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Opera Ltd (NASDAQ:OPRA)
Q3 2019 Earnings Call
Nov 14, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day everyone and welcome to Opera's Third Quarter 2019 Earnings Call. [Operator Instructions].

I would now hand it over to Mr. Derrick Nueman, Opera's Head of Investor Relations to open the call.

Derrick Nueman -- Head of Investor Relations

Thank you and welcome to Opera's third quarter 2019 earnings call. With me today, I have our CFO, Frode Jacobsen; and our COO, Song Lin. We are really excited to be hosting our call from Lagos, Nigeria, which is the largest country in Africa. We have a strong presence here and significant growth opportunities, including browser, Opera News, advertising, classifieds and microlending, as well as our investment in OPay, a company we incubated, which has had an impressive growth trajectory, already becoming Nigeria's leading mobile payment and motorbike ride-hailing service.

Before I hand over the call to Frode, I refer you to the Safe Harbor Statement in the company's earnings release, which also applies 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, or as a 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, let me now turn over the call to Frode.

Frode Jacobsen -- Chief Financial Officer

Thanks Derrick and good morning, afternoon, and evening everyone. We are very pleased with our strong third quarter results. Our growth is accelerating, as

we continue to execute on our strategy. We are leveraging our strong brand and large user base of more than 350 million monthly active users to grow new opportunities beyond the browser, including news and content, fintech, classifieds, and a few initiatives that we haven't yet announced. These efforts, including the investments we've made in our business, led to year-over-year revenue growth of 119% in Q3, compared to 55% last quarter, and exceeding the top-end of our guidance range. This has positioned us with a strong momentum going into Q4, and as we enter 2020.

Before going over the other highlights of the quarter, I want to give some color on our leading position as a global consumer internet company. While Opera is not a well-known brand in certain markets like the U.S., we have a massive user base in Africa, Europe and South Asia, and a corresponding high brand awareness in these regions. This enables us to launch and scale new offerings without the significant user acquisition and brand building costs that many other companies would face, in turn, improving our chances of success. Further, we have a strong track record of fast execution, allowing us to quickly determine if our initiatives are working, or if we should focus our resources elsewhere.

Now, let's review the highlights of our third quarter results, beyond our revenue growth. Our user base continues to expand, with PC users up 16% year-over-year, and smartphone users up 18% year-over-year. Our new initiatives, including fintech and news, now represent the majority of overall revenue, while at the same time, our browser revenue continues to grow. Adjusted EBITDA margins expanded meaningfully from the prior quarter, while we aggressively invested in product development, new initiatives and marketing to drive future growth.

Net income was $28.1 million, also benefiting from OPay's increased valuation in their latest funding round. And finally, these strong results and the accelerated momentum in our business are enabling us to once again raise our full year revenue guidance.

With that, I will it turn the call over to Song to cover operational highlights, and then I'll come back and talk in more detail about the quarter and our updated guidance.

Lin Song -- Chief Operating Officer

Thanks Frode. Hi everyone. I am very happy to be reporting earnings from Nigeria, our biggest market in Africa. Nigeria has a large and growing population, where the online transition is just starting, and represents a huge opportunity for us.

We are a market leader in multiple categories already, including browser, news and digital advertising, with classfieds and fintech initiatives in the early stages of ramping. More importantly, our results in Nigeria highlight our ability to utilize our strong brand, large user base and experience in local markets to launch and scale new products very quickly.

So, now let's get into the details. I will start with Opera News; our stand-alone Opera news app continues to scale and has 41 million monthly active users, up 136% versus a year-ago. When also including News user from our browsers, our total Opera News user base is 169 million. Its a major number. We remain focused on improving product quality to drive both user growth and increased engagement. This includes investing in more hyper-local content, such as the capability we just announced called Opera News Hub. Opera News Hub allows local creators to add content to our platform, and then share the monetization of that content in a very easy way.

We are actually the first to launch such a model in Nigeria, and within a short timeframe, we've already signed over 500 key opinion leaders. We think this is the good example of our ability to be localized, and we think this effort will continue to strengthen user engagement, in particular in our key focus region of Africa.

I will also talk a bit about our monetization efforts which are also progressing. For instance, Opera Ads, our direct advertising platform, has grown revenue nicely versus the second quarter and more importantly, we have expanded the platform's capabilities. We have launched a new ad unit, including click-to-call and ads that link directly to a protocol called USSD, which are really numeric codes that can be dialed from any mobile phone, allowing direct user engagement, and which is very popular in regions like Africa. This is really reflecting how we are differentiating ourselves from some rather [Indecipherable], and which is really appreciated by the biggest local advertisers.

Second, we have also launched an exciting new product called OLeads, that really enable us to help the 40 million small and medium enterprises in Nigeria, which would otherwise have no means to make a website. So OLeads really provides free basic websites with one click, and then which will help them advertise and we can monetize by offering cost per lead advertising products. It's becoming very popular and we think this is yet another opportunity to drive further monetization of our growing user base.

We have also highlighted last quarter, that we have launched our classified offering OList in Nigeria. Even though its only three months after its launch, we're very pleased with the early momentum, as the listings has more than doubled to over 1 million from three months ago. We plan to continue to grow listings and to drive consumer awareness, using both Opera browser and News apps. We really believe in the potential in this area, both in terms of advertising, but also from taking part in the underlying transaction through fee based models. For instance, Nigerian real estate market alone represents a $20 billion market annually, which however is both inefficient and fragmented, and we think we can play a key part there. Although we are still at the early stages, just three months after launch, but we are really very excited about expanding our role into such verticals.

Now I'll also come back a bit to the browser. So within our browsers, similar to last quarter, we are driving steady user growth. PC MAUs, in a very mature market, has increased to 68 million and smartphone browser MAUs has increased to 191 million. We are quite pleased with our progress there, and again, our browser efforts really continue to focus on providing a differentiated product. For instance, we have launched offline file sharing for our Opera Mini browser, which allows users to exchange files, videos or other content, without using large amount of data or even be held back by a slow network, which has been very popular in just a few weeks after its launch.

On the other hand, we have also launched Opera GX, our browser tailored to PC gamers, which is also performing ahead of expectations with very strong usage engagement. This browser is a very good example and highlights the opportunity for us to address specifically and also financially attractive segments of the market, with very differentiated solutions.

Just to wrap up, we are working hard, and believe we are executing well. We are in a very strong position with a number of exciting growth opportunities. We have successfully launched several new initiatives that have scaled quickly, and we believe we are really positioned to roll out new offerings fast, given our significant reach, size and perhaps most importantly, our agility.

We are very focused in our key regions, and we are well positioned to capture our potential, through the Opera browsers and News, as well as in key verticals such as fintech, classifieds and related verticals, and also in online advertising. Overall, we think this is just the beginning, and that there is a tremendous opportunity ahead.

So with this, let me hand it back to Frode.

Frode Jacobsen -- Chief Financial Officer

Thanks Song. Let me now talk about one more operational area, microlending, and then I'll get into details about the third quarter and provide updated guidance before we open up the call for questions.

Overall, we ramped the microlending business faster than we had anticipated, and it has now become a sizable part of our overall revenue mix. During the third quarter, we really pushed growth in India to establish our offering there at scale. Going forward, we continue to expect strong growth rates, but at a more normalized trajectory versus what we've seen in the past quarters. We believe there is meaningful upside in India and Kenya, while Nigeria is just getting off the ground.

In addition, over the next six to 12 months we see opportunities to launch new markets, and also other non-lending fintech products, as we continue to diversify this revenue stream. Given our focus on gaining scale, our credit losses moved slightly higher relative to revenue from the prior quarter.

Now, as we continue to gain experience and the credit scoring technology continues to improve, we have seen a positive trend in credit losses relative to revenue in October, following a decrease in non-performing loans.

Getting into some of the metrics, we underwrote approximately 5 million loans this quarter, almost tripling from the second quarter. Our average loan size went up to just above $50, adding up to more than $250 million in total loan value.

Then moving on to the financial details of the quarter. As mentioned, Opera delivered record third quarter revenue of $93.7 million, up 119% versus the year ago quarter. Again, this compares to a 55% year-over-year revenue growth rate in Q2. Search revenue represented 23% of total revenue or $21.5 million. This was up 13% year-over-year ahead of our expectations and a really strong result for this revenue stream.

Advertising revenue represented 20% of total revenue, or $18.3 million, up 17% year-over-year. The growth was driven by direct ad sales, such as Opera Ads and our increased user base, and we continue to see meaningful potential here, including Opera News and our classifieds offering.

Fintech revenue represented 43% of total revenue, or $39.9 million. This increased meaningfully from the second quarter, primarily driven by our recent launch in India. As mentioned, going forward, we continue to expect strong growth rates, but at more normalized levels than what we have reported to date. Retail revenue represented 6% of total, or $6 million, down slightly versus last quarter, but overall quite stable.

The technology licensing and other revenue category represented 8% of the total or $7.9 million, largely driven by temporary support to our investee, OPay. As Opay has now established its teams in-house, we expect this revenue category to decline toward substantially lower levels going forward.

Total operating expenses were $87 million in the third quarter, and I'll go through the main components, compensation expenses were $19.5 million, up versus the prior quarter. This included roughly $4 million in non-recurring compensation cost relating to the OPay revenue we just referenced and some opportunistic staff increases, relating to our growth initiatives. Marketing and distribution expenses was $20 million, slightly down compared to the second quarter.

Cost of revenue was $15 million. Within the total, $6 million related to retail revenue, and $8.8 million related to microlending. Cost of revenue for microlending includes transaction and communication platform expenses, as well as third party credit scoring, data, and risk control costs, in total amounting to 22% of microlending revenue in the third quarter. Credit loss expense was $19.6 million, mainly related to microlending, where it represented 50% of revenue.

As discussed, this was slightly up as a percentage of fintech revenue, as we massively scale this business during the third quarter, but is trending lower versus revenue thus far in the fourth quarter. The sum of all other operating expenses, including depreciation and amortization was $12.8 million, representing a slight increase versus the second quarter. As a result, we saw an operating profit of $6.7 million.

Our net income was $28.1 million; this included a non-cash gain from OPay, which recently raised capital at an increased valuation. Adjusted EBITDA was $12.6 million, representing a 13% margin. Margins increased meaningfully from last quarter, as we are beginning to see benefits from our revenue scaling, despite continued aggressive investments in our long-term growth.

Finally, on the balance sheet, we ended the quarter with $216 million in cash and marketable securities, up $69 million from $147 million at the end of the second quarter. Two items worth highlighting; first, we received $71.8 million in net proceeds from our capital raise in late September. This excludes the additional $10.8 million from the underwriters' exercise of the over allotment option, which we received in October.

Second, our increase in loans to customers, driven by the successful growth of our microlending business, resulted in a loan book of $56 million at the end of Q3, an increase of $33 million versus the second quarter. We have funded the increased loan book by a combination of local bank debt and our own cash. We expect that the strong and profitable growth in our microlending business will continue to utilize cash in the short-term, though the business will be increasingly self-funded.

With that, let me turn to our Q4 guidance and increased full year 2019 outlook; starting with the fourth quarter, we expect revenue in the range of of $95 million to $105 million, representing a year-over year growth rate between 89% to 109%. Our strong revenue guidance reflects continued fintech growth, as well as continued positive momentum around our advertising efforts, while tech licensing revenue is expected to meaningfully fall in the fourth quarter.

Consequently, for the full year 2019, we are raising our revenue expectations again. Our increased range is now $300 million to $310 million, representing year over year growth of 74% to 80%. This compares to our prior range of $270 million to $290 million. We expect fourth quarter adjusted EBITDA to be in the range of $15 million to $19 million, which represents a continued margin increase versus the third quarter. This means that we are increasing the lower end of our full year 2019 adjusted EBITDA guidance by $6 million, resulting in a revised range of $41 million to $45 million for the year. This is inclusive of our product and marketing investments in long term growth.

To summarize, we are very pleased with our strong results, our consistent execution and our increased full year guidance. We have demonstrated an ability to launch and scale new products and revenue streams rapidly, and our results to date demonstrate that our strategic investments are driving growth and positioning us well to capitalize on our large market opportunity.

Our business will exit 2019 with an annualized revenue run-rate of approximately $400 million. This is staggering compared the 2018 exit rate of $200 million. While its premature to provide 2020 guidance, we think we are well-positioned to maintain strong revenue growth rates and drive margin expansion. We look forward to providing more details next quarter on how 2020 will benefit from the growth of our existing products, expansion to additional markets and new product launches.

With that, I will turn it back to the operator for questions.

Questions and Answers:

Operator

[Operator Instructions]. Our first question comes from Lee Krowl with B.Riley FBR.

Lee Krowl -- B.Riley FBR -- Analyst

Great, thanks for taking my questions guys. I just want to dive in on OKash first, specifically the credit loss expense. Now that you have two geographies, could you maybe -- even just at a high level break down. Does -- you know, from a credit loss expense perspective, is Kenya kind of operating below your quarterly target and India higher? Trying to get a sense of kind of as these markets grow, the optimization that you guys are able to employ to control kind of the risks around new loans?

Frode Jacobsen -- Chief Financial Officer

Hi, Lee. This is Frode here. Thanks for the question. I would say overall, in terms of credit losses, what we did this quarter was to really focus on scaling that [Indecipherable] and having it become a really meaningful segment in our mix. As we scaled up -- and India being a new -- relatively new country to us, we have just started there in Q2, that was the biggest part of our growth in Q3. And I think entering a new country, having sort of the higher mix of first time lenders versus second time lenders, etcetera, will impact that in the short term, and we have seen that. That's something that we did with sort of eyes wide open during the quarter. What we see how is that, as we have scaled and as we have also gotten more data, our systems, our credit burn, etcetera, we're seeing in the months or in the period that followed the third quarter, that our credit losses related to revenue had dropped substantially, down toward maybe even below the level that we saw in Q2, at a significantly bigger scale.

Lee Krowl -- B.Riley FBR -- Analyst

Got it. And then just on the new product initiatives OList and OLeads, you know two parts to the question. First, are you targeting other geographies currently for those products? And then second, just based on how you guys kind of put some marketing resources against the scaling of ONews, do you guys anticipate kind of a similar cadence, as you try to build scale in these newer products?

Lin Song -- Chief Operating Officer

Yes. So this is Song Lin here, I think I'll try to answer that. So yes, we have two different products. One is OLead. The name is quite similar, so we have to make the distinction. But anyway, so OLead itself is part of Opera Ads initiative. It's really about helping enable the local SMEs to be able to utilize all these new app format and easily built-in web properties, websites, so that they can later advertise upon. So I would say OLeads is a bit more -- I think OLeads itself is a bit more emerging market focused, but with a bit broader range because essentially everyone have access to Opera News, have access to Opera Ad format and can easily, basically utilize it. So I think that's a bit more wider audience.

So on the other hand, I would say OList itself is a classified offering, which we have launched in Nigeria, about three months ago. So I would say that is a bit more strategic focus. That we of course have to go deeper in a given country, just because of the nature of these apps, its all about the connecting all those vendors, sometimes [Indecipherable].

So by the nature itself, it is quite specific per region. So I would say for OList, our strategy would be to -- it's almost be like concentrating on key country, which is for now -- biggest is Nigeria, build up a big user base, making sure we are the number one. And then we will copy the same model to other African countries. So highly likely, that would be our strategy.

You also asked briefly about the marketing. So I would say that for now -- yes naturally, OList has benefited a lot by having Opera browser traffic that's also why we actually are growing so fast in such a short time frame and growing [Indecipherable]. Yeah, I think moving on, we will probably be more -- like seeing how it has been well received at this point. I do think that we expect we will spend more marketing efforts, just to make sure it's faster growing to where we want it to be.

Derrick Nueman -- Head of Investor Relations

And Lee, as we look to 2020 -- this is Derrick. I would say, what's successful for us is, continuing to have the usage metrics of OList [Indecipherable] in Nigeria, and user dynamics, call it a one after, we'd love to tell you that we have made a lot of progress on one of the verticals that Song just named.

Lee Krowl -- B.Riley FBR -- Analyst

Okay, great. Thank you for taking my questions.

Operator

Thank you. Our next question comes from Mark Argento with Lake Street Capital.

Mark Argento -- Lake Street Capital -- Analyst

Hi, good morning or good afternoon, guys. Just wanted to drill down a little bit on the kind of CPM trends, I know you're still building the audience, Opera News was up nicely or users was up nicely, but just talk about how you're selling that, kind of ad inventory or the app space that you're generating? What kind of CPMs or how do you think about kind of ramping the monetization effort there?

Lin Song -- Chief Operating Officer

Yeah. So this is Song Lin, I think I'll try to [Indecipherable] high level on this. So I mean, there's a few basic facts, right. So number one, I think we do see the CPM ramping up in some of our key countries, in particular Africa. It's a reflection of the effort, where we spend, and its also a reflection of a growing demand. So I think in general, we're happy about that.

That being said, maybe I'll just put it there that, long-term like -- high level, maybe we will just say that in general, Opera Ads is a long-term initiative. We don't want to rush it. You can understand that, and you can almost see that, there are two ways to utilize that traffic. One way is to, you know, make a transaction based business as you know, like where can we use the traffic to grow say OKash on fintech and many other offerings. And the other way is to utilize the traffic and sell it to other parties.

So I would -- I think what we are seeing that, in some of the key regions where we are like the leader [Phonetic], we find that actually in the short term, that the market is actually more profitable. We will have to actually go directly through the transaction itself. For instance, you know how we are able to grow fintech in the past because, we will be able to -- instead of giving the traffic to somebody else, they are actually not as good as us [Indecipherable], to be able to utilize the traffic. So that's why we actually go straight into the transaction itself, where we don't have an order [Phonetic] impact. Even though that's based on building up -- that's based on using our [Indecipherable]. Well from other hand, we believe that, given time, when we are able to open that market and more like -- we see that -- made out of that [Indecipherable], and that will, in turn, bring the total value of Opera Ads, probably also up.

So I think in general, we feel there are two different stages. We are quite happy with [Indecipherable] growth in the key markets. But then we also have a bit long term view over that.

Mark Argento -- Lake Street Capital -- Analyst

And have you been building out the sales force that's focused on selling the ad space or you guys have been doing mostly more programmatic sales at this point?

Lin Song -- Chief Operating Officer

So I would say, it's a very good question actually. So I think I would say both. In some of the more, I would say, more developed regions, we are actually focusing more on programmatic, because that's the easiest way to scale up. And we see actually some very good effects. Well, on some other place, in particular Africa, I would just say that our approach is both online and offline.

We have growth, that are programmatic, but what we saw is that in general, the digitization in those countries in -- out of [Indecipherable] is still not big enough. That is actually make much more sense for us to ask that these haven't started to digitalize yet? So that's why you know, for instance, we are building up a major sales force, for instance in Nigeria. Very cost effective, and you know one-tenth, so you [Indecipherable] and basically we are using this offline direct sales force to actually -- this almost depend on how we are ready to [Indecipherable] digital advertising part of it.

So yeah, I think that's the reflective of what we have also announced some of the initiatives toward SMEs, like OList and few others. Yeah. So I think that, in the long term, will also be our major strengths in those regions.

Mark Argento -- Lake Street Capital -- Analyst

Good. Thank you. There. And then just one quick microlending question. In terms of -- just remind us when you went live in Nigeria? And then are you guys -- are you going to be as aggressive in terms of trying to get some scale in Nigeria, like you were in India? And what maybe kind of what, new credit? I know you talked about you've increased or enhanced credit scoring, but maybe just talk about your thoughts on losses, relative to how quickly you grow in Nigeria. That's it for me. Thanks.

Frode Jacobsen -- Chief Financial Officer

Sure. So Nigeria went live during Q3. It's really quite insignificant still compared to the totality of microlending. We do expect, as mentioned on the prior call, that it will have a slower ramp than the other two countries that we went live in, following sort of the adoption of mobile wallets and the necessary infrastructure. The business is running, but it's still relatively small.

Derrick Nueman -- Head of Investor Relations

And Mark I would expect that it will ramp a little more in 2020, and then I think we'll consider launching some additional markets as well. So, and some extra -- fintech services, which we're working through, as we speak.

Mark Argento -- Lake Street Capital -- Analyst

Great, thank you.

Operator

Thank you. Our next question comes from Hillman Chan with Citigroup. Mr. Hillman Chan?

Hillman Chan -- Citi -- Analyst

Hi Song Lin, Frode and Derrick. Thank you for taking my question. Congrats on a good quarter of results. My first question is regarding OList. Understanding it's a bit early of development. But still, could you share more color, as to the key verticals that we plan to invest more in, and what should we think about the monetization model in the medium term for the OList please?

Lin Song -- Chief Operating Officer

Yes sure. So this is Song Lin. I think I will try to have a bit of that. So as mentioned a bit earlier right, we think OList is a very interesting prospective that we're actually engaging upon. So like, as we also a bit briefly mentioned also in the previous scripts, like typically, when we look at such kind of business, we are focusing on all the verticals, which contributes most in a given country, in a given GDP. Right. For instance in Nigeria, apparently, it's very natural that we look at it. Part of [Indecipherable] energy more traditional source. Really played actually -- very naturally, a very important part of that economy, as did brands are almost like as effects [Indecipherable] contributing of the total GDP, with a total GMV or market value of almost -- more than $28 billion. So it's a huge potential. So for us for instance, just use it as an example, that it is very natural philosophy, things that we want to be, if that's influential then obviously, for us we want to be -- take major part in that part of the ecosystem. And just before the commentary that, what we also find out, is that, even though it's a huge potential, it's still very fragmented, and it's still -- to some extent, a bit inefficient compared to many other regions that we are. So that's what we're also saying that, instead of doing a bit more high level, like a simple app initiative. I think it makes sense for companies like us to go even deeper -- to deeper in the value chain, to try to make -- to go deep in the transaction level, to be able to, you know, may be smoothen the whole transaction flow, to ease the user pain points, not just selling some simple ads.

So I think that's also why we commented at the beginning, our [Indecipherable] that -- I think our goal is -- for this particular vertical, our goal is perhaps not only just to be part of the app initiative, but also strengthen the whole flow of that in the real estate. Just to make sure that, as much -- as many Nigerians will be able to use, you know like, looking or buying house or rent house, or listing sales in other places. So again, we are quite ambitious. We also think that this is very economically sound, because you know that's a much bigger pie than what we will get in our app business.

But again, so it's still very early, and we hope to be able to report our progress on that in the next few months.

Hillman Chan -- Citi -- Analyst

Got it. Thank you. My another question is on OKash. Just want to learn more about the competitive landscape of OKash in the key markets for us. Could you share more maybe on the market share, and so the differentiation of our marketing strategy, microloan products versus competitors, and that would be helpful. Thank you.

Frode Jacobsen -- Chief Financial Officer

Yes, sure, this is Frode, I can begin answering that question. So I would say overall, of course, these are competitive markets, competitive products. I think the reason that we are doing as well as we are, really goes back to some of the strengths that we are taking with us into the microlending business. And that includes our sort of brand and scale user base, our ability to really grow quickly. We do very well on data, the AI that's really feeding it, with the approval process being very key, in terms of accepting the right lenders, where we are pretty strict. And third, our ability to operate locally in these markets, you know, we are calling in from Nigeria today, it's great being here, to see excitement and the size of the things they have and the ambition that they share. [Indecipherable] to say, having people in the market, making it very close to the end user, and [Technical Difficulty] where we have lenders and do they [Technical Difficulty], etcetera. Those I think are key advantages that sets us apart from some of the other foreign companies that are operating similar businesses, and why -- when you look at our -- when you look at the financial information included in the segment information, what you see is essentially that, when you take our revenue and you deduct our credit-loss provision and our cost of revenue, the gross profit contributed by this business for us relative to our loan book, is still resulting in a return on capital of about -- even above 100% annualized. And I think that the assets that we have, is enabling us to be as profitable as we are, in these competitive markets.

Hillman Chan -- Citi -- Analyst

Okay, got it. Thank you. Maybe one last quick question, I think just now you mentioned potentially new markets, for OKash in the coming six to 12 months. Is it possible to share some more color on the new markets that we want to enter? And how should we think about the timeline related to this? Thank you very much.

Frode Jacobsen -- Chief Financial Officer

Sure. I don't think we will announce anything now on this call. But as a general rule, we continue to look at additional markets that we can launch in. When we look at our fintech offering as a whole, and how we believe that will develop over time. I think we will continue to diversify that segment, both in terms of geographies that you mentioned. And also some additional lending products that Song also alluded to just before. So we will sort of come out and announce it when we have gone live in a specific new market. But not right now.

Derrick Nueman -- Head of Investor Relations

And Hillman, to add, I mean the one thing on, some of these additional fintech products, is obviously they would, again leverage our user base and leverage our strong brand. Similar to the other products we've launched.

Hillman Chan -- Citi -- Analyst

Okay. Thank you very much for the comments. I hope you guys are having a good time in Lagos. Thank you.

Frode Jacobsen -- Chief Financial Officer

Thanks Hillman

Derrick Nueman -- Head of Investor Relations

We'll try, thank you.

Operator

[Operator Instructions]. Our next question comes from Tom Champion with Cowen.

Thomas Champion -- Cowen -- Analyst

Hi guys. I'm curious if you could just comment on the geographic breakdown of the microlending revenue. Any thoughts there would be helpful. And curious about the profile of the loan type that you're offering by geography? Does it look basically about the same, it seems like the average loan balance is about $50, maybe these are short-term loans of about 30 to 45 days. Do they look the same by geography, and I guess last comment or a question would be, looks like about a 20% contribution margin, is that a good level to think about going forward? Thank you.

Derrick Nueman -- Head of Investor Relations

Yeah, hi, Tom. I'll answer that. So in terms of geographic breakdown of our microlending activity, India is the biggest. India has overtaken Kenya as the biggest market now, in the third quarter. Size of loans, I would say -- the growth from an average of about $40 to an average of $50 was more really driven by the geographic mix than the, let's say, per loan sizes within each country.

So our loans in India tends to be a bit bigger in the $50s, whereas in Kenya it's in the $30s. So while duration of loans, it's about the same with an average of about two weeks, as we mentioned. When it comes to margin, so we have -- if we do revenue less credit losses and cost of revenue, credit losses and cost of revenue totaled about 72% to 73% now in the most recent quarter in Q3, 72%. As mentioned before, we believe credit losses will be meaningfully lower in Q4. Seeing that drop by 4 maybe more points -- 4 or 5 points maybe. And cost of revenue of about 22, that's going up a bit with the growth of India. It's a little bit different mix there. But the mix of the two probably in about -- leaving about 30% left around that level for profit contribution.

Thomas Champion -- Cowen -- Analyst

Got it. Really helpful. Maybe just last question, can you talk about the dynamic with technology licensing revenue in the fourth quarter? There is some mention of it in the guidance discussion. Thank you.

Frode Jacobsen -- Chief Financial Officer

Sure. So included in that revenue category is support that we do, when we rent out -- to OKash [Phonetic] support partners and that's also something that we're doing with our investees at the time. And so Q4 had a bit of an extraordinary bump -- sorry, Q3, following support to OPay, which is something that is not a really recurring revenue stream. We believe that as we look ahead -- as we have said now for more than a year, that the revenue category of tech licensing is declining. It's not something we focus, it's not scalable or strategic in the same way that the other revenue streams are, and we expect to sort of see that normalize pretty quickly, and reduce in both Q4 and then onwards to Q1.

Thomas Champion -- Cowen -- Analyst

Got it. Thanks a lot guys.

Frode Jacobsen -- Chief Financial Officer

Sure.

Operator

Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Frode Jacobsen for any closing remarks.

Frode Jacobsen -- Chief Financial Officer

All right. From the three of us here in Lagos, we'd like to say thank you everyone for joining this call, and we wish you a good rest of today.

Operator

[Operator Closing Remarks].

Duration: 45 minutes

Call participants:

Derrick Nueman -- Head of Investor Relations

Frode Jacobsen -- Chief Financial Officer

Lin Song -- Chief Operating Officer

Lee Krowl -- B.Riley FBR -- Analyst

Mark Argento -- Lake Street Capital -- Analyst

Hillman Chan -- Citi -- Analyst

Thomas Champion -- Cowen -- Analyst

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