1Q 2017 Opera Software ASA
Agenda
- Executive Summary
- Financial Review
- Operations Review
- AdColony (Mobile Advertising)
- Closing Comments
Quarterly highlights
| Financial metric |
1Q17 (\$m) |
1Q16 (\$m) |
| Total revenue |
107.0 |
129.1 |
| Adj. EBITDA |
0.5 |
10.0 |
- AdColony revenue down
- Mix shift within Brand to Brand Performance & Programmatic (lower CPM)
- Delay in product launches
- Few hit games launched in 1Q17 vs 1Q16
- Profit (Adj. EBITDA) down due to AdColony
- Solid growth from Bemobi and SurfEasy and significant cost reduction implemented in Skyfire
Quarterly highlights
Opera Software ASA
- Weak revenue due to Performance business
- Apollo VII completed in 1Q17
-
Focus on cost and overall OPEX down from 1Q16
-
26% revenue growth, both LATAM and international growing
-
Strong growth of International subscribers
-
Solid revenue growth from direct and partner business
- Signed our first data reseller partner
-
Ramping down Opera related hosting cost
-
Very limited revenue in 1Q17
- Lower loss on operations vs 1Q16 due to cost measures
- 2 positive trials completed in 1Q17 and pipeline strong going into 2Q17
Weak 1Q17 for revenue and profit, in line with company expectations Unchanged outlook for FY 2017
Financial Review
Disclaimer
This presentation contains, and is i.a. based on, forward-looking statements regarding Opera Software ASA and its subsidiaries. These statements are based on various assumptions made by Opera Software ASA, which are beyond its control and which involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements.
Forward-looking statements may in some cases be identified by terminology such as "may", "will", "could", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential" or "continue", the negative of such terms or other comparable terminology. These forward looking statements are only predictions. Actual events or results may differ materially, and a number of factors may cause our actual results to differ materially from any such statement. Such factors include i.a. general market conditions, demand for our services, the continued attractiveness of our technology, unpredictable changes in regulations affecting our markets, market acceptance of new products and services and such other factors that may be relevant from time to time. Although we believe that the expectations and assumptions reflected in the statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievement.
Opera Software ASA makes no representation or warranty (express or implied) as to the correctness or completeness of the presentation, and neither Opera Software ASA nor any of its subsidiaries, directors or employees assumes any liability connected to the presentation and the statements made herein. Except as required by law, we undertake no obligation to update publicly any forwardlooking statements for any reason after the date of this presentation to conform these statements to actual results or to changes in our expectations. You are advised, however, to consult any further public disclosures made by us, such as filings made with the Oslo Stock Exchange or press releases.
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Opera Group 1Q: weak, as expected
- Revenue drop in 1Q led by AdColony, growth in Bemobi and SurfEasy
- Opex down YoY with cost focus in AdColony and Skyfire in particular
- Adj. EBITDA down solely due to AdColony
AdColony – Impacted by delayed products and shift to programattic
- Revenue impacted by weak performance revenue, product delays and shift to programmatic
- Opex down YoY with strict cost control
- Adj. EBITDA impacted by lower gross margin and lower revenue
Bemobi – Investing for growth
- Revenue up 26% YoY. LATAM mature and international growth offset by lower legacy revenue
- Opex growth due to international expansion
- Gross margin positively impacted by release of cost by international operator
- Adj. EBITDA up with higher revenue and gross margin
Skyfire & SurfEasy – Restructuring and Growth
- SurfEasy revenue growing, offset by Skyfire revenue declining
- OPEX down significantly in Skyfire
- Gross margin 90%+
- Adj. EBITDA still negative due to lack of scale
Cash flow – Impacted by earnouts and share repurchase
- Operating CF: USD 1.8 million
- Capex & Capitalized R&D: USD 9.5 million
- Investing & Financing: Earnout payments of USD 12.2 million and USD 9.7 million in share repurchases
- Cash end of quarter: USD 195 million, down 25 million vs 4Q16
Financial position – Strong net cash position
Financial Position Balance sheet Gross Cash Gross Debt Net Cash Earnout liabilities \$194.8 \$94.8 -\$100.0 -\$70.6 \$325.3 \$120.8 \$194.8 \$134.8 \$100.0 \$70.6 \$104.3 \$500.8 Goodwill Accounts receivables Cash Other assets Loans Earn-out liabilities Other liabilities Equity
Financial outlook – Positive view on H2 maintained
|
Q1 2017 |
FY 2017 guidance |
| Revenue |
USD
107.0 million |
USD 550-650
million |
| Adj. EBITDA (margin) |
USD
0.5 million
(0.5%) |
USD 50-70 million
(~9-11%) |
• Initiatives in AdColony, in particular, to drive growth in 2H is on track
• FY 2017 guidance unchanged
Operational Review
AdColony – Revenue down as expected in 1Q17
Revenue
Source |
Q1 2016 (\$m) |
Q1 2017 (\$m) |
Comments |
| Performance |
\$66.5 |
\$46.7 |
Delay in product launches
Impact from soft 4Q16 «halo» effect and few hit
games launched |
| Brand |
\$50.8 |
\$46.6 |
|
Managed
IO |
\$35.9 |
\$28.9 |
Decline in managed service business was largely due to the delay in
key product launches and customers' accelerated efforts with
programmatic |
| Brand Performance |
\$5.0 |
\$10.8 |
Strong growth as we continue to see brand advertisers being more
performance focused |
| Programmatic/SSP |
\$9.9 |
\$6.9 |
Legacy AdMarvel
SSP business winding down to \$1.4M (-73% YoY)
RTB-based programmatic exchange delivered \$5.5M (+17% YoY) |
| Total |
\$117.2 |
\$93.3 |
|
AdColony – Apollo on track, impact from 3Q
Elevating mobile advertising across today's hottest apps
Apollo
update |
Expected
launch |
Progress |
VII:
Improved
bidding
engine
to increase
revenue |
2Q 2017 |
Product completed,
beta testing underway, on track |
VIII: New SDK Inventory
toolkit
to increase
revenue |
3Q 2017 |
Beta testing
in 3Q17, on track |
IX: Introduce
full-screen
display
to increase
revenue |
2Q 2017 |
First campaign
live in May, 1 month
ahead
of
plan |
X: Merging
to one
platform
to reduce
costs |
1Q
2018 |
Priority
after Apollo VII-IX |
to reduce
costs
XI:
Merging
to one
portal |
1H 2018 |
Dependant on timing of
Apollo X |
AdColony
- Audience reach of 1.9b up from 1.4b in 1Q16
- Apollo launches on track to drive revenue growth in 2H 2017
- Measures to increase efficiency and reduce costs on track and underway.
Bemobi – Solid revenue growth
Making premium apps available to emerging markets
| Revenue |
Q1 2017 (\$m) |
vs
Q1 2016 |
Comments |
| LATAM |
\$10.7 |
+30% |
Strong
growth, maturing
market |
| International |
\$1.9 |
+19% |
Strong growth of Apps
Club and NDNC revenue,
offset by lower legacy
revenue (featurephone app store) |
| Total |
\$12.6 |
+26% |
|
Bemobi – Subscriber growth driving revenue and scale
- LATAM operators up from 16 in 1Q16 to 20 in 1Q17
- International operators up from 10 in 1Q16 to 29 in 1Q17
- Live with No Data, No Credit portal with 3 international operators
- Total addressable subscriber base now over 2 billion across the globe
Bemobi – Product launches driving growth
| Initiatives |
Timing |
| NDNC (No Data No Credit) Portal was improved to create better user experience. |
1Q 2017 |
| Introduced adaptive billing for better monetization |
1Q 2017 |
| Improvement in most operational metrics (subscriber acquisition and monetization) across regions |
2Q 2017- |
NoData/NoCredit
Portal launches expected in CIS, South Asia and Southeast Asia, (8-10 markets) |
2H
2017 |
| Apps Club to launch in 8+ new markets |
2H 2017 |
Skyfire – Turnaround continues
Improved internet bandwidth experience
- 4 Live operator contracts
- Completed two successful trials during the quarter with large operators, one in Europe and one in Asia. Both are now in commercial negotiations
- During the quarter, Skyfire enhanced heuristics that improve ability to optimize encrypted traffic. These features are expected to help differentiate our offering from competitors
- Continued cost focus
- Still on track for 2017; strong pipeline, but dependencies on several large deals in process of being negotiated
Fast and trustworthy VPN
- SurfEasy owned and Operated products added over 140k new paying subscribers in 1Q. This represented a 140% increase over previous quarter
- One of our larger partners began making significant gains in new customer acquisitions during 1Q. Early indications that revenues could be above forecast for the year
- We are seeing more inbound interest from new partners looking for a white labeled VPN
- SurfEasy released updates to VPN clients adding 5 new regions, improved performance and customer experience feedback
- Backend infrastructure to process Opera VPN mobile data was deployed and we signed our first data reseller partner
Executive Summary
- Per guidance, we expect revenues to be down in the first half, as we ramp up our new products and return to growth in 2nd half of the year.
- Revenues in Q1 were on plan at \$93.3M and we had an EBITDA loss of (\$2.2M) - Maintained diversity of revenues with 50% Brand / 50% Performance
- Q1 softness due to the following factors:
- Difficult comp quarter : Q1'16 was exceptionally strong for Performance
- Mix shift within Brand to Brand Performance & Programmatic (lower CPM)
- Brand decay primarily in legacy business (AdMarvel SSP)
- In Q1, we made progress on key Apollo development milestones, tripled penetration in the new 3.X SDK, introduced Vertical Video with very encouraging KPIs, while managing Gross Margins and OPEX to plan
- We believe Q1 was a low point in revenue historically lowest quarter due to seasonality of ad business - and are expecting Q2 revenue/profits to grow over Q1, but will still be soft relative to Q2 2016.
Q1 Results
Q1 2017 Revenue
• Revenues down vs. Q1'16. Biggest decreases came from Performance and, within Brand, from old AdMarvel SSP Business. Highlights included strong growth in Brand Performance and Programmatic.
| Revenue Source |
Q1 2016 |
Q1 2017 |
Change |
| Performance |
\$66.5 |
\$46.6 |
-29.9% |
| Brand |
\$50.8 |
\$46.7 |
-8.0% |
| Managed IO |
\$35.9 |
\$29.0 |
-19.2% |
Brand
Performance |
\$5.0 |
\$10.8 |
+116.0% |
| Programmatic/SSP |
\$9.9 |
\$6.9 |
-30% |
| TOTAL |
\$117.2 |
\$93.3 |
-20.4% |
Q1 2017 Gross Margin
• Gross Margins were on plan and down ~1 points vs 2016 full year average. Brand margin decline due to pivot off legacy "ad network" model + mix shift of revenues towards Brand Performance and Programmatic.
| Margin Source |
CMD:
Full
Year 2016 |
Q1 2017 |
Pt
Change |
| Performance |
37% |
38% |
+1pts |
| Brand |
41% |
35% |
-6pts |
| Managed IO |
48% |
39% |
-9pts |
Brand
Performance |
25% |
28% |
+3pts |
| Programmatic/SSP |
34% |
30% |
-4pts |
| TOTAL |
38% |
37% |
-1pts |
Detailed Results: Performance Advertising
Summary: Q1 2017 Performance revenues = \$46.6M (-30% vs Q1'16)
Summary of Q1 2017 Results
- Increased competition for mobile video supply and pricing
- Majority of revenue softness due to lower than expected performance metrics on existing business and some softness in app install pricing in Q1'17
- Beta testing of new ad formats (Vertical Video) and performance DSP (Apollo VII)
Other KPI:
- Continued to add bid density by adding 24% more advertisers and campaigns
- Continued strong global expansion across APAC and EMEA
- Clear line of sight to additional global launches from key AAA developers in Q2 and Q3
- Vertical video was launched in Q1 and continues to ramp up rapidly with adoption of new SDK
- Post Install Event optimization products finished development; Bringing to market in Q2
- Apollo VII development complete; Started beta testing with extended test and tune cycle
Detailed Results: Brand Advertising
Summary: Q1 2017 Brand Revenues (excluding Programmatic/SSP) = \$39.8 (-3% vs. Q1'16)
Summary of Q1 2017 Results
- Brand Performance business achieved 116% growth as we continue to see brand advertisers being more performance focused
- Video was down in the US (\$11.0m vs. \$14.5m) as a result of a mix shift toward the Brand Performance business that is heavily driven via display
- Decline in managed service business was largely due to the delay in key product launches and customers' accelerated efforts with programmatic
- Global Brand margins declined given a shift away from legacy "ad network" model + mix shift towards Brand Performance and Programmatic
- Strong growth in Private MarketPlace deals, managed by Managed IO team
Other KPIs:
- 6 of our top 20 customers are now brand performance vs. just 1 in Q1/2016
- Announced strategic partnership with Ninth Decimal that will be in market in Q2
- Growth categories: Finance, Automotive and Consumer Electronics
- Successfully launched vertical video with UFC and have seen strong results
Detailed Results: Programmatic
Summary: Q1 2017 Programmatic/SSP Revenues = \$6.9M (-30% vs Q1'16)
Summary of Q1 2017 Results
- Legacy AdMarvel SSP business winding down. Revenues dropped from \$5.2M to \$1.4M (-73% YoY decline)
- RTB-based programmatic exchange grew from \$4.7M to \$5.5M (+17% YoY)
- Private Marketplace deals building momentum and scale. This benefits the Managed IO line item, but takes inventory out of the open exchange
Other KPIs:
Instant-Play™ growth
- Grew demand partner base by 50%
- Doubled play rate (impressions per bid) QoQ
- Putting increased focus on activating demand partners and spend against Instant-Play™ SDK supply
Q2 Focus & Trending
Q2 Focus & Trending
Key areas of strategic focus for us include:
- Publishing: Driving SDK growth & convert entire tech platform to our new 3.X series SDK
- Selling in new products to Brand and Performance advertisers, while continuing to support existing products and older platforms, as new products scale
- Improving core platform metrics: DUV (Daily Unique Viewers), Pricing and ARPU
- Apollo VII test and scale
- Cost controls & continued focus on operational efficiencies
SDK 3.X Penetration has tripled since January
Healthy adoption of next-generation SDK
• Current live publisher penetration rate on 3.X is at 19% as of May 11
- Publishers excited about new SDK as it enables Vertical, Explorable, Interactive Video & Playables, expected to drive demand & eCPM
- ~50% of Top 50 Apps in network are live or in the process of going live with 3.X SDK
- We expect SDK adoption to continue to grow, strengthened by higher eCPMs from Core™ advancements & growth in Brand dollars
SDK 3.X Adoption
Vertical Video: Early KPIs are strong for Performance
Instant-Play ™ HD Vertical Video (Performance)
- Vertical video inventory has been ramping up very quickly - 10x since February
- We have launched nearly 700 new advertiser creatives across ~200 campaigns which are producing great results and driving higher than expected prices and engagement
- Vertical video is also delivering higher eCPMs to publishers (+13%) which will help us secure additional supply
Vertical Video: Strong 10% Engagement Rate for Brand
Instant-Play ™ HD Vertical Video (Brand)
Successful launch campaigns with UFC, FX, and Xbox with broad press coverage. Strong results to date:
- 89% avg. video completion rates outperforming social channels that have single digit completion rates
- 10% engagement rate with the end cards which are +45% higher than horizontal engagement rates using same creative
Interactive Video: 1st to market campaigns in May/June!
Aurora™ HD Video Launch
- "First to market" launch program locked with major brand advertisers
- Brand beta program drawing in 7 figure revenue in Q2
- First live flight dates start May 25
- Press planned in early June
- Drawing interest from Performance advertisers with ad creation and testing in progress as well
Product Updates/Tracking
Focus on SDK, Apollo VII, Apollo IX & LTV Optimization
| Product |
Updates & Tracking |
SDK 3.X
(Next gen AdColony SDK) |
•
v3.1 SDK was made publicly available on March 6, 2017
•
Since March, focused on minor bug fixes, optimizations, partner integrations |
Apollo VII
(Core™-based bidding for
Performance across external
exchanges) |
•
Passed QA in mid-Feb., beginning a multi-month testing & tuning against live traffic
•
Validated all mechanical aspects of the Product (delivery, counting, attribution)
•
Focused on supply management capabilities to identify the best pockets of supply
•
Expect to turn Core™ bidding on in Q2 and move to 3rd-party campaigns |
| Apollo VIII (Bidding for SDK) |
•
Expected
to pass QA in early Q3, dependent Apollo VII achieving scale
•
GTM/Migration
of Network will start in Q3/Q4 |
Apollo IX
(Interstitials & Playables) |
•
Apollo IX Beta program starting in May |
| Apollo X |
•
Planning
development complete
late Q3; Test migration of demand
in Q4, full shift in Q1
2018 |
| Apollo XI |
•
Migration in 1H 2018 |
LTV Optimization
(Lifetime Value Optimization) |
•
User Scoring model for LTV complete;
Currently rolling out to select advertisers. |
Closing Statements
- While a challenging quarter financially, we are "on plan" and we continue to get strong market validation of our focus on driving OUTCOMES for brands and publishers
- I couldn't be more proud of our development studio in navigating a very challenging and ambitious SDK, which is now hardened and we are working on rapidly increasing the SDK penetration
- Since CMD, we have also finalized development of Apollo VII and we are currently in a test and scale process on this new platform.
- Early KPIs and response to the new ad units is strong: we have signed launch partners for our new Interactive ad units w/major Fortune 100 brands with campaigns that will go live in 2 weeks
- While we face Revenue headwinds in advance of deploying new products and as we wind down older products, we continue to be laser focused on our key strategic objectives that we believe will put AdColony in a powerful financial position for 2018 and beyond.
- Until that time, however, we are deploying strict cost controls, balancing resources needed for new products and growth for the long term, while taking costs out of the business
Closing Comments
Segment outlook –
Opera Software ASA
An open, connected world - powered by great technology and services - breaking down barriers that limit access to information, education and fun
- Apollo launches on track
- Focus on cost control
-
Expect to see revenue impact from new products starting to emerge in 2Q17 and accelerate into 2H17
-
Continued international ramp
-
Expecting to sign 8-10 new operators for Apps Club and NDNC portal rest of year
-
Growth of direct product & sign up additional 3rd party customers
- Ramp down Opera related hosting cost
-
Opportunity to resell data to be explored
-
Strict cost control
- Traction through partnership with Huawei
- Profitability in 2017 dependant on key wins in 2Q/3Q
On track for growth in revenue and earnings