OPRA - Is Opera A Wise Choice Amid Increasing World Geopolitical Uncertainty?

2023-10-19 22:52:50 ET

Summary

• Opera Limited is a world-renowned technology company headquartered in Oslo, playing a key role in the modern world, providing services and products to hundreds of millions of users.
• Since 1996, when Opera released its first browser, it has remained one of the key players in the global internet browser market.
• On October 26, Opera Limited will publish its financial report for the third quarter of 2023.
• Additionally, Opera had approximately 316 million monthly active users, down 3.4% year-over-year.
• We initiate our coverage of Opera Limited with a "hold" rating for the next 12 months.

Opera Limited ( OPRA ) is a world-renowned technology company headquartered in Oslo, playing a key role in the modern world, providing services and products to hundreds of millions of users. The company's product portfolio consists of several browsers for mobile devices and PCs, Opera Ads, Opera News, various Web3 and e-commerce products, and more.

Since 1996, when Opera released its first browser, it has remained one of the key players in the global internet browser market. Its current browser products include Opera Mini, Opera Crypto Browser, Opera Browser, and Opera GX. Opera GX was launched in the second quarter of 2019 with many varied features tailored to the gaming community, which continues to grow significantly yearly. In the second quarter, the browser had approximately 23.7 million monthly active users, an increase of 39.4% year-over-year.

Moreover, on September 21, 2023 , the company reported that Opera GX had more than 25 million monthly active users, increasing the likelihood that the Opera Gaming division's product will become a commercial success despite increased competition in the market.

A few days after this press release, the company conducted a secondary public offering of 6.88 million American depositary shares at $12.25 per ADS . Mr. Market reacted unfavorably to this event, which ultimately caused its share price to fall by more than 24% in less than a month.

Despite the company's revenue growth from quarter to quarter, the five largest shareholders with a total share of 6.02% have long been such relatively small financial organizations as Greenhouse Funds, Marshall Wace, G2 Investment Partners Management, Arrowstreet Capital, and Millennium Management.

On the other hand, the second quarter of 2023 demonstrated mixed results, as Opera Limited's revenue exceeded analysts' expectations, but at the same time, it has been showing a decline in EPS for several quarters, thereby reducing interest from institutional investors. Additionally, Opera had approximately 316 million monthly active users, down 3.4% year-over-year.

On October 26 , Opera Limited will publish its financial report for the third quarter of 2023. According to Seeking Alpha , Opera Limited's third-quarter 2023 revenue is expected to be $98 million to $101.39 million, up 16.8% year-over-year and 8.8% below analyst expectations for the prior quarter.

At the same time, under our model, the company's total revenue will be within this range, amounting to $100.4 million. The key factors that will contribute to Opera Limited's revenue growth year-on-year and quarterly will be the growth in the number of users of the content platform called Opera News, the continued positive dynamics of advertising revenue, and the increase in the number of browser users in Western markets.

We forecast that Opera Limited's operating income margin will continue to decline in the coming quarters, including due to the need to increase the amount of content, and will reach 12.5% for 2023. Meanwhile, in 2024, this financial indicator will increase to 14.2% due to a growth in the company's revenue, an increase in the number of Opera GX users, and our anticipation of the Federal Reserve cutting interest rates in the second half of 2024. This event is essential for financial markets and will help accelerate the pace of the global economic recovery.

According to Seeking Alpha , Opera Limited's third-quarter EPS is expected to be $0.15-$0.2, which is 5.9% higher than the consensus estimate for Q2 2023. At the same time, according to our model, Opera Limited's EPS will be slightly higher and amount to $0.2.

Furthermore, the company's Non-GAAP P/E [TTM] is 16.22x, 10.32% lower than the sector average. On the contrary, Opera Limited's Non-GAAP P/E [FWD] is 14.92x, which is 45.66% higher than the average over the past five years. As a result, this is one of the factors indicating its significant underestimation by Mr. Market during the period of stabilization of hydrocarbon prices, which also gives confidence that the Fed will be able to curb inflation in the future.

Unlike many companies in the technology sector, Opera Limited's debt has remained extremely low in recent years, leaving its financial position less vulnerable in the event of another Fed rate hike in 2024.

At the end of the second quarter of 2023, Opera Limited's total debt was about $8.1 million, down 40% from 2021. On the other hand, despite the low growth rate of the company's EBITDA from year to year, the total debt/EBITDA ratio decreased from 1.96x to 0.13x.

Conclusion

Opera Limited is a world-renowned technology company headquartered in Oslo, playing a key role in the modern world, providing services and products to hundreds of millions of users.

Despite a decline in the company's gross margin and an increase in the number of its total shares outstanding, its share price has risen by more than 2% over the past six months.

On the other hand, in the second quarter's quarterly report, despite the world's continued geopolitical tensions, Opera Limited raised its revenue guidance for 2023 from $380-390 million to $373-390 million.

At the same time, we believe that while there is a high probability of another rate increase by the Fed in the coming months, investors will not have a significant interest in investing in growth stocks, which include Opera Limited.

We initiate our coverage of Opera Limited with a "hold" rating for the next 12 months.

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