Opera: Debt Free And Fast Growing Browser Business

Summary

• OPRA's Browser is growing at 25%+, with 20% of revenue now in NA.
• Margins are rising along with revenue.
• Recent actions indicate a shareholder-friendly company.
• OPRA is the world's most downloaded independent browser.

OPRA is headquartered in Oslo, Norway

Leonardo Patrizi/E+ via Getty Images

Opera Limited (NASDAQ:OPRA) is one of the world's leading browser providers and an influential player in the field of integrated AI-driven digital content discovery and recommendation platforms (company presentation here). Providing faster and more innovative web browsers, Opera is the everyday browser of choice for more than 321 million people. The company's headquarters is in Oslo, Norway.

In our opinion, management is firing on all cylinders. 2022 guidance is for revenue of $323 million - $326 million, representing 29% year-over-year growth at the midpoint, and adjusted EBITDA (Earnings before interest, taxes, depreciation and amortization) of $62 million - $64 million, a 19% margin at the midpoint, up from 11% in 2021. Opera has been investing in its business for growth opportunities and therefore we believe normalized adjusted EBITDA margins would be in the 25% - 35% range.

Opera has a rock-solid balance sheet. As of September 30, 2022, it had cash and marketable securities of $201 million and $168 million of present value of receivables from the 2022 sales of Nanobank and Star X. Opera holds a 6.4% ownership in OPay, the largest mobile money provider in Nigeria. Opera is also debt-free.

As further proof of management's commitment to maximizing and unlocking shareholder value, in addition to the remaining $35 million of its existing buyback authorization, Opera acquired the shares of a pre-IPO shareholder, 360, representing a 20.6% stake, at $5.50/ADS, or about $129 million. Lastly, Opera recently declared a special dividend of $0.80/ADS, which amounts to roughly $71 million.

Valuation:

• Browser EBITDA 80 million (assumes EBITDA margin of 20% on 400 million rev)
• 12x EBITDA Multiple
• Browser Enterprise Value (EV) 960 million
• OPay 68 million (assumes 80% of fair market value per balance sheet)
• Total EV 1,028 million
• Debt 0 million
• Cash, mkt sec & PV of rec'v from sales of investments 170 million (estimated; adjusted for buyback of 360 stake & special dividend)
• Market Cap 1,198 million
• O/S 90 million (adjusted fully diluted shares converted to ADSs)
• = Implied price $13.30/share

We believe the share price discount to our estimate of fair value is in part due to the fact that Opera is 81% beneficially owned by its Founder/Co-CEO/Chairman, Yahui Zhoi. Such large ownership gives the founder control and prevents influence/activism by independent shareholders. We think this discount is overdone as the Chairman and management team have done an outstanding job building the business. As the company grows its North American and Latin American businesses we believe it will increasingly get more looks from potential investors.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of OPRA either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The specific security identified and described does not represent all of the securities purchased, sold, or recommended, and the reader should not assume that investment in the security identified and discussed was or will be profitable.

Comments

[atom]

My last OPRA stock has been called; I had 12.5 strike MAY calls sold on it. Its been a good stock for me, as calls at a good price were able to be sold periodically for the last several years. In my last attempt, OPRA zoomed up, and I decided not to try to roll out my calls.

[Timmy !]

Willing to raise your fair value Jim?

[irongate]

seems like they just need to say that their search is AI enabled. lol

[oblvion]

I use Opera. It needs to be supported by many Sites. That "does not support Opera" is an issue until It won't be anymore.

[Jacob Olson]

There is no reason for OPRA to exist in its current form. Either Yahui/Kunlun should tender for the remainder of the company or OPRA should be re-capitalized in some way that will make it more attractive for investors and probably more tax efficient. ADS shares of a Norway-based firm majority owned by a Chinese company make no sense and there are governance concerns here too if you look at the background of the directors. Re-domicile in the US or sell the company, break it up into pieces. Buybacks and special dividends are nice but the likelihood of future sketchy related party deals seems high. Foreign taxes took a pretty big chunk out of that special dividend. Maybe others have ideas of how this company could be cleaned up but they need to initiate strategic alternatives as this is not an optimal company to be public.

[atom]

@Jacob Olson Thanks for confirming the 2.5% taken out was for foreign taxes.

[Jacob Olson]

@atom The Norwegian tax rate is 25% on dividends. The 2.5% fee I was also charged is likely an ADR fee of some sort on the dividend.

[atom]

I've held OPRA for three years and made about 50% of my total holdings by selling calls at one period when volatility was high. The special dividend adds on another 10%. So my return is rather good.

All my shares are likely to be called in the next 6 weeks, and I won't miss them. The company doesn't really seem to have a solid business plan to monetize the browser's growth; management has tried various ideas -- some related to the browser, some not -- but with limited success.

[Timmy !]

Jim is back! Time to sell? 😉

[Jop88]

Thx for the article. I'm surprised that a company with +300 mil users doesn't get more attention.