Opera - Q2 2024

Transcript

Operator (participant)

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 speaker's presentation, there will be a question-and-answer session. To ask a question during this period, you will need to press star one on your telephone keypad. 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 need operator assistance, please press star zero. I would now like to turn the call over to your speaker today, Matt Wolfson, Head of Investor Relations. Please begin.

Matt Wolfson (VP of Investor Relations)

Thank you for joining us. This morning, I am joined by our Co-CEO, Song Lin, and our CFO, Frode 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. 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.

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 second quarter operational highlights and strategy. And then Frode Jacobsen will discuss our financials and expectations going forward. Song?

Song Lin (Co-CEO)

Thank you, Matt, and thanks to everyone joining us today, for a business update and more color on our second quarter. Our second quarter results were ahead of all expectations, coming in above the high end 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 second quarter, revenue was $110 million, growing at 17% year-over-year. adjusted EBITDA was $27 million, translating to a margin of 24% and particular strength versus our guidance of $22 million-$25 million. In addition to the revenue over performance, our profitability benefited from even tighter focus on the most monetizable users as the quarter progressed when it comes to our marketing spends.

As a result, we grow ARPU 25% year-over-year, now an annualized $1.46 average across our products and geographies. Advertising revenue was $65 million 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 and 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 AdTech platform within Opera Ads, while creating value to both partners and end users.

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 million 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.

Being an independent browser provider, we appreciate the broader recognition of the value and 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, we 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 second quarter, where we saw significant strength in new user adoption of both 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 regulatory matters, technology and services evolve as well. 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 this trend, 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 as the main 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. 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 unique products and improved experiences, and stay ahead of competition. Last year, we launched Opera One, our fully redesigned flagship browser, and in early Q2, we were proud to announce that Opera One received the prestigious iF Design Award 2024. We certainly lead with visuals and functionality, but when users have, our browsers must also look beautiful and provide elegant flows.

The next major upgrade of Opera One, referred to as R2, is now available for public testing and will roll out later this year. 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 Aria. With the R2 release, we continue to build on the modular design introduced in Opera One and have a new split screen mode that allows users to multitask more easily between two open tabs. Finally, R2 introduces a new type of theme support, where users can customize their browser with a set of high-quality dynamic themes that provide the immersive experiences, further differentiating the visual appearance of our browsers. Last week, we also launched Opera One for iOS, prioritized as a direct consequence of the increased opportunity to compete on the platform.

Compared with Safari, Opera users can engage directly with the Aria browser AI. They can experience browsing in proper full screen and benefit from all our other integrated services, like built-in free VPN and ad 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 in the months ahead 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 2077 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. In total, there are over 7,500 different modes available for Opera GX.

In June, we launched the browser from Vought, an official collaboration browser experience with the hit TV series, The Boys, alongside the premiere of season four. While seasonality works against our product in the summertime, Opera GX added another 500,000 users in the quarter to pass 30 million MAUs, achieving a year-over-year user growth of 27%, combined with a year-over-year ARPU growth of 14%, now at $3.55 on an annualized basis. As the AI capabilities improve, the online journey of a 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.

The current landscape reminds me of how search has evolved since the 1990s and before Opera pioneered 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 bar. So now, the ability to gather information, making 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, Aria, this is a fully integrated experience that exists naturally alongside the user's existing habits. Our role in this ecosystem is not to remake the individual tools available, but rather integrating both the back and the front end to give our users choice and elevated use cases, whether through Aria or other services.

Opera itself evolves at a rapid pace, and this quarter alone, we moved multiple AI features from beta stage in our Feature Drop program and into our flagship browsers, including Command Line prompts, page context awareness, as well as voice and image generation capabilities. 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 thing to have always-on 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 a scaled business, while solid financials allow us to invest in exciting products and healthy continued growth. With strength building throughout the year, we are excited to embark on the second half of 2024 and what comes next. With that, I'll turn it over to Frode to dive deeper into the Q numbers and our guidance.

Frode Jacobsen (CFO)

Thank you, Song. Now, four 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 Song Lin covered, and more to come. Our financial results once again exceeded expectations, even the top of our ranges. In fact, over our six-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 first quarter of 2020. 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 first year of COVID. 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-based dynamics. 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 eight 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. 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 $8.6 million, also in line with expectations. Tax cost of $2.8 million was 11% of adjusted EBITDA. In the prior quarter, our tax cost was elevated due to FX impacts on our tax assets. 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 $17.4 million in the quarter, representing 65% of adjusted EBITDA.

Free cash flow from operations was $13.5 million, or 51% of adjusted EBITDA. This year, annual bonuses were paid in Q2, as opposed to in the first quarter of 2023, representing a quarter-specific headwind. Looking at the first half of 2024 as a whole, our conversion from adjusted EBITDA to operating cash flow stands at 94%. 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 the special $19 million 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 $35.4 million in total value. Payment was made in early July, consisting of $27.6 million in cash and $7.8 million offset against the remainder of our receivable related to the sale of StarX in 2022, meaning that this receivable is now fully settled. 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 million-$467 million, up from our prior guidance of $454 million-$465 million, and translating to 17% year-over-year growth at the midpoint. Our trajectory allows us to raise guidance beyond the Q2 overperformance and also narrow the range to reflect a solidified outlook for the second half. 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 raise adjusted EBITDA guidance to $110 million-$113 million for the year, up from our prior guidance of $106 million-$110 million, 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 backloaded 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 One 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. For the third quarter, we guide revenue of $119 million-121 million, or 17% year-over-year growth at the midpoint.

We got adjusted EBITDA of $27 million-$28.5 million, or a 23% margin at the midpoints. That equates to OpEx pre-adjusted EBITDA of $92 million at the midpoints, in which the sequential increase of $9 million is predominantly driven by incremental provisions for marketing spend. We also add just over a percentage point of cost of revenue in other 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 second quarter, both in dollars and naturally then relative to revenue.

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 tick down, largely offsetting one another, but implying forty 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 (participant)

Thank you. As a reminder, to ask a question, please press star one on your telephone keypad. To withdraw your question, press the pound key. When posing your question, we ask that you pick up your handset for optimal sound quality. Again, to ask a question, please press star one. At this time, we'll take our first question from Naved Khan with B. Riley Securities. Please go ahead.

Naved Khan (Managing Director)

Yeah, great, thank you. A couple of questions from me. Maybe one for Song. So Song, you said that maybe, you know, you think that maybe the gatekeeper definition has been applied too narrowly. Maybe can you just give us your thoughts on how you think, you know, regulators should kind of think about applying it, and where do you want to see it go in terms of implementation? And maybe the second question is for Frode. 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.

Song Lin (Co-CEO)

Sure. I'll comment a bit about that. So yeah, I think that, you know, more like I think that's in relation to the DMA, right? So more like I think the DMA has been helpful on demonstrating to independent player like us, right, where we got a lot of exposure on particular the iOS platforms. But I think, you know, of course, there are some other platforms which is also relevant. And, you know, for instance, I think in this particular case, including Windows among others, which also the sort of more like a gatekeeper definitions. And then for now, it applies to Windows, but it doesn't really apply to some other default browser. They are like like Microsoft Edge.

which we think is also, you know, by actually, by the definition, it actually should apply among others. So yeah. So I think in general, our comment is just more like we are, we're actually working very closely with the EU on this as a European company. And we also have given opinions and ideas of how, you know, how moving forward, this is especially seeing that the EU jurisdiction 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. So I think that's what we're trying to refer to. And yeah, so more like I think there are some separate press release which we have issued around the matter.

And we'll just continue to work closely with EU and with all the related parties to see how we can build on strength and how we can have better opportunity, not only in iOS, which I think it's great, but also in broader platforms. Yeah. So I think the general trend is in general quite positive. And we think there are similar things which are happening around the world, not only EU, which definitely are gonna be positive to independent player like us.

Frode Jacobsen (CFO)

Naved, I'll chime in on the second part of the question on the trend within e-commerce. So 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.

Naved Khan (Managing Director)

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 a seasonality there, or if there's more marketing dollars you could have spent, or something getting pushed from Q2 into Q3? Maybe help us understand that. Thank you.

Frode Jacobsen (CFO)

Yeah, 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. 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.

Naved Khan (Managing Director)

Super helpful. Thank you, guys.

Operator (participant)

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

Eric Sheridan (Managing Director)

Thanks so much for taking the questions. Maybe first building on Naved's question on the EU, but widening out a little bit. You know, 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, 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, you know, things you've learned from the way, users have embraced, AI in the early days? Thanks so much.

Song Lin (Co-CEO)

Sure. I'll comment a bit on it, right, so I think I agree that I think it's, you know, maybe I'll just comment that I think there's perhaps a bigger shift. So you know, there's definitely regulatory shifts, which actually, in general, tends to be, you know, forcing a more opening up of the platforms. You know, may it be iOS, or may it be Windows or maybe others, which is definitely beneficial. So that, of course, indirectly, is what we are, you know, doing now to invest more heavily in those platforms. It just simply because previously, some of those platforms, like iOS, is too difficult, right? For some party, but now it's actually opening up.

But I think, maybe perhaps a bit more beyond that is that, you know, also the combination of AI, there's a whole paradigm shifting that, you know, like previously, you know, because just remember that previously, most of those, the high-intent user action dollars are concentrated on, you know, half of it are perhaps on search, half is on something else, is very isolated. But now, because of AI, I think more and more players starting to see that, you know, those high-intent user events, you know, can be, you know, like, 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, you know, it can, it can be pre-search, it can be post-search, you know, like Frode mentioned, e-commerce, like all of the areas we actually utilize AI actively to, you know, 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. We're willing to work with Opera on this among others," right? So I think to some extent, that potentially, you know, even opening up even more than regulatory matters.

So to us, I think for Opera, our priority has just been, you know, 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, but the potential is huge, right? Like, compared with our market share, you know, for instance, we have a few % of market share with the browser, but then if you look at some bigger player like Google or whatever, like it's $2 trillion dollar company, even 1% of it is $20 billion, right? We're only, like, $1 billion. 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 as well.

There seems to be a want to move to the same direction that, you know, perhaps they want to seem to be more diversified into more independent companies like us, and I think that's what we feel a bit appreciative. Yeah, so around those. Then I think to your second question, which is a bit related, right? So I think in general, AI, you know, it seems on the public out there, you know, like it seems to be powered down a little bit because there's no GPT-5 yet or, you know, whatever. But then the way we see it is that actually the application of AI has actually been moving almost into day-to-day stuff more commonly than people perhaps thought, right?

Like, as, like, again, as an example, many of those monetization features, we are actually already using AI to be able to help assist, to be able to identify, to give you the right recommendations. And even though some people may not even be aware, that's actually based on GenAI, right? So I think, like we saw this, I think a bit across the industry, that even though, like, maybe there's some power downs or whatever in the consumer field, the application of this is actually more penetrating and have more impact on actual day-to-day stuff and all the way up to the revenue. So I think that's what we see, and that's what we're quite excited about. Thank you.

Operator (participant)

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

Lance Vitanza (Managing Director and Senior Analyst)

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 % 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.

Frode Jacobsen (CFO)

Hey, Lance.

Song Lin (Co-CEO)

Yeah, so

Frode Jacobsen (CFO)

go ahead, Song.

Song Lin (Co-CEO)

Okay, sure. Yeah, I think I'll jump in first, and then Frode can also add a bit, right? So, like, I actually want 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, you know, the Magnificent Seven or whatever. They spend trillions of dollars, right, to try to invest in such architecture or whatever. So I think for us, we have been quite clear in the start, right? Like, I think we don't want to really make tools. It's also very hard for us to compete, you know, with the basic fundamental model, language model level.

You know, because we, like, there's no point for us as a still relatively small company to try to reinvent the wheel. So I think we have been very smart in choosing a path where, you know, like, because majority of the cost is actually on training the basic models, making sure it works, right? So while the actual 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, you know, training the basic models, which just costs way too much.

But then we focus on how to work with partners, and even you know open source models, which doesn't cost anything, and host it in a very cost-effective way, and that's our own infrastructure as we come into play, by you know just by allowing fine-tuning, which costs a lot less than if you want to train it, and then provide that as a very valuable service to the users. And then also, when we are actually providing it to the users, we are optimizing on how we can make you know monetizable contributions, right? For instance, recommendation of, Hey, this perhaps is a product that you want to try.

This perhaps is the context, what you might be interested in: click research links upon where, of course, in the end, we actually get paid. So I think so far we have been quite disciplined on those, and the result has been good. There has been very limited impact on the OpEx, and the revenue upside, well, 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, you know, so when the usage are picking up even more, especially when e-commerce come up more or whatever, but I think net-net, it will definitely be outright positive for us.

Lance Vitanza (Managing Director and Senior Analyst)

Great, thanks. That's really helpful. And then actually turning to Iceland, and I remembered that it was a $19 million investment, but I kinda 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, you know, generating, you know, returns for you, so to speak? Is that helping facilitate the work that you have called out that you're doing in AI?

Song Lin (Co-CEO)

So as mentioned earlier, we're quite proud of that setup. It's still the smallest company, but it's still ranked. I think by June, it's ranked as the eighty-eighth most powerful supercomputer, which, you know, top hundred in the world, which we're not top hundred company in the world, so quite proud that we actually have that computing power built up. So yes, it's been operational since Q2, roughly. And then, so we have been using it, as mentioned, on various, you know, fine-tune tasks.

Not to train the basic models, we don't do that, but we use it as a very efficiently in the fine-tunings, and we're actually using it to also hosting various open source models, where we actually call it the cloud, the hosting, you know, 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 early stage, it's just because we're having operated only for a few months. 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 positive. So I think that seems a very good investment.

Then, yeah, I think we have actually big hope on this to generate even further growth in the second half and also into next year.

Lance Vitanza (Managing Director and Senior Analyst)

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? Is that sort of out on the horizon someday?

Song Lin (Co-CEO)

Yeah, so it's a very good question, right? So like, I think maybe I just say that, like, again, I think Google probably in a better position to answer some of those things. But it's a bit like this, right? So first of all, my feeling 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 search or whatever revenue, we care that we get paid. And high level principle, I think that as far as that everybody seems to be more and more considered, that this is a browser traffic. 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 they're called, 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, I agree with you. The particular case with Google probably drags on for some time, 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 medias, where everything of those are actually based on browser.

So I think we're actually more motivated to, you know, keep tuning our product, keep innovating, keep designing our product to capture those, you know, not only search but also even beyond search and post search, as for totality, with the help of AI. That's actually what we see a major increase of e-commerce revenue, as Frode has commented. We actually already see a major increase in Q2, and we're definitely seeing more increase in Q3, and even forwarding Q4, which is the hottest in the year, right? So that's very fascinating to see. So essentially, you can consider this almost as previously, you know, many of those things go to search by, you know, like natural, everybody do it.

But now, you know, search is fine, but actually they even want to directly go to us and then, you know, try to engage them directly, which are of course positive. So we work with all the partners on those things. So I think those are things really exciting. And then, so in the next half a year, one year to come, you'll probably see more activities around this field, on top of search anyway. So, and this actually might have bigger impact for totality. So that's what we think of it at this point.

Lance Vitanza (Managing Director and Senior Analyst)

Great. Thanks, guys. Appreciate the answers.

Operator (participant)

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

Mark Argento (Co-Founder and President)

Hey, good morning, guys. Just a couple quick ones. One, in terms of the Opera GX browser, I mean, it's just amazing how that continues to grow. I think it was up over, was it 27% in the quarter? Talk a little bit about that 30 million monthly active users. How many are kind of, you know, Western versus non-Western markets? And kinda how do you see that, you know, the long-term opportunity there play out? Because it just continues to grow kind of beyond our expectations.

Song Lin (Co-CEO)

Frode, do you want to comment about it?

Frode Jacobsen (CFO)

Yeah, I can, 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 a narrower gap between non-Western and Western monetization. Still, Western is far more better monetized than the 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 One flagship, and well ahead, naturally, of our user base as a whole, where 17% of our users are Western.

Mark Argento (Co-Founder and President)

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, you know, multiples the size of what it is today for you guys, or how should we be thinking about the longer term opportunity there?

Frode Jacobsen (CFO)

I mean, for now, we remain very enthusiastic about that product. It's 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 mode.

Song Lin (Co-CEO)

Yeah, maybe I'll just add a bit there, right? So like, you know, if you look at the combination of, you know, a bit younger audience and then with gamers, that overlap is probably like talking about, you know, the total addressable market is probably like billion, you know, people. And then even if we just have a percent of it, you know, size of percent of it. Now, we act as the only browser there which addresses the market. We feel that the total market addressable is probably, you know, two or three, few hundred million, few hundred million. So I think, there's at least 10x potentials that we can reach for this audience, and especially when they are, you know, growing, and they stick with us, and then there's more younger audience just coming in, right?

So, in short, I think there's definitely potential growth potential that we can address. So like, again, we are very enthusiastic and a lot of actions around it, just to, you know, bigger campaigns, ambitions, as another round of those is.

Mark Argento (Co-Founder and President)

That's, that's helpful. And then just one quick follow-up on the DMA 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 initial, you know, firing up of the device? I'm just trying to better understand how long or the benefit, you know, could persist for you guys, in terms of seeing some incremental users come from that new law or that new rule.

Song Lin (Co-CEO)

Yeah. So, yeah, so for, you know, I think. Okay, so the actual process, simple, on 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 remedy among others, right? Like, what the best approach is for Apple to actually allow some other browsers to be, you know, to be actually, you know, 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 the awareness that, you know, like, people feel that, oh, now actually everybody's saying, and even officially people are saying that you should definitely try also alternative browsers. They're actually out there.

It's actually possible, and it's been unlike, maybe unlike what Apple said in, you know, as well, that it's actually completely, you know, solid, and even, you know, even the EU are actually advocating, right? So, I think those impact in general have largely opened up awareness, and then also on top, of course, there will be. We believe 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, you know, 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 gonna happen. So happy process around it.

But as I mentioned, I think the slow, you know, user awareness of it, and then also the sponsoring of, you know, of relevant governments are actually helpful to, you know, have people feel that, okay, now I actually have a choice, and I should definitely try it out. And that has been very helpful to our growth scale.

Mark Argento (Co-Founder and President)

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

Operator (participant)

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

Alicia Yap (Equity Research Analyst)

Hi. Good evening, management. Thanks for taking my questions. Congrats on the solid result. Two questions. One is that, I saw that, Opera News already emerged as the number two 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 app 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? Thank you.

Song Lin (Co-CEO)

Sure. Yeah, I think actually, LatAm is one of the fastest-growing markets for us. You know, I think GX is always very big in LatAm, just because the Brazilian users, 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 similarly in Mexico and a few other countries in the region. 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 as well.

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 actually already available in the Early Bird version, so you can try it. We've completely redesigned of the whole UI, of the whole user experience, of the modding and customization function, right? So it's actually a major update in the second half, which we remain very excited. And on top, I think we have also been able to move forward on many services within GX, like GX Store, which providing both download, has been super successful.

So we are now actually working with some, you know, even hardware vendors among others, to be able to run the store, and provide users all those, you know, gaming gadgets and items, which can be quite relevant and exciting. We have also, you know, GX gaming portals, which has also been now more and more popular and helpful, which actually prompts us to work with all those big gaming studios like CD Projekt Red, for the more than ... Potentially, we'll now also have some other potential corporations. So I actually, more like we also have, you know, working with some top material titles, games to come.

and I think you will actually see a lot more announcement in the second half of this year, which will be very exciting for GX.

Alicia Yap (Equity Research Analyst)

Thank you.

Operator (participant)

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.

Song Lin (Co-CEO)

Sure. I think, you know, on behalf of the management team, thank you all for joining us today. You know, in these volatile times, we have been looking forward to coming out and confirming Opera still continues on track, and I'll continue the excitement for the way ahead. We'll reconnect in just over two 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 (participant)

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