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Frode Jacobsen

Thanks. Staying on the topic of rapid scaling, with revenue coming in nearly $10 million above the high end of our guidance range, we are certainly off to a solid start of the year with a 40% year-over-year growth rate in the quarter.
That is 11 percentage-points above both Q4 and the midpoints of guidance for Q1, and that's something about the underlying commercial success of Opera as we enter a new period where an important geography like the US is held back by greater uncertainty among many advertisers.
Over our nearly seven years as a public company, we've scaled to become several times bigger versus where we started. And we've been careful to guide with caution, even though the underlying trend has consistently been a very positive one.
While in retrospect we could have been less conservative in terms of reflecting how headwinds could affect the first quarter, it is certainly rewarding that we are now able to raise guidance further, even if we believe that these headwinds might be more pronounced in the quarters to come.
The underlying success of Opera and our diverse geographic footprint both provide natural hedges. Beyond revenue, we are also very pleased that our adjusted EBITDA came in at the highest margin percentage indicated in guidance, adding more than $2 million on top of the high end of our EBITDA guidance range.
In terms of costs, we saw cost of revenue items, scale in line with the advertising revenue over performance. Apart from that, our opic items, pre-adjusted EBITDA landed in accordance with our prior directional commentary.
This included lowering our marketing spend to $34 million from $41 million in the fourth quarter, which was elevated due to multiple product launches. As in recent periods, we have focused our marketing spend on those users with the highest ARRU returns.
Our cash compensation cost was $18 million, up about $1 million versus the Q4 level and more similar to the recent average quarterly cost level as expected.
Other opic items combined were $8 million up about $0.5 million versus the Q4 level and also as expected, year-over-year, all of these cost categories increased in dollars but reduced as a percentage of revenue as we benefit from economies of scale.
Our operating cash flow was $16 million in the quarter, representing 49% of adjusted EBITDA. Free cash flow from operations came in at $12 million or 37% of adjusted EBITDA. As in prior years, we continue to expect fluctuations in cash conversion on a quarterly basis, which will stabilize as the year progresses towards the full year value.
For example, in this particular quarter, the fact that revenue remained unusually strong as we exited the peak shopping season of Q4 also meant that our accounts receivable did not contract as they did in Q1 last year. And the reduction in marketing costs drove a reduction in quarter and payables. But of course such effects benefit cash flow in future quarters, and so for the year as a whole it's neutral.
To conclude, Q1 marks our 16th consecutive quarter as a Rule of 40 company and yet another quarter of meeting or exceeding our guidance. We are proud to combine solid growth with healthy profitability and have now entered our third-year as a recurring dividend paying company, which lets our shareholders directly benefit from our cash generation through a proper and meaningful yield.
Since January 2023, we have distributed $2.40 of dividends per share with the next record date scheduled for July. Now turning to guidance. Given political tensions and unresolved trade disputes, we expect to remain in a volatile period for the foreseeable future.
But as a lean and fast moving company with the ability to navigate growth pockets, we will do our best to play it to our strengths. Apart from having guided cautiously as the year commenced, there are a couple other reasons why we have some natural cushions from the current volatility as it relates to e-commerce and the US.
First, while e-commerce is our fastest growing vertical, we still consider the US e-commerce opportunity to be mostly ahead of us. In other words, we have less exposure than many others and believe that there is plenty of opportunity to scale this further in a more normalized environment.
Second, almost all of our advertising revenue is performance-based as opposed to brand advertising. That means that the payment from the advertiser is tied to measurable results, which we believe makes the business more resilient.
Taken together, we believe we are in a pretty good pretty good relative position for whatever comes next. For 2025 as a whole, we now raise revenue guidance to $567 million to $582 million or 20% annual growth at the midpoint, up from $555 million to $570 million.
That means we are already adding 3 percentage-points-incremental of full year growth with the former high end of guidance now representing the lower part of our revised range.
Similar to before, we have based our guidance on sequential modeling with the race estimates capturing the Q1 overperformance, as well as a modest incremental uplift in what we had previously assumed for each remaining quarter of the year.
As before, this results in a relatively stable trend of quarterly revenue growth measured on a two-year CAGR, which captures the scale we have built in recent quarters, while also evening out our forward looking growth profile.
In terms of adjusted EBITDA, we now guide $135 million to $140 million for the year as a whole, continuing to represent a 24% margin at the midpoints, but raised to reflect the incremental revenue. Cost wise, we then implicitly guide to a full year OpEx space pre-adjusted EBITDA of $437 million at the midpoints, with a further amplification of the trends that we discussed last.
Our baseline expectation remains that the margin headwind from growth in cost of revenue items will be offset by margin tailwinds from economies of scale in the remainder of our cost base, leading to a stable EBITDA margin on top of a rapidly scaling revenue base. We now expect cost of revenue items combined will reach 32% to 33% of revenue in 2025, scaling with our overperformance.
We expect that marketing cost will grow at the year-over-year percentage in the high-single digits with a relatively stable level from Q1 to Q2 before taking up somewhat higher in the second half of the year. We expect both cash compensation and all other OpEx items pre-adjusted EBITDA combined to grow at year-over-year percentage rates in the mid to high-single digits.
In other words, marketing, compensation and the sum of the other smaller OpEx items are all expected to continue to decline as a percentage of revenue in 2025. In line with all this, we guide Q2 revenue of $134 million to $138 million, representing 24% growth at the midpoint and Q2 adjusted EBITDA of $30 million to $32 million or a 23% margin at the midpoints.
This represents a lift versus previous Q2 estimates as part of our formal full year guidance, while also including a buffer for volatility from e-commerce advertisers targeting US consumers. Within the implied quarterly OpEx space of $105 million at the midpoints, we expect that cost of revenue items as percentage of revenue will be in the low-30s in the quarter, just below our full year expectations.
We expect marketing costs in the mid to low $30 million range and thereby relatively stable versus the first quarter. And we expect cash compensation costs to increase about $1 million to $2 million versus the Q1 level, inclusive of annual salary adjustments and potentially a weaker US dollars relative to the main currencies of our salary expenses.
All other OpEx items, pre-adjusted EBITDA are expected to remain quite stable in totality. All-in-all, we are very pleased with the continued success of our business and how we are taking advantage of opportunities to scale faster even in the face of macro challenges that for now might delay some of our growth potential.
With that, I'll turn the call back to the operator for questions.

Question and Answer Session

Operator

Thank you. (Operator Instructions)
Naved Khan, B. Riley Securities.

Naved Khan

Great. Thank you so much and congrats on the quarter and the raised guidance. I just have a couple of questions. Maybe one just on the search growth during the quarter, the 8% is a slowdown from the sort of teens growth that we had been seeing. Is that because you're able to funnel some of this into e-commerce advertising and this is a net result of that? What's the right way to think about search for the full year?
And the second question I have is on GX. ARPU declined sequentially. I get it. There is seasonality, but it also seems like, it is below the levels in the quarter before that. How much of a factor is the macro in the ex-ARPU? Thank you.

Lin Song

Yes. So it's Song Lin. I think I'll just try to answer both of the questions. So I think for search, I think basically, you are right that, basically, what we see is that overall, the whole industry is actually shifting towards a more, I would say, intent based targeting and advertisement, and we just want to grasp that opportunity. So, like, even though, of course, search is always a very, very important part of the browser revenue, the moment we can identify user intents, we have possibility of bringing user, other form of, let's say, advertisements with the clickstream.
So I would say, this partly explains why there's some more like you that's probably why actually you saw so fast, well, the advertisement overall. And then, even though such is below the double-digit, there's still a nice growth that we're happy with. Yeah. So, like, I think basically the overall trend is a bit what we're describing, but then, of course, in the coming quarters, I think we still have to see there will be a very strong growth of such.
Moving forward, it's just that, we will always be, optimistic to see that in the chance, it does more, it makes more sense or why let's say, and also from any point of view to let them expose to even more ads in different form, in the form and shapes, we will be very happy to do it. So, and as overall macro, that's probably benefit us, much more than anything else. So they've done that.
And then I think for GX, it's a bit similar that, first of all, I think GX is a business analogy because, Q1 is also a bit on (inaudible) season for adults. So there is that. And then I guess that it's also a matter of, now we actually also with the help of AI, with help of this high intent, the entitlement, whatever, we actually have many more options where we show that, it can potentially be in GX, but then there might also be some other place to show that with the same effect.
And then, of course, as far as those are not showing GX, we don't really count them at GX revenue. So that's the other part of it, mechanics. But I would say overall, it's actually benefiting for Opera as a company for totality.
Yeah, I think that's the short answer of those two questions.

Naved Khan

And on GX, I forgot to ask about currency. If currency played a role, could the dollar is pretty strong in Q1? So how should we think about that?

Frode Jacobsen

US dollar continues to be or provide a headwind in terms of constant currency. So our growth would have been, we estimate 5 percentage-points to 6 percentage points higher on constant currency. We see on a sequential basis, the impact is quite muted. So of course, in the quarters ahead that might turn to a positive tailwind. But for now, it's still been a headwind.

Naved Khan

Thanks so much.

Operator

Lance Vitanza, TD Cowen.

Lance Vitanza

Thanks guys. Congratulations on the strong quarter. A few questions here. The first, on the e-commerce growth, you mentioned that it offset the typical seasonality. I assume that's just because it's growing so quickly, right? I mean, what I'm getting at is that once the e-commerce business reaches maturity, so to speak, I assume that it too would be seasonal or do you think we should expect a return to the typical seasonality that we've seen at Opera in the first quarter of next year?

Frode Jacobsen

Hey, Lance. Yeah. You're right. (multiple speakers) Okay. I'll just complete it, so you can take over. That is what we meant that the underlying growth of the e-commerce opportunity has been so strong that we didn't see a seasonality factor that we would normally expect. Song, I'll hand it over to you.

Lin Song

No. I think what further described is right. So I think, although, of course, revenue always has seasonality. It should be the case. But then, of course, whenever we saw some aspects which are growing very fast, and then that is almost a happy issue that it should grow almost all of seasonality. I think the only thing maybe I'll emphasize is that, of course, the total e-commerce market is such a huge market, right?
So, like, I'm talking about $100 billion market. And even if we grow to be $1 billion in revenue, we're only 1% of it. So I would always say that, yes, you should always assume seasonality as always. The growth potential are still huge for the company like us. It's especially on the ground of e-commerce. So I think we'll continue to focus on it, and hopefully, we can maintain quite aggressive speed in the next quarters to come.

Lance Vitanza

Got it. Thanks. And then, the overall user base, it's drifting a little bit lower. It feels like it's getting harder to round up to 300 million MAUs. And I'm just wondering, is there any cause for concern there? If not now, perhaps in the future, is there a level of total MAUs at which you don't want to be below?

Frode Jacobsen

Lance, I can begin. The thing is there's not a single person in the company that is measured on the MAU count itself because what's important is the byproduct by day, et cetera, engagement and stuff that actually drives the revenue. So I think similar to past quarters was the movements we are seeing is typically emerging markets, mobile users that are churning faster and then we are focusing our marketing spend and growth initiatives on the user base that has the highest ARPU potential.
Even though that comes with the trade-off of fewer users coming in, but driving a lot higher revenue. And this is why what you see in our ARPU too, right, that it's up so much or 45% or so in the past year.

Lance Vitanza

Okay. And then just one last one for me. Switching gears a little bit, but there's been a lot of news flow recently around US antitrust actions affecting Alphabet and the rest of Big Tech. Could you talk for a few minutes about how you see the broader ecosystem evolving and what that could mean for Opera's businesses both on the browser side and also in ad tech?

Lin Song

Yeah. It's Song Lin, yes. Yes. I could. So I'll just comment, right? So we can't really comment on particular litigation, I guess. But I would just say that, overall, I think we have been seeing really, like, even without the mitigation, we saw that there is some major shipping's of, how advertisers do business that, they focus on this, high intent, click streams, which previously is only available, I guess, on, certain product like search.
But now with the help of AI, it's much more widely available, right? So why this is even a topic? So I would almost say that my view, our view is that, of course, that's really benefiting to Opera as a company, the trends, because of course, as mentioned earlier, our browser is becoming one of the topic even from all those mitigation or whatever.
There's a lot of talks about browser, right? Like, it is a hot topic ever. We've never seen, it's almost back to those days where, like, it's the beginning of the Internet that everybody talk about it. So to us as a browser company, of course, that's as good as it gets, for the attention and focus. So I think we are also very visible to innovate, both in terms of browser, but also in terms of how it can be monetized based on the user intent and click stream and the relevant items, right? So that in isolation is a very positive trend. I guess those legislations is almost reflecting part of it.
And then, like, also the various objectives whatever, they, of course, ask you for opening up for competition or whatever, right around in general, that overall trend is positive class, I would say, that they are being opening up and then we are still as an agile company. We are coming from a small place. It means we have many, many times growth potential and we are very positive about the directions.

Lance Vitanza

Thank you, gentlemen.

Operator

Eric Sheridan, Goldman Sachs.

Eric Sheridan

Thanks so much for taking the question. I wanted to go a little bit deeper into the e-commerce opportunity. Could you give us a little bit of color of either the vertical exposure or the geographic exposure of your e-commerce advertisers today, how to think about the diversification of that mix looking out over the next 12 to 18 months?
And when you talk to these advertisers and there's elements of them widening out the array of advertising we do as a platform. How do you think about some of the gaining factors that you're trying to solve for with them to increase their overall budget exposure? Thank you.

Frode Jacobsen

Hi, Eric. I can begin to describe the e-commerce opportunity. So as Song mentioned, I think, on the call, it's growing very quickly. It continues to grow at over 100% year-over-year rates, meaning that it's becoming a sizable part of our advertising revenue and approaching search in terms of financial importance.
It's a very -- it's a globally distributed opportunity still. As we talked about on this call, in particular, we think the US opportunity is a lot of it is still ahead of us. And it's also what we like in general about the growth of advertising is sort of the increased diversification of the partner base. So I think these are positive directions for the revenue mix as we also look ahead.

Eric Sheridan

Great, thank you.

Operator

Mark Argento, Lake Street.

Mark Argento

Yeah. Thanks. Good morning. Yeah, maybe we take another stab at that e-commerce question in terms of better understanding kind of the levers there. You said in particular the US opportunity is still fairly nascent. To actually start to develop that opportunity more, do you have to attract specific platforms, in particular special in particular retailers or e-commerce retailers? What are the levers you need to see that growth start to happen in the US?

Lin Song

Yeah. It's Song Lin here, right? So yeah, so I guess, for a (inaudible) comment for that it's still holidays for us to see it. I think for us, our strength is really on performance, as mentioned. So which means any advertiser which focus more on performance, focus more on incrementality. Typically, we are actually a very good partner to work with.
And again, very similar as those advertiser, which previously probably invested more in, I would say, either brand or either some search advertising. Then I think, if you want to catch the similar amount of high user intent, I think we normally see we actually excel in those areas. So that's very good.
And as mentioned, like, the whole e-commerce market is huge. US is big. Despite of some volatility, I think there is still major potential than we are just scratching the surface of it. So I think those are all the areas which we focus on. And maybe I'll just mention that, of course, way at this stage, we choose to work with perhaps not long tail, but probably not with the bigger playoffs. It's just because those are typically the ones that have scale and having impact, while later on, the long tail retailers will probably follow along.
So that's in general strategy. But I would just also say that, just want to mention that Opera, of course, many people don't realize we are from Norway. We are from a country where there's only, 5 billion people. So like, we don't really have a domestic market to start with.
We're always trying to find opportunity globally in a global market. So while, yes, we're growing very fast in US, we also see big growth opportunity there. In Asia, for instance, we grow very fast in Southeast Asia. We grow fast in Japan. We grow fast hopefully, in Korea. We also have very good growth in LatAm and in many other countries. So I think to us, we just feel that this is the bigger opportunity, a major macro trend that we can take advantage on, and we'll focus on it both inside US but also globally.

Mark Argento

So, is it safe to say the environment in a kind of more tepid or slowing environment that we're in right now in the US, is that almost more favorable for you guys and as much as the opportunity to drive more wallet share, focus more on performance in the US market or is it something that people are taking a wait and see approach here near-term?

Lin Song

Yeah. So, I would almost say that I think typically in those kind of volatility environments, you probably saw those brand, the typically brand advertisers or those, let's say, more brand focused platforms probably stock on both because those are the ones which are typically a bit more easy to be get out, I would say. While I think you are right that we see that in a volatility environment because we only get paid when Aria has performance.
So in such an environment, I would say they almost prefer to work with us because it's more like you only pay us when you have performance, so you don't worry about it. At least that's what we saw in Q1 that's drive such high growth and hopefully that will enable us to continue the growth in the quarters to come.

Mark Argento

Great. Thanks guys.

Operator

(Operator Instructions)
Jim Callahan, Piper Sandler.

James Callahan

Hi. Thanks for taking the question. In search, I think in the past you've called out a benefit from Choice Screens in Europe. Is there any sort of trends to note there?

Lin Song

Sure. So, yes, I would say yes. Yes. I don't think we actually publish particular, European social growth level. But, yes, I think the answer is very true that, if you look at -- if you really dug down into our performance, wherever we actually have Choice, we have to have much bigger growth than what than average growth is.
The only thing as I mentioned in that, of course, there's also some double effect that we will also able to take advantage to turn some of the social revenue into advertisement revenue, which doesn't really show up in the States properly. But yes, you're 100% right. That Choice Screen has a major help on us on the search revenue, and we hope that will continue.

James Callahan

Got it. Okay. That's helpful. And then second kind of similar vein on the marketing expense, talking to sort of like high-single digit growth year-over-year. Is there any sort of, like channel allocation changes this year, anything that's working well that's worth kind of calling out or talking to?

Frode Jacobsen

I would say, as we -- when we look from the change from the prior Q4 into Q1, we had a spike in Q4 with the bigger releases of both Opera One and Opera GX. And then I think the sequential change was primarily around the sort of online campaigns promoting the apps through sort of click-based campaigns, whereas the broader brand building initiatives working with content makers, influencers, et cetera, those things are more stable quarter-to-quarter. And as I guided, as we look ahead, we expect Q2 will be relatively similar before we pick up a bit quarter-by-quarter in the second half of the year.

James Callahan

Okay great thank you.

Operator

Thank you. At this time, we have no further questions. I'd like to turn it back over to Mr. Song Lin for any additional or closing remarks.

Lin Song

Sure. So, thank you all for joining us today. Q1 really showed the potential of our continued growth acceleration, and we will focus our attention on the best opportunities for the times ahead. Have a good rest of the day, and we look forward to reconnecting on our Q2 results.

Operator

We'd like to thank everybody for joining us on today's call. Please feel free to disconnect your line at any time.