hit in the Q1 of 2020.

Speaker 3

That does say something about our healthy and organic growth and its relatively predictable nature, even if we like to bake in some caution for potential headwinds here and there. We've also been a rule of 40 company for 13 sequential quarters now, that is every quarter after the 1st year of COVID. And as you see from our guidance, we aim to remain in that category going forward as well. Our overall revenue growth was 17% and our adjusted EBITDA margin was 24%, both in line with recent quarters. As Song commented, I would highlight the e commerce opportunities already seized and their further potential as a key building block in our continued ARPU building, naturally on top of healthy user base dynamics.

Speaker 3

As in recent quarters, FX continues to represent a headwind, in particular, as it relates to emerging markets. And our year over year growth would have been 8 percentage points higher or 25% on a constant currency basis. In terms of cost, we had guided for a sequential increase in marketing costs, yet in the end maintained the spend level from Q1. That led adjusted EBITDA to overperform even beyond the incremental revenue. Other than that, costs largely came in according to expectations.

Speaker 3

Compensation costs increased sequentially as expected, predominantly due to annual salary adjustments, but also with hires and increased bonus provisions. Cost of revenue items came in at 25.2% of revenue, which was within the expected range. And all other OpEx pre adjusted EBITDA came in at $8,600,000 also in line with expectations. Tax cost of $2,800,000 was 11% of adjusted EBITDA. In the prior quarter, our tax cost was elevated due to FX impacts on our tax assets.

Speaker 3

Year to date, tax cost as percentage of adjusted EBITDA is 14% and in line with a more normalized level. Our operating cash flow was $17,400,000 in the quarter, representing 65% of adjusted EBITDA. Free cash flow from operations was $13,500,000 or 51 percent of adjusted EBITDA. This year annual bonuses were paid in Q2 as opposed to in the Q1 of 2023 representing a quarter specific headwind. Looking at the first half of twenty twenty four as a whole, our conversion from adjusted EBITDA to operating cash flow stands at 94%.

Speaker 3

The year to date conversion from adjusted EBITDA to free cash flow from operations stands at 42%. However, it would be 79% if netting out to special €19,000,000 investment we made in establishing a proprietary AI cluster in Iceland. As commented earlier, we expect these ratios to stabilize as the year progresses. Towards the end of the quarter, we announced our regular semi annual dividend of $0.40 per ADS or $35,400,000 in total value. Payment was made in early July, consisting of $27,600,000 in cash and $7,800,000 offset against the remainder of our receivable related to the sale of Sarex in 2022, meaning that this receivable is now fully settled.

Speaker 3

Going forward, dividend payments will be entirely cash based and fully funded by our growing cash generation. Then turning to guidance. Following a strong first half of the year that demonstrated the resilience in our growth model, we have added to our comfort on our full year trajectory and are pleased to raise our guidance today. We now guide full year revenue of $461,000,000 to 467,000,000 up from our prior guidance of €454,000,000 to € 465,000,000 and translating to 17% year over year growth at the midpoint. Our trajectory allows us to raise guidance beyond the Q2 over performance and also narrow the range to reflect a solidified outlook for the second half.

Speaker 3

We are seeing particular strength in the e commerce vertical and we are cautiously optimistic that such benefits may be even more pronounced during the holiday season in the final months of the year. We raised adjusted EBITDA guidance to $110,000,000 to $113,000,000 for the year, up from our prior guidance of $106,000,000 to $110,000,000 and representing a 24% margin at the midpoint. While Q2 in isolation could indicate an even stronger range for the year, we guide for a more back loaded marketing spend profile than earlier assumed to ensure we are in position to seize growth opportunities on the back of our new iOS offering and the upcoming releases of Opera 1 and Opera GX. In sum, our updated revenue guidance range now begins above the former midpoint and our updated adjusted EBITDA guidance range now begins at the former high end. While we do guide for the trend to be modest, we are also very pleased to indicate increases in the year over year growth rate from quarter to quarter in the second half of the year.

Speaker 3

For the Q3, we guide revenue of $119,000,000 to $121,000,000 or 17% year over year growth at the midpoint. We got adjusted EBITDA of $27,000,000 to $28,500,000 or a 23% margin at the midpoints. That equates to OpEx pre adjusted EBITDA of $92,000,000 at the midpoints, in which the sequential increase of $9,000,000 is predominantly driven by incremental provisions for marketing spend. We also had just over a percentage point of cost of revenue items relative to revenue and expect compensation costs to modestly tick upwards in dollar amounts, though decrease as a percentage of revenue. The total of other OpEx items pre adjusted EBITDA is expected to trend down versus the Q2, both in dollars and naturally then relative to revenue.

Speaker 3

Our cost expectations for the year as a whole remain in line with our prior directional commentary, with marketing cost and cost of revenue ticking up a bit as percentage of revenue relative to 2023, while compensation costs and other OpEx items ticked down, largely offsetting one another, but implying 40 basis points of continued margin expansion at the midpoints, combined with stronger than expected revenue growth. So all in all, we are entering the second half with great momentum and look forward to keeping you posted. With that, I'll turn the call back to the operator for questions.

Operator

Thank

Speaker 4

you.

Operator

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

Speaker 4

Yes. Great. Thank you. A couple of questions from me. Maybe one for Song.

Speaker 4

So Song, you said that maybe you think that maybe the gatekeeper definition has been applied too narrowly. Maybe can you just give us a thoughts on how you think regulators should kind of think about applying it and where do you expect to or where do you want to see it go in terms of implementation? And maybe the second question is for Chiprode. So just on your commentary on the strength you're seeing in e commerce, maybe just talk about what are the underlying drivers that are kind of contributing to this trend? Thank you.

Speaker 2

Sure. I'll comment a bit about that. So yes, I think that more like I think that's in relation to the BMA, right? So more like I think BMA has been helpful, demonstrated to independent player like us, right, where we got a lot of the exposures, particularly the iOS platforms. But I think, of course, there are some other platforms, which is also relevant.

Speaker 2

And for instance, I think in this particular case, including Windows among others, which also there is sort of more like a gateway to keyboard definitions. And then for now it applies to Windows, but it doesn't really apply to some other default browser there like Microsoft Edge, which we think is also by actually a better definition, it actually should apply on others. So yes, so I think in general, our comment is just more like we are actually working very closely with the EU on this as a European company. And we also have given opinions and ideas of how moving forward, this is especially seen that the audio legislation has actually been very helpful to independent player like us to be able to grow. So we feel that there's definitely opportunity for more action still.

Speaker 2

So I think that's what we are trying to refer to. And yes, so more like I think there are some separate press release, which we have issued around the metal, and we'll just continue to work closely with you and with all the related parties to see how we can better address and how we can have better opportunity, not only in iOS, which I think is great, but also in broader platforms. Yes, so I think the general trend is in general quite positive. And we think the similar things which are happening around the world, not only in you, which definitely are going to be positive to an independent player like us.

Speaker 3

Naveed, I'll chime in on the second part of the question on the trend within e commerce side. I would say we have built a sizable user base in high value markets And that allows us to create new partnerships where we can drive meaningful traffic. And using our insights, we then have the ability to drive traffic with high purchase intent. So e commerce has become our biggest vertical and our vertical that is growing the fastest.

Speaker 4

Okay. That's helpful. Maybe a quick follow-up, if I may. If I just look at the Western market user base kind of flattish sequentially, wondering if there is seasonality there or if there is more marketing dollars you could have spent or something getting pushed from Q2 into Q3? Maybe help us understand that.

Speaker 4

Thank you.

Speaker 3

Yes, I can understand that. Q2 includes the beginning of summer, but I think more importantly, I would say, we have continued our strategy. We have even applied it tighter than before. So when we look at our marketing spend, year over year, we and relative to Q1, we have actually reduced the number of users that have come in through our marketing activities, but at an increased cost. And that is what is driving the year over year 8% growth in marketing and sort of the flat trend from Q1.

Speaker 3

So we are focusing on the very most valuable and ARPU driving users that we can. And I think that is also a factor in looking at the total user base. As mentioned, we are building in more marketing cost in the second half. We have a product lineup that is essentially tailored for Western and high value users and that is what we focus on in the second half of the year.

Speaker 4

Super helpful. Thank you, guys.

Operator

Thank you. Our next question will come from Eric Sheridan with Goldman Sachs. Please go ahead.

Speaker 5

Thanks so much for taking the questions. Maybe first building on Navin's question on the EU, but widening out a little bit. When you see this level of shift in the competitive and the regulatory landscapes, how should we be thinking about this informing a almost reprioritization of product or marketing over a longer period of time and how your priorities might be shifting or changing given what you're seeing in the external landscape and some opportunities opening up? And second, in terms of the ARIA assistant, curious any feedback on behavior, adoption, things you've learned from the way users have embraced AI in the early days? Thanks so much.

Speaker 2

Sure. I'll comment a bit on it, right. So I think I agree that I think it's maybe I'll just comment that I think there's perhaps a bigger shift in. So there's definitely regulatory shift ins, which actually in general tends to be forcing a more opening up over the platforms, maybe iOS or maybe Windows or maybe Allos, which is definitely beneficial. So that's, of course, indirect is what we are doing now to invest more heavily in those platforms.

Speaker 2

It's just simply because previously some of those platforms like iOS is too difficult, right, for so part of it, but now it's actually opening up. But I think maybe perhaps a bit more beyond that is that also in combination of AI, there's a whole paradigm shifting that like previously because just remember that previously most of those high intent user action dollars are concentrated on half of it perhaps on search, half of it on something else is very isolated. But now because of AI, I think more and more players starting to see that those high intent user events can be like it can be more broad spread in many other positions, if we position the right way. Like if you design the product in the right way, for instance, it can be pre search, it can be post search, like Prudent mentioned, e commerce, like all of the areas we actually utilize AI actively to be able to give you the very valid recommendations using AI, it's very natural. And then we are very happy that advertisers and the whole industry actually also looking at it and saying that, oh, that's actually very valuable.

Speaker 2

We are willing to work with Opera on this among others, right? So I think to some extent that potentially even opening up even more than regulatory matters. So to us, I think for Opera, our priority has just been positioning our product to be able to take those advantages because in the end of the day, more like we are a relatively small player yet, but the potential is huge. We have like compared with our market share. For instance, we have a good percent of market share with the browser, but then if you look at some bigger player like Google, like it's $2,000,000,000 company, even 1% of it is $20,000,000,000 right?

Speaker 2

We're only like 1,000,000,000. So we feel that there are at least 10x, 20x potentials we can do if we capture these shifting paradigms, which that's our focus. But we are very happy that that's actually in line with some regulatory matters. Well, there seems to be want to move to the same direction that perhaps they want this seems to be more diversified into more independent companies like us. And I think that's what we feel a bit appreciative.

Speaker 2

Yes, so around those. And then I think to your second question, which is a bit related, right? So I think in general, AI, it seems on the public, although, like it seems to be quite down a little bit because there's no G55 yet or whatever. But then the way we see it is that actually the application of AI has actually moving almost into day to day stuff more commonly than people perhaps thought, right? Like again, as an example, many of those monetization officials, they are actually already using AI to be able to help assist to be able to identify to give you the right two foundations.

Speaker 2

And even though some people may not even be aware that's actually based on G and AI, right? So I think like we saw this, I think a bit across the industry that even though like maybe there are some fire down or whatever in the consumer field, the application of this is actually more penetrating and have more impact on asset day to day stuff and all the way to the revenue. So I think that's what we see and that's what we're quite excited about.

Speaker 1

Thank you.

Operator

Thank you. Our next question will come from Lance Vitanza with TD Cowen. Please go ahead.

Speaker 6

Hi, thanks guys and congratulations on another strong quarter. Just to start to stick with the AI theme, I'm wondering about and thank you for all of the detail on what you're doing, where you're focused and how that's creating value for your publishing partners and your advertising customers as well as your user base. But I'm wondering about the impact these initiatives and the work that you're doing, the impact that might have on your cost structure. Are you finding it more expensive to operate either in absolute dollar terms or as a percent of revenue? And to be clear, I'm really trying to focus here on OpEx, if we can leave the AI cluster in Iceland out of it for now.

Speaker 3

Go ahead, Son.

Speaker 2

Okay. So, yes, I think I'll jump in both and then further can also add a bit, right. So, like I think I have to say that I think that's also what we have been very careful about because of course you saw so many other companies like the Navigator 7 or whatever, they spend $1,000,000,000,000 of dollars, right, to try to invest in architecture or whatever. So I think for us, we have been quite clear in a spot, right? Like I think we don't want to make tools.

Speaker 2

It's also very hard for us to compete in those basic fundamental model, language model level, because we like there's no point for us as a scale, we're a customer company to try and reinvent the wheel. So I think we have been very smart in choosing a possible like because majority of the cost is actually on training the basic models, making sure it works, right. So while the extra deducting part of it is not that costly, if you have the right infrastructure. So I think our focus is that we don't really do the most heavy lifting in terms of training the basic models, which is just cost way too much. But then we focus on how to work with partners and even open source models, which doesn't cost anything and host it in a very closely effective way.

Speaker 2

And that's our authentic infrastructure as we come into play by just by allowing deducting, which is cost a lot less than you can want to trim it and then provide that as a very valuable service to the users. And then also when we are asked to provide it to the users, we are optimizing on how we can make monetizable contributions, right? For instance, recommendation of, hey, this perhaps is a product that you want to try. This perhaps is the context of what you might be interested in on particular search links upon where, of course, demand where African paid. So I think so far, we have been quite disciplined on those and the result has been good.

Speaker 2

That is very limited impact on the OpEx and the revenue upside is already demonstrated in our numbers. I think we're part of the same trend. There will probably be more usage in the second half And then when the units are picking up even more, especially when you come up more or whatever. But I think net net, it will definitely be our positive for us.

Speaker 6

And then actually turning to Iceland, and I remember that it was a $19,000,000 investment, but I kind of lost track of exactly when that went live. And I'm just wondering if you could talk about to the extent that that's up and running and been up and running, have you seen that specific investment sort of generating returns for you, so to speak? Is that helping facilitate the work that you have called out that you're doing in AI?

Speaker 2

Yes. So yes, yes. So yes, yes. So as mentioned earlier, I'm quite proud of that set ups. It's still the last small company, but it's ranked I think by June it's ranked as the 88 most powerful supercomputers, which 4,400 in the world, which we are not 4,400 company in the world.

Speaker 2

So quite proud that we actually have that computing power build up. So yes, it's been operational since Q2 roughly. And then yes, so we have been using it, as I mentioned, on various fine tune tasks, not to train in the basic models, we don't do that, but we use it as a very efficiently in the fine tunings and we actually use it also hosting various open source models, where we actually call it the cloud hosting solutions for those open source language models and provide it to the end users. So we're still working on that. I think it's still a bit on the stage just because we have been operating only for a few months.

Speaker 2

But I think by second half of this year, we will see probably even bigger impact of it. And yes, I think it has already been able to generate revenues by our calculations, probably ROI positive. So I think that seems a very good investment. But then, yes, I think we have actually big hold on this to generate even further growth in the second half and also into next year.

Speaker 6

Great. And then if I could just get one more question in. Regarding any expected impact on search revenue from the Google antitrust ruling. I mean, I'm guessing the earliest that you could see any impact would be 2026 or maybe even 2027. But should investors be girding for some kind of eventual step function down in search revenue?

Speaker 6

Is that sort of out on the horizon someday?

Speaker 2

Yes. So it's a very good question. So like I think maybe I'll just say that like again, I think Google probably will be able to answer some of those things, but it's a bit like this, right? So first of all, my thinking has just been that I think like in general, high level or like maybe from a high level sense, right? So in the end of the day, I don't think we care if it's social revenue, whatever revenue, we care that we get paid.

Speaker 2

And high level principle, I think that as far as that everybody seems to be more and more consider that this is a browser traffic, a default position in a browser is very relevant, very important. More important actually than most people thought then I believe we should have a chance to be paid more, right? I don't care what that quote, but we should be paid more. I think that's a general principle. And as I mentioned also a bit earlier that, I think actually the bigger picture, as I agree with you, the particular case with Google probably drags on for some time.

Speaker 2

But I think what we as a company focus on is actually the bigger paradigm shifting, which is I mean, this is like the whole thing is changing beyond search, right? Because now all the advertisers are talking about pre search, post search, high intent events, retail media, everything of those are actually based on browser. So I think we're actually more motivated to keep skewing our product, keep innovating, keep designing our product to capture those not only search, but also even beyond search and post search as for totality with the health of AI. That's actually what we see a major increase of e commerce revenue as Frode has commented. We have to already see a major increase in Q2 and we'll definitely see more increase in Q3 and even forward in Q4, which is the hardest thing in the year, right?

Speaker 2

So that's very fascinating to see. So essentially, you can consider this almost as previously, many of those things go to search by like natural everybody do it. But now, search is fine, but actually they even want to directly go to us and then try to engage them directly, which was of course positive. So we work with other partners on those things. So I think those are things really exciting.

Speaker 2

And then so in the next half a year, 1 year to come, you're probably seeing more activities around this field on top of SALT anyway. So and this actually might have bigger impact for totality. So that's what we think of it at this point.

Speaker 6

Great. Thanks guys. Appreciate the answers.

Operator

Thank you. Our next question will come from Mark Argento with Lake Street. Please go ahead.

Speaker 7

Hey, good morning guys. Just a couple of quick ones. 1, in terms of the Opera GX browser, I mean, it's just amazing how that continues to grow. I think it was up over 27% in the quarter. Can you talk a little bit about that 30,000,000 monthly active users?

Speaker 7

How many are kind of Western versus non Western markets? And kind of how do you see that the long term opportunity there play out because it just continues to grow kind of beyond our

Speaker 2

expectations. Anshul, do you want to comment about it?

Speaker 3

Yes, I can do that. In terms of the user base mix, GX is actually quite evenly split between Western and non Western, but with a substantially better monetization, well, in both categories and also narrower gap between non Western and Western monetization. Still Western is far more better monetized than non Western, but the non Western user base are relatively more affluent or at least monetizable than what we see in general in the markets. So that I would say that is an exposure to Western markets that is somewhat ahead of our Opera 1 flagship and well ahead naturally of our user base as a whole where 17% of our users are Western.

Speaker 7

That's helpful. And have you guys sat back and done any work in terms of trying to size that market? I mean, is it multiples of size of what it is today for you guys? Or how should we be thinking about the longer term opportunity

Speaker 3

there? I mean, for now, we remain very enthusiastic about that product. It still has a lot of headroom, we believe. We have a slide in our corporate presentation that tries to indicate a little bit how we see the market, but we don't have any very defined ultimate end state ambition. Right now, we just want to continue to cultivate the growth model.

Speaker 2

Yes. Maybe I'll just add a bit there, right? So like if you look at the combination of a bit younger audience and then with Game Off, that overlap is probably talking about the total addressable market is probably like 1,000,000,000 people. And then even if we just have a percent of it, size of percent of it, now we're actually the only browser there, which addresses the market. We feel that the total market addressable is probably 2 100000000 or 3 100000000.

Speaker 2

I think there's at least 10 times potential that we can reach for this audience and especially when they are growing and they stick with us and then there's more younger audiences coming in, right? So I think, yes, so in short, I think there's definitely 10 times growth potential that we can address. So like again, we're very enthusiastic in a lot of actions around it just to bigger campaigns, ambitions, I think that around those things.

Speaker 7

That's helpful. And then just one quick follow-up on the EMA discussion. Can you just walk us through the actual mechanics? Some obviously you guys continue to benefit from that in Q2. But does the user get prompted once a quarter, once a year or just on the firing up of the device?

Speaker 7

I'm just trying to better understand how long or the benefit could persist for you guys in terms of seeing some incremental uses come from that new law or that new rule?

Speaker 2

Yes. So I think okay, so the answer process, say for iOS, for instance, is an ongoing process. I don't think that's finished. That's still between EU and Apple, for instance. They're still trying to work around the very mid day of my adults, right?

Speaker 2

Like what's the best approach is for Apple to actually allow so by the browsers to be actually functioning well and how should Apple open up, right? So it's not settled yet. It's still in discussions. We're very actively in that process. But I think the major contribution is actually on the people awareness that like people feel that, oh, now actually everybody is saying and even officially people are saying that you should definitely try also alternative browsers that are out there, it's actually possible.

Speaker 2

And it's a bit unlike maybe unlike what I was saying elsewhere that it's actually completely solid and even the EU are actually advocating, right. So I think those impact in general has largely opened up awareness. And also on top of course, there will be way to do that, there will be continuous actions to actually have also actual real impact on top of Choice Screen. There will be some other requirement to say that, hey, Apple, you should be able to allow browser to submit their own engine, which is still not allowed at this point, unless you submit some very strange contract, which nobody does. So like all of this is going to happen.

Speaker 2

So happy process around it. But as I mentioned, I think the sole user awareness of it and then also the sponsoring of relevant governments are actually helpful to have people feel that, okay, now I actually have a choice and I should demonstrate it out. And that has been very helpful to our growth still.

Speaker 7

Great. Thanks, guys. Good luck in the second half.

Operator

Thank you. Our next question will come from Alicia Yap with Citi. Please go ahead.

Speaker 8

Hi. Good evening management. Thanks for taking my questions. Congrats on the solid result. Two questions.

Speaker 8

One is that I saw that Opera News obviously emerged as the number 2 app in Brazilian News Ecosystem. And just wonder how management think about the future business opportunity in LatAm? And then with user metrics and advertising monetization opportunity. So do you think LATAM could actually attract relatively higher ARPU per user for your ad business compared to other emerging markets? Then second question is that can you elaborate a little bit some of the new features of the GX browser and how do you think that will help and translate to future monetization upside?

Speaker 8

Thank you.

Speaker 2

Sure. Yes, I think actually LATAM is one of the fastest growing market for us. I think GX is always very big in LATAM. It's just because, say, Brazilian users did they love to play games. So they really embrace the GX, but also like our regular browser, our news app or whatever are also playing big in LatAm, especially Brazil, but also we also see similar in Mexico and a few other countries in the region.

Speaker 2

So yes, we actually have high hope on the region. We actually have entity there established. We are building up teams and it will grow faster, right? So I'm relatively optimistic. I think it will be as influential as some of the other fast growing emerging markets that we see elsewhere.

Speaker 2

So quite excited. And then when it comes to GX, I think we have been we will actually have some major launches in the second half like we will have the next generation of GX launching. It's already available in the audiobook version, so you can try it. We have completely redesigned of the whole UI, of the whole user experience, of the modem and the customization function, right. So it's actually a major update in the second half, which we remain very excited.

Speaker 2

And on top, I think we have also been able to move forward our many services within GX, like GX Store, which provide the most download has been super successful. So we're now actually working with some hardware windows, some of those to be able to run the store and provide you all those gaming gadgets and items, which can be quite relevant and exciting. We have also have GX Gaming for those, which have also been now more and more popular and helpful, which that actually prompts us to work with all those big gaming studios like CD Projekt Red for the more than potentially we now also have some other potential corporations. So I actually feel more like we also have working with some popular titles, games to come. And I think you'll actually see a lot more announcement in the second half of this year, which will be very exciting projects.

Speaker 8

Thank you.

Operator

Thank you. This does conclude our question and answer session. I would like to turn the call back to Song Lin for any additional or closing remarks.

Speaker 2

Sure. I think on behalf of the management team, thank you all for joining us today in the volatile times. We have been looking forward to coming out and confirming Opera's continued the tracking and continued excitement for the way ahead. We'll reconnect in just over 2 months with our Q3 release, and we'll work hard to bring you more good news there. Again, thank you all for your time, and have a good rest of your day.

Operator

This does conclude today's call. We thank you for your participation. You may disconnect at any time.

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Earnings Conference Call
Opera Q2 2024
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