2023-07-21 16:00:00 ET
Summary
- Opera stock's outperformance has been marred by the timely $300M mixed shelf offering, decimating its stock price by -28.9% within a day.
- The possible share dilution and the fact that the sale will not benefit the company's balance sheet may have accounted for the sudden pessimism.
- Combined with OPRA's stock premium valuations, compared to its browser/tech peers, we believe that there may be more volatility in the near term.
- Investors may consider capitalizing on the recent rally and taking most (if not all) of their gains off the table since OPRA may be the next battleground stock.
- With OPRA being an ADS and shares "deposited with The Hong Kong and Shanghai Banking Corporation Limited," investors must also note the geopolitical risks, as similarly highlighted by Warren Buffett.
The Opera Investment Thesis May Be Full Of Ups And Downs
OPRA 9M Stock Price
Opera Limited ( OPRA ) has had an impressive run up of +602.78% to its peak over the past nine months, well outperforming the SPY/ QQQ and its search engine/ browser peers, such as Alphabet ( GOOG ) and Microsoft ( MSFT ).
With this cadence starting ahead of the ChatGPT hype, which has similarly propelled MSFT and GOOG to new heights, as the bull market supposedly starts, we suppose much of this optimism is likely attributed to the company's return to GAAP profitability since the FQ3'22 quarter.
OPRA reported an expanding annualized topline to $348.2M (-9.5% QoQ/+21.6% YoY) and moderating operating expenses of $144.6M (-12.2% QoQ/ -19.7% YoY) in the latest quarter.
This has probably led to the management's raised FY2023 guidance , with revenues of $381.5M (+15.2% YoY), adj EBITDA of $80M (+56.1% YoY), and adj EBITDA margin of 21% (+5.6 points YoY) at the midpoint. Combined with its growing annualized ARPU of $1.08 (+30% YoY), it appears that there is massive runway for growth after all.
Unfortunately, this optimistic cadence has been marred by the recent $300M mixed shelf offering , which has drastically plunged the OPRA stock prices by -28.9% within a day.
While capital raises have conventionally been used to boost most companies' balance sheet, currently at $84.84M (-28.5% QoQ/ -53.4% YoY) by the latest quarter, this is unfortunately not the case for OPRA this time:
We will not receive any proceeds from the sale of any securities by the selling securityholders. The selling securityholders will receive all of the net proceeds from the sale of any securities offered by them under this prospectus. ( Seeking Alpha )
This is an interesting choice indeed, since OPRA's investors are looking at a potential dilution of up to 141.77M shares , easily adding on to the 179.82M of outstanding ordinary shares as of July 12, 2023. This cadence suggests a direct benefit to the two largest shareholders, namely Kunlun Tech Limited and Keeneyes Future Holding, instead of the browser company.
Assuming so, it is unsurprising that the stock price has plunged as it has in one day, especially due to the unnatural run up from the October 2022 bottom of $3.92 to its peak of $27.83 and the timely $300M cash out.
Combined with the insider selling worth $66.65M in June 2023 by the Chairman and CEO of OPRA, it appears that the management/ shareholders' timing has been highly strategic, though contrary to the conventional shareholders' interest, in our opinion.
This alone demonstrates the risks of holding American Depositary Shares [ADS], especially since the management "will not treat you as one of our shareholders and you will not have shareholder rights," with the shares "deposited with The Hongkong and Shanghai Banking Corporation Limited."
The latter opens up geopolitical risks as well, similar to those faced by Taiwan Semiconductor Manufacturing Company Limited ( TSM ), Alibaba ( BABA ), and BYD Company Limited ( BYDDF ), with Warren Buffett reducing Berkshire Hathaway's ( BRK.A ) ( BRK.B ) stakes on Chinese-based ADRs for similar geopolitical risks.
OPRA investors beware.
So, Is OPRA Stock A Buy , Sell, or Hold?
Unsurprisingly, OPRA is trading at a premium at NTM EV/ Revenues of 4.47x and NTM EV/ EBITDA at 21.65x, compared to its 1Y mean of 1.79x/ 8.79x and 5Y mean of 2.75x/ 16.48x, respectively.
The OPRA stock also trades higher than GOOG at NTM EV/ EBITDA of 12.58x, likely attributed to market analysts expecting the former to record an expansion in its EBITDA generation at a CAGR of +20.2% through FY2025, compared to the latter at +11.6% and MSFT at +11.1% at the same time.
Then again, we believe the optimism is over baked, since OPRA only records an EBITDA of $17.33M (-6.4% QoQ/ +207.2% YoY) and a margin of 19.9% (+0.7 points QoQ/ +12.1 YoY) in the latest quarter.
This is compared to GOOG's $20.6B (-7.8% QoQ/ -13.6% YoY) / 29.5% (-0.1 points QoQ/ -5.5 YoY) and MSFT's at $25.9B (+4.2% QoQ/ +7.3% YoY) / 49% (+2 points QoQ/ +0.2 YoY) at the same time.
It is also important to note that OPRA is more-or-less a one trick pony as a browser provider, compared to the well-diversified advertising/ tech/ game giants in GOOG and MSFT. While the former may also offer generative AI services in collaboration with OpenAI, it is uncertain which browser may emerge as the winner, with the battle still ongoing.
Based on OPRA's NTM EV/ EBITDA, the projected FY2023 EBITDA, and the ADS equivalents outstanding of 89.84M as of March 31, 2023, we are also looking at a fully baked in price target of $19.27, suggesting minimal upside potential from here.
OPRA 5Y Stock Price
Combined with the overly optimistic run up to the recent stock price heights of $27.83, we believe OPRA is trading at a risky level, potentially triggering more volatility in the near term, with Mr. Market likely to further digest its prospects in the near term.
Depending on how the mixed shelf offering proceeds, we suppose investors' and market sentiments may have turned bearish, especially with the recent highly profitable transactions.
As a result, long-term investors may consider doing a similar move as the insiders, by capitalizing on the recent rally and taking most (if not all) of their gains off the table, since OPRA may be the next battleground stock
On our side, we prefer to err on the side of caution and rate the OPRA stock as a Hold (Neutral) for now. The first battle has just begun.
For further details see:
The Opera Battle Has Just Begun - Time To Take Gains