OPRA - Opera: The Bottom May Be Here For Opportunistic Portfolios

2023-12-16 10:00:00 ET

Summary

• OPRA's monetization trend continues to improve, leading to its strong financial performance in FQ3'23 and raised guidance for FY2023.
• Despite a decline in monthly active users, the annualized ARPU has also increased, driven by the optimized Opera GX browser for gamers.
• OPRA's valuations are depressed compared to historical levels and sector medians, presenting an attractive risk/reward ratio for investors.
• The stock also offers a compelling dividend investment thesis, with an expanded forward dividend yield of 7.4%.
• With the next $0.40 dividend to be paid out by January 9, 2024, we maintain our Buy rating on the OPRA stock.

We previously covered Opera Limited (OPRA) in September 2023, discussing its improved investment thesis after the drastic correction in July 2023, with the normalization in its valuations to pre-pandemic means triggering an improved margin of safety.

Combined with its profitable growth trend, we had rated the stock as a Buy at its previous support levels of $13s for an expanded upside potential and forward dividend yields.

In this article, we will be discussing OPRA's enhanced monetization trend, naturally leading to its FQ3'23 double beats and raised FY2023 guidance.

The combination of the raised consensus forward estimates through FY2025 and the depressed stock valuations result in its highly attractive risk/ reward ratio for opportunistic investors. As a result, we maintain our Buy rating.

The OPRA Investment Thesis Is Even More Tempting At These Depressed Levels

For now, OPRA has reported a double beat FQ3'23 quarter , with revenues of $102.64M ( +9% QoQ / +20.3% YoY ), adj EBITDA of $23.75M (+16% QoQ/ +11% YoY), and adj EPS of $0.18 (+20% QoQ/ +80% YoY).

The top-line tailwinds are mostly attributed to the return in advertisers, with the company reporting excellent advertising revenues of $60.8M (+13% QoQ/ +23.8% YoY) and search engine revenues of $40.8M (+4.8% QoQ/ +15.2% YoY).

OPRA's Monetization Trend

OPRA's improved monetization is impressive indeed, with the declining Monthly Active Users (MAUs) of 311M (-5M QoQ/ -10M YoY) well-balanced by the growing annualized ARPU of $1.31 (+11.9% QoQ/ +23.5% YoY) by the latest quarter.

This is despite the QoQ loss in its browser market share to 3.15% by November 2023 (-0.16 points QoQ/ +0.88 YoY).

This is on top of the optimized Opera GX browser built specifically for gamers, with OPRA already reporting 26.1M MAUs in FQ3'23 (+2.4M QoQ/ +8.1M YoY) as the increased engagement accelerates its rate of monetization as the company's main ARPU driver.

In the intermediate-term, we also believe that the company may be able to improve its ARPUs, attributed to its minimal penetration to the Western Market Users at 16% by FQ3'23, with its monetization rate likely to increase with every share gain.

As a result, it is unsurprising that OPRA has offered an excellent FQ4'23 guidance, with revenues of $111.5M (+8.6% QoQ/ +15.8% YoY ) and adj EBITDA of $23M at the midpoint (-31.5% QoQ/ +1% YoY).

This implies an impressive expansion in its FY2023 adj EBITDA margins to 23.7% (+2.4 points YoY), compared to the previous guidance of 20% and the FY2019 levels of 13.6%.

With practically zero debt, we can also understand why the OPRA management opted to utilize its healthy balance sheet to return value to its existing shareholders, by consistently retiring shares to 91.22M by the latest quarter (-0.1M QoQ/ -22.75M YoY).

In addition, investors may want to note that the company started paying out a semi-annual dividend of $0.40 per ADS in July 2023, implying an excellent forward dividend yield of 7.4% thanks to its depressed stock prices.

OPRA Valuations

Thanks to the sudden reversal in sentiments from the previous $300M mixed shelf offering , it is apparent that OPRA continues to trade at impacted FWD EV/ EBITDA valuation of 10.86x and FWD P/E valuation of 12.83x.

This is compared to its 1Y mean of 12.14x/ 16.01x, pre-pandemic mean of 15.28x/ 25.88x, and the sector median of 14.75x/ 22.64x, respectively.

The Consensus Forward Estimates

The depression observed in the OPRA stock's valuations is surprising indeed, despite the double beat FQ3'23 quarter and raised FY2023 guidance.

Most importantly, the consensus has already raised their forward estimates, with the company expected to generate an improved top and bottom line performance at a CAGR of +16.1% and +24.1% through FY2025.

This is compared to the previous estimates of +15.6%/ +22% and its historical CAGR of +17.7%/ +0.9% between FY2018 and FY2022, respectively.

Based on the OPRA management's raised FY2023 adj EBITDA guidance of $89M (+30.7% YoY) and its FQ3'23 shares outstanding of 91.22M, we are looking at an approximate full year adj EBITDA per share generation of $0.97 (+36.6% YoY).

Combined with its discounted FWD EV/ EBITDA valuation of 10.86x, we believe that the stock is also trading near its fair value of $10.50.

Based on a similar calculation for the consensus FY2025 adj EBITDA estimates of $130.07M, there appears to be an excellent upside potential of +44.3% to our long-term price target of $15.40 as well.

So, Is OPRA Stock A Buy , Sell, or Hold?

OPRA 5Y Stock Price

With the OPRA stock currently appearing to be well-supported at $10s, we believe that these levels are highly attractive for opportunistic investors looking for dual pronged returns through capital appreciation and dividend income.

This is especially since its robust profitability suggests the safety of its dividends, with a TTM Dividend Coverage Ratio of 2.89% compared to the sector median of 2.70%.

With the next $0.40 dividend to be paid out by January 9, 2024, we maintain our Buy rating on the OPRA stock.

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