OPRA - Opera: Top AI Stock With Enormous Upside Potential

2023-08-30 14:52:49 ET

Summary

• Opera is a Norway-based company providing AI-enhanced web browsing experiences for Android, iOS, and PC users internationally.
• The company has rebuilt its popular browser from the ground up, making AI a core part of the browsing experience.
• Opera's stock experienced a sharp correction and presents a significant long-term buying opportunity now.

Opera Limited ( OPRA ) is a Norway-based company providing AI-enhanced web browsing experiences for Android, iOS, and PC users internationally. I first used Opera's browser on a PC around twelve years ago and recall having an excellent user experience. I was in Europe then, and of course, I was used to surfing the web with IE, Firefox, or Safari. Nevertheless, many people around me were using it, and Opera won me over with its clever setup and user-friendliness, and I've been a fan ever since.

Despite using Opera's clever AI-enhanced browser for years, I began investing in Opera's stock recently. Although Opera IPO'd at around $10 on the Nasdaq in 2018, it only appeared on my radar as a stock in the spring of this year. Several factors attracted me to Opera's stock, including its emphasis on incorporating AI with its platforms, significant user base, substantial profitability, robust growth prospects, and a relatively low valuation. Furthermore, Opera has been a low-profile company, is only valued at about $1.2B, could become a takeover candidate, and its stock has significant upside potential as we advance.

Opera's Massive AI Opportunity

Opera has done a fantastic job in remaking the browser experience . The company has rebuilt its popular browser from the ground up, making AI a core part of the browsing experience in its latest Opera One Browser. Believe it or not, this relatively small company from Norway is doing big things, recently introducing Aria , the first-ever native browser AI. With Aria, users get free access to a leading GPT-based solutions and the most up-to-date information from the web. Due to Opera's cooperation with OpenAI, users get free access to a top generative AI service. Aria enables users to join forces with AI to sift through web information, generate text or code, and much more.

Sharp Correction Brings Opera's Stock Down to Earth

Opera's stock remained rangebound in the $5-$10 area for years. However, the recent bear market brought shares down to an ultra-low below $4 a share . Then, we witnessed a robust technical rebound, followed by a healthy dose of AI hype, bringing shares up to a remarkably overbought level of around $28. After the $300 million mixed-shelf offering, many market participants used the opportunity to sell the news and take short-term profits in the stock.

Opera's stock initially fell by about 30%, but that was only the beginning, as the AI-related selloff picked up steam. Ultimately, Opera fell to its critical support level at around $12, creating a significant long-term buying opportunity. Therefore, I doubled down on my Opera position in the $12-$13 range, and here's why Opera has so much upside ahead.

Technically, we witnessed a 55% decline from the recent peak. Opera's stock sliced through the 50-day MA, finding support close to its 200-day MA. The RSI, CCI, full stochastic, and other technical indicators illustrate that the stock recently became highly oversold. Moreover, we're back around the IPO price for Opera, and there could be much more upside ahead.

How Many Users Do You Think Opera Has?

Opera had about 316 million MAUs globally at the end of Q2 2023. Moreover, many of Opera's users are in Western Europe, implying Opera can continue improving monetization, leading to higher revenues and more income as we advance. Moreover, Opera has an increasing number of users in the U.S., as Opera's browser accounts for about 4% of browser share in the U.S., a sharp increase from the recent less than 1%. Therefore, the company focuses on advancing market share in higher ARPU markets, and Opera is doing well. Globally, Opera has about a 3% market share , ahead of Firefox and behind only Chrome, Safari, and Edge.

Global Browser Market Share

While 3% may seem low, Opera has room for growth. It can improve user growth by increasing market share. Also, Opera has focused on monetization, suggesting it can increase revenues and profitability from its current user base. Furthermore, the global browser market growth should rise considerably, providing Opera with significant growth prospects and profitability potential as we advance.

Global internet browser sales should continue expanding. Moreover, the estimated 17.3% CAGR from 2023-2032 should provide substantial opportunities for Opera in the years ahead.

Why The Mixed Shelf Offering is Positive

Many market participants used Opera's mixed-shelf offering as a reason to sell its stock. However, the shelf offering doesn't specify the sale of any securities. Instead, it allows Opera to raise capital via debt or equity if needed in future years. Several positive factors are associated with this dynamic, as it provides the company with the resources to invest in growth as it expands in the coming years. Moreover, it should decrease the ownership concentration of the company, leading to a more significant float, more robust trading volume, and other favorable factors associated with its stock. Currently, Opera's CEO and Chairman control roughly 79% of its stock, which is exceptionally high. Therefore, the ownership concentration level should decrease, and the shelf offering provides the blueprint for a more favorable ownership structure in Opera's shares.

Robust Earnings Results

Opera's Q2 report came out about a week ago, and it was excellent. Opera beat top and bottom line estimates , providing 15 cents in GAAP income (beat of 25%). Moreover, Opera's Q2 revenues came in at about $ 94 million , roughly a 3% beat and a 21% YoY increase. Therefore, we see excellent income and revenue numbers, which we're witnessing during a slow economic phase. Also, ad revenues surged by 25% YoY, representing about 57% of total revenues for Opera. Search revenue increased by 15% YoY as the company focused on Western markets with high ARPU potential. Annualized ARPU came in at $1.17, an increase of 25% YoY. Furthermore, Opera's GX gaming browser had 23.7 MAUs, up 9% QoQ. Thus, we see the gaming segment also taking off for Opera, a promising dynamic as we move on.

Opera - Provides a Dividend

Opera recently announced a semi-annual dividend of 40 cents . This dividend suggests an annual yield of about 5.5% at the current share price. Also, we could see the dividend grow as we advance. Additionally, introducing the dividend implies that the company expects its profitability to strengthen considerably in the coming years. Furthermore, Opera's stock should experience increased demand due to its attractive dividend yield and probability of dividend growth in the years ahead.

Opera - Extremely High Ratings

On Wall St., Opera has a 5.0 strong buy rating, with an average one.-year price target of $20.25, implying an approximately 36% upside from here. Also, Wall Street's targets have increased steadily since the beginning of this year and could continue rising as we advance. Furthermore, Opera has an exceptionally high quant score of 4.85 out of 5 , rating the stock 10th out of the 204 companies in its industry. Opera's quant report card is solid, with grades ranging from a B- to an A+. This dynamic suggests Opera is positioned favorably to capitalize on its market position in the years ahead.

The Valuation - Still Very Cheap

Opera delivered 69 cents in EPS in its TTM. This result exceeds the expected 64-cent consensus estimate, illustrating an 8% beat rate in its last four quarters. Consensus estimates point to about 82 cents in EPS for Opera in its next four quarters, and if we apply a similar beat rate of 8%, Opera could deliver about 90 cents instead. Since Opera's stock is trading around $15 now, it's only around or below 17 times forward EPS estimates. Moreover, full-year 2024 EPS could come in around 94 cents (higher-end estimate), implying that its stock may be trading below 16 times 2024 EPS estimates.

EPS and Revenue Estimates

2025 EPS could come in around $1 or higher, illustrating Opera's 2025 P/E ratio may be below 15. Additionally, Opera's revenue growth rate should continue expanding at 15-20% in future years, illustrating the stock's low valuation. Opera also trades below three times forward sales estimates, implying the stock is now inexpensive. Due to Opera's significant growth prospects and substantial profitability potential, its stock price should appreciate considerably in the years ahead.

Where Opera's Stock Could Be in Future Years

Source: The Financial Prophet

Opera Risks Exist - Please Consider

Despite my bullish assessment of Opera's stock, risks exist:

1. Opera is an increased risk investment, as it is a relatively small company based in Norway and owned by a Beijing-based tech consortium. Also, the company's user growth has declined YoY, illustrating that Opera lost users despite its advancements in AI.
2. Other browsers have AI projects that could match or better Opera's Aria project.
3. Opera's growth and profitability may be worse than expected in future years.

Thus, Opera's stock comes with increased risk and is a relatively high-risk/reward investment. Investors should consider these and other risks before committing capital to an investment in Opera's stock.

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