Good day, everyone and welcome to Opera’s First Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] I would now like to hand it over to Mr. Derrick Nueman, Opera’s Head of Investor Relations to open the call.

Thank you and welcome to Opera’s first quarter 2019 earnings call. Together with me today are our CFO, Frode Jacobsen and our COO, Song Lin. Before we begin, I refer you to the Safe Harbor statement in the company’s earnings release, which also applied to the conference call today as management will make forward-looking statements. Our commentary today will also include non-IFRS financial measures. We believe that the use of these non-IFRS 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, where they substitute for financial information prepared in accordance with IFRS. Reconciliations between IFRS and non-IFRS metrics for our reported results can be found in our press release that was issued earlier today. A copy of which can be found on our Investor Relations website. With that, it is now my pleasure to turn over the call to our CFO, Frode Jacobsen.

Thanks, Derrick and good morning, afternoon and evening everyone. We are excited to share our results today and to talk about the ambitions we have to accelerate our growth trajectory. But first, we had a record first quarter, highlighting our continued execution and growth. Let me go through the highlights. First, revenue grew 30% year-over-year to a new all-time high exceeding the top end of our guidance. Second, our user base hit new all-time highs as well and our total MAUs now exceed $350 million. Third, we moved aggressively to capitalize on the large opportunities in front of us investing more to accelerate long-term growth. And four, while investing in growth, we still exceeded the top end of our adjusted EBITDA guidance range. And finally, these strong results and our plans for the year have enabled us to raise our full year revenue guidance. As we discussed last quarter, we are focused on two meaningful opportunities. First, we want to build on our strong position, focusing in particular on Africa and emerging Asian countries to create leadership beyond browsers. Second, we are growing our browser user base in targeted markets where we think a differentiated offering and high monetization will lead to financial upside. Because we believe these opportunities are so large, we will be putting more resources into them in the short-term. So now, let me talk about the opportunities in more detail. First, starting with Africa, the long-term opportunity is enormous. Africa’s population is 1.2 billion people and growing rapidly. Internet penetration is still low, but growing even faster and GDP growth is outpacing most developed markets. Additionally, Africa relies heavily on mobile for internet access. As a result, our strong mobile footprint carries even greater strategic potential and allows us to capitalize on opportunities that don’t exist…

Thank you, Frode and hi, everyone. Good day. For Q1 2019, we are pleased with our strong user growth and product innovation. In particular, we did evolve the growth in our smartphone browser, PC browser and the new user bases both on a sequential and year-over-year basis. We now have 222 million average active smartphone users and 65 million average PC users. I will get into more details on both shortly, but let me start with one of our rapidly growing strategic initiatives, Opera News. Opera News, our AI-based content platform achieved an important milestone this past quarter exceeding 150 million monthly active users. Perhaps more importantly, users of our standalone news app increased 52% versus last quarter to almost 32 million. This is significant growth independent of our browsers. We are very proud. There are a couple of factors driving this, including the launch of Opera News local initiatives in new countries, specifically much of North Africa, including Egypt, French-speaking African countries, our cities for expansion in India, Indonesia and for the benefit from our video functionality is complete. Despite our rapid growth, we think we are still very early in our opportunity. Our plans for Opera News are as aggressive as ever and nicely built with these large addressable markets across Africa and South Asia. On the browser side, we have continued to drive growth. Our PC monthly active users has increased 14% in a mature market and smartphone browser MAU has increased 4% year-over-year based on an already very large user base. Again, our browser efforts are always focused on innovation. For instance, Opera for Android, which is our high-end browser, has saw year-over-year growth of 38% and sequential growth of 15%. Our product differentiation continued to focus on privacy and security, which is very attractive to…

Thanks, Song. Let me now get into the quarter and guidance and then we will open it up for questions. Opera had a record revenue quarter reaching $51.3 million, up 30% versus the year ago quarter. Search revenue represented 40% of the total or $20.6 million, up 2% year-over-year or up 5% on a constant currency basis. As communicated over the past year, while we expect Search to continue to grow, we expect it to become the smaller share of our revenue over time. Search is already a pretty well optimized revenue source for us with the revenue as a function of our search partners monetization as well as our own browser user base footprint. Advertising revenue was 29% of the total or $14.1 million, up 10% year-over-year. This growth was driven by increased user numbers as we have been prioritizing user growth over monetization. Also, we are using our advertising inventory to promote OKash resulting in record fin-tech revenue. Looking ahead, our increased focus on monetization gives us confidence that the year-over-year advertising revenue growth rates will accelerate. Fin-tech revenue, which is a new revenue category, represented 13% of total revenue or $6.5 million. This scaled significantly from the fourth quarter when we acquired OKash and we expect it to be a growing percentage of revenue going forward. Retail revenue represented 13% of total or $6.8 million, in other words, quite stable versus last quarter. We continue to expect retail revenue to remain at current levels while we explore a wider retail opportunity. The technology licensing and other revenue category represented 6% of the total or $3.3 million. Total operating expenses were $45.8 million in the first quarter and I will go through the main components. Compensation expenses were $11.1 million flat year-over-year. Within the total, cash-based compensation was…

[Operator Instructions] Our first question comes from the line of Hillman Chan of Citigroup. Your line is open.

Hello, Lin Song, Frode and Derrick. Thank you very much for taking my question. I have a couple of questions here. So first one is on the Opera News MAU. We noticed a very strong sequential growth in the spend on news app MAU and you also shared in your prepared remarks about the focus of these new markets including Nigeria, Kenya, Ivory Coast and also to some French speaking African countries, and could you give us more granularity into where these new MAUs are coming from exactly and how are the ARPU of these new MAUs as well as the user behavior of this new MAUs compared to the existing MAUs that we have last year. So that’s my first question. And my second question is on the incremental marketing investments of $35 million to $40 million. I think you put down a little bit on how we go about spending the money, but still if you can give us more granularity by geography and product lines, it would be helpful. And also how should we think about the key KPI that we are looking to achieve with these incremental marketing investments, if there is something that you can share that would be helpful as well? And then I have another question later on the Opera Ads. Thank you.

Song, why don’t you?

Yes, sure. So, hi, Hillman. Good to hear from you. This is Song Lin.

Hi.

I think I will try to first address your first question. The first question you are having on Opera News, so yes, yes, we have been seeing very strong growth in Opera News in the MAU. I would say so you are asking a bit about the granularities. So I think in short we see both strong growths in Africa as well as the South Asia, Southeast Asia. So I think they pretty much grow at similar level. I would say, yes, so it’s that – I think, yes. So in terms of – you also asked about ARPU in comparison, so I would almost say that in those regions our first focus is actually around building up the user base. However, that being said we actually have seen a very strong ARPU growth both in existing countries like Nigeria, Kenya where we are already quite big, but we also see very strong growth in India, Indonesia which is purely material app market anyway, so, yes. So I think at high level where we see good potential there. I think that’s also why we decided to be aggressive in user acquisition, because we think now it’s the right time for us to be able to do it. Yes, I hope that will answer your question.

Yes, thank you. And what about the second question, it is on the incremental marketing investment?

So, Frode, you want to?

Yes, maybe. Hi, Hillman, I will say a few words about that. So first I would say News is the main part of it. That is the most strategic aspects of our investments this year. We also as announced previously see opportunity to increase distribution spend related to our browsers, and that represents sort of more an opportunity to scale the business where we see a good financial opportunity. You asked about sort of return on investment the multiple, so Lin talked a lot today about our work on monetizing Opera News which is critical. You know that is a scenario where we’re not talking sort of percentage improvements we are talking levers with multiple times over improvements. So without getting too specific, I mean, the plans we are working on now has us going to sort of closer to could be 10x the current per user monetization relative to where we are today. So just to speak a little bit about sort of the – what feeds the potential that we are going after.

Got it, got it and thank you. So, my another question will be on the Opera Ads. So noticing it is just newly launched recently but still if you can also share more intuitive strategy with this business and how we should think about the contribution to our Ads business in the – maybe in 1 year or in the longer term in terms of utilizing inventories or help raising the cost – the ECPM with these Opera Ads? That would be helpful.

Yes. Hi, Hillman. This is Song Lin. I think I’ll try to comment a bit on Opera Ads. Perhaps a bit more on the product itself and technology and Frode can also comment a bit on potential financial impact. So yes, internally we actually think this is a very important step for us by actually launching Opera Ads initiative. Just to clarify you with that, like we are always be able to monetize on our inventory based on Opera News inside the browser and as a stand-alone app. We already see very good growth in the past quarters as we also see that in the Frode’s reports. However, what’s been differentiating about launching Opera Ads is that Opera Ads actually is the first time allow the advertisers to directly – advertiser or ad agencies to directly go to Opera Ads platform to be able to reach those Opera users compared to if they have to go to Facebook or Google to [indiscernible] to reach our user base. So I would say previously we focused a bit more on monetization which we have achieved some good results. But Opera Ads is a step further that especially in the regions where we are very strong, like in Africa, we are able to be able to allow advertisers to directly engage with the massive user base that who have email. For instance, we said in our press release that we have pilot launch of this in Nigeria which I we actually went there last week to address the launch of Opera Ads with local ad agency, advertisers et cetera. They all feel very excited because, again it’s the first time ever that they are able to be able to use our platform to reach all those user base. So, I think that’s the…

Maybe just to chime into on that, and why we see a potential like that. If you just break it down, the advertising revenue of course it consists of sort of how many impressions you show per user and the ECPMs obtained and of course the user base. And if we look at it right now for the Opera News inventory, of course, we present it in the browser and in the dedicated app. And the ad load in the dedicated app on sort of the per user basis, is still a minority compared to what it is in the browser, even though time spent on use in the dedicated app is significantly higher in the dedicated app. So that is why even this volume itself represent several multiple opportunities, and then pricing with everything we’re doing we see potential there. And of course, it’s all multiplied as you look at the per user potential and that is why we see that over time, we can get to such dramatic increases. And of course, even over just the past quarter when you look at it on a per user basis, monetization was up 30% sequentially.

Got it. Got it. Thank you, Song Lin and Frode. And also, to ask a bit more on the Opera News standalone app, so with the monetization patent only in Asia, how is the contribution to your advertising revenue so far in the stand-alone news app?

You mean the Opera News app. How much is that contributing today?

Yes.

I’ll maybe I can chime in here. We haven’t at least for now disclosed revenues by products. Of course, it’s growing in importance in terms of user count and we are very ambitious as also laid out with our investments when it comes to this product. But of course, it still represents 15% of our mobile user base and a bit less than when you will also include the PC users and as we’ve gone through the ad load of the product that has just not been the priority. So, it’s relatively limited as the starting points with the biggest product upside we are seeing for the periods to come.

Got it, okay. And...

Now it’s obvious I guess I can comment, I guess I can just chime in a bit. I think internally we’re actually quite pleased with the growth of Opera News especially on the ECPM point of view because we see it’s already performs a lot below in comparison to say the same news obvious when it comes to our browser. So, I think we are quite pleased about it. That’s actually one of the major reasons why we are also thinking now it’s material to launch Opera Ads, you know the key regions for instance. In terms of absolute revenue just chiming a bit as what Frode has been saying that still it’s a, smaller percentages, partly it’s also because we still constantly choose to focus a bit more on user growth and product engagements also in line with the question you have asked [indiscernible] that for instance. We’re now still intentionally choose to say limiting the user exposure to the ads when it comes to new users in those new origins like those like African new users or new users in South Asia or Southeast Asia, it’s just because we think it’s still more important we allow them to spend more time on the news app, and then to be familiar with it to add the engagement and retention and then we will show ads afterwards when they are becoming more familiar. So, overall, we almost intentionally lower down the app modes especially on stand-alone client, especially when they are new, but we now we’re able to have very fine control of when to show them and what time and what’s ad load. And we will be able to control this and the right timing we will be able to tell you then. So, I think that’s a chiming a bit about what Frode had being saying that in terms of ads load is probably still smaller percentages. Well we think there’s a big potential to grow afterwards.

Got it. Thank you. And talking about OKash, we are excited to see the run rate to the revenue generated from this product. And you also mentioned that some of the traffic is on further from our Opera browsers news app as well. And so that also come as a cost, and could you also share about how we should think about the investment on OKash from both marketing side as well as some of these other costs of revenue and the availability of it as possible?

Yes. Hillman, I’ll chime in here. So, to just clarify the first point that is correct as you are saying we are using the Opera browser inventory to sort of promote and raise awareness around the OKash app and that service offering. That is something prior to Opera acquiring the business that would have been advertising revenue for us, and now of course, we made the decision late last year to take over that business. And we’re very pleased with how we have scaled it from there. So, if you in one sense, we think of both the advertising and the fintech as user generated revenues that we initiate and of course if you add them up, we have increased from Q4 to Q1 even in spite of seasonality. So very, very pleased with the results that we’ve obtained for the micro lending business. It was it’s been even better than we expected when it comes to the cost side. So, there’s really limited third party marketing as you see in sort of segment note in our financials. It’s about $0.5 million in the quarter. We don’t really think that’s going to scale a lot. And then when you look at let’s say the more variable cost components of OKash, namely cost of revenue, but also accruals for loan losses, they are in the low 30s as a percentage of revenue, and that’s roughly where we expect them to remain, plus minus 5 points.

Okay. Thank you. And last...

Sorry just to chiming in a bit, I think second on what Frode had been saying that from I think it’s more like from product and technology point of view, what we are trying to say here is more like, of course, all of those will probably not be able to happen if we don’t have such a strong position of browser and news. But then we are also very agile in looking at all those important verticals, that if we feel that certain verticals in say our key markets like Africa will be beneficial for us to do it ourselves. We’ll make it more profitable. Then of course we would also consider to enter into that, but that of course all based on the strong presence we had in Browser and news. For instance, we launched microlending in Kenya which is now the only country. But then if you look in Kenya Google Play you will be able to see that out of the top ten Google Play apps across, both we have full apps there. Both news, browser but also those fintech apps which is almost a strong testify of the influence that we are having there. We will probably also replicate the similar model in all the other countries where we are strong in those key markets. And as Frode said it’s highly profitable and we’re pleased about that.

Got it. Thank you. And lastly just on the Crypto Wallet that we are introducing to our browsers. Could you also share more on the longer-term strategy with the Crypto Wallet business, how should we think about the monetization if any with this? Thank you.

Yes understood. So, this is Song Lin here Hillman. Yes. So, I think I would almost say that for that we see that as the more user engagement tools because we are actually as a browser company where we do support Web 3.0. We do support the concept of the app distributed apps. We think that is potentially going to be very interesting in the future. We think this is also very interesting toward a specific segment of users especially say in Europe which is a very in line with our core markets from say PC or Opera for Android where the wallet is available. So, I would almost say that for that part it’s I think it’s more a product play. It’s more like a user retention play, it’s a user segmentation play that we think is highly appealing to the core user base that we have in Europe in particular and also in other developed markets. We have not so far focusing heavily on the potential monetization aspect of it. We do see a strong interest in that field. We have many interesting bits and coming in but for us I think it will remain very clear product play at the moment.

Got it. Thank you very much for the comments. That’s very helpful. Thank you, Song Lin, Frode and Derrick. Thank you.

Thanks Hillman.

Thanks Hillman and good questions.

Thank you. [Operator Instructions]

Okay. This is Frode here. It sounds like we’re we have covered the questions. So, I would just like to thank everyone again for joining this call. Again, we are very excited about this quarter and the growth that is ahead of us. And we look forward to updating you on our progress. So have a good day everyone. And yes, alright, thank you.

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program. You may now disconnect. Everyone, have a great day.