Introduction

For those of you, not familiar with Opera, Opera was established in 1996 as a browser company and it is one of the few survivors from the Internet Explorer era. It was bought by a consortium led by Yahui Zhou in 2016 for $600m. It was listed in 2018 as OPRA on Nasdaq.

But Opera is no longer just the browser company. In fact, its core browser business contributes about half of its revenue through search monetization. The other half of revenue is contributed by its news app’s which are top news apps on both android and app store. What Opera has done successfully is to take its browser users and then get them to other services like News and wallet and fintech. They call it Browser+ strategy.

It also used its browser user base to spin off 2 businesses - OPay, a leading mobile wallet and mobile money operator in Africa where it has 13% stake and Nanobank, a micro credit provider in emerging markets of Africa, Asia and America where it has 42% stake.

It also opportunistically invested 30m for 20% stake in starmaker which is social network for music lovers and Karaoke artists and is growing like a wild fire in last one year.

Business Model

Opera’s primarily makes money from its user base of 380m users by monetizing search and placing ads in the form of speed dials and bookmark ( affiliate marketing)

Last year, they acquired 2 small companies - Pocosys and Fjord bank and used Pocosys to build a new fintech product called Dify which was pilot launched in Spain in Feb 2021. Initially Dify will provide an integrated wallet, Debit Card and Cashback for its users with plans to launch additional services like BNPL/Credit and fractionalized share investing to its 50m active users in Europe.

Early 2021, they acquired leading 2D gaming engine company, YoYo Games and launched a Gaming division combining its gaming focused browser Opera GX which is growing quite rapidly to 9M active users since it launch in June 2019. Opera plans to build a gaming community around these 9M users and its thousands of GameMaker developers and could potentially expand into e-sports.

Opera’s Valuation Disconnect

Opera reported revenue of $163m in 2020 and its search and ad business was impacted by covid just like many other companies. But Opera has come out much stronger post covid and raised 2021 guidance to $245m, representing 50% growth at top end. They still consider this a conservative guidance as they have not baked in the revenue contributions from their fintech Dify and YoYo games.
Opay, where opera holds 13% interest has raised $170m at a valuation of about $500m in external funding from the likes of Softbank, Meituan and was doing $300m in TPV per month in 2019. In 2020, Opay TPV grew by 4.5 times to $2B in December and although Opera did not share the exact TPV for March 2021, they confirmed that its TPV increased in March 2021 compared to December 2020.
Nanobank was hardest hit by covid. Pre-covid it was doing 125M revenue per quarter at 30% margin profile but its recovery is slow since its largest market, India, is still dealing with Covid and Nanobank has prioritized profitable growth over revenue in the short term, rightfully so. In Q4 2020 and Q1 2021, it has done about 46M and $50M in revenue at 30% and 10% margin profile. However, Opera has stated that, they do expect Nanabank to reach pre-covid level of $125m/quarter run rate in late 2021.
Starmaker has been on hockey stick growth path since 2020. Starmaker had a 2018 exit run rate of $17m+ when opera invested 30m for 20% stake. Starmaker exited 2020 with $130m+ run rate and in Q1 2021, it has about 38% sequential growth with a run rate of $180m.

OPRA SUM-OF-PART VALUATION

Since Starmaker announced 3x growth in 2020 and 130m run rate, I used $43.33m( 130m/3) as the Q1 exit run rate and then used arithmetic series sum over revenue of 11M in Q1 and 32.5M in Q4 to give total revenue of $87m [ 4*(11+32.5)/2 ]in 2020. I am assuming 25%, 15% and 5% sequential quarterly revenue growth in 2021 from the base of $180m run rate as reported in Q1 earnings resulting in Q1 revenue of $45M and Q4 revenue of $68M and arithmetic sum giving 2021 revenue of $226m [ 4*(45+68)/2 ]
Opay does not report revenue run rate but TPV. Since Opay report 4.5x TPV growth in 2020, TPV grew from $445M in January 2020 to $2B in December 2020. I am taking arithmetic series sum to get the total TPV of $14.7B for 2020 [12 * (445 + 2000)/2 ] . Although Opera did not reveal the TPV for March 2021, they stated that the TPV is growing nicely. Along with additional products and launch in additional countries, I am projecting 2x growth in TPV in 2021(a deceleration from 4.5x growth in 2020), with a TPV of $2B for Jan 2021 and $4B for Dec 2021. Taking the arithmetic series sum gives expected 2021 TPV of $36B. I have looked at airtel Mobile Money and M-pesa revenue to TPV ratio ( 0.008 for airtel and 0.006 for M-pesa). Applying the average of 0.007 revenue to TPV ratio, gives Opay 2020 revenue of $103M and 2021 revenue of $252M.

Using this, the sum of the part valuation of Opera is as follows:

Keep in mind that Upstart holding($UPST) is trading at 20x revenue multiple though, it has lower margin profile than Nanobank. However, I am using only 8x multiple for Nanobank since it is projected to grow revenue at 29% compared to 100% for UPST.
Pinterest and Snap commanded a 50-70x revenue multiple during their 150% growth phase. I am using 40x multiple for starmaker.
Klarna, AfterPay, Square commanded 30-40x revenue multiple during 200+% revenue growth, I am using 20x revenue multiple for Opay

Update : Per techcrunch, Opay is in the middle of raising 400m at more than 1.5B valuation. I think it will be more towards 2B than 1.5B. I believe this undervalues Opay though but we have to wait and see who the investors are in this round, and is there any strategic partnership involved to accelerate the expansion and growth in 2021/22.

Bull Case - Assuming continuation of Similar Growth into 2022

Bear Case - Assuming growth will significantly slow down on all these verticals

The Total Sum of the part valuation of Opera is $5.8B as bull case and 3.5B as base case, massive disconnect from $1.2B Opera is trading after Q1 2021 results.

New Growth Initiatives

As if Opera is not undervalued enough, Opera also has 2 new growth initiatives which could offer *significant* additional upside.

Opera has ambitious growth plans with a new fintech initiative, called Dify, in Europe. What I like is the tight coupling of Cashback/Coupons/Payment/CryptoWallet in the browser. Imagine 10% of 50M users of opera browser in Europe use dify, and spend average of $500/year, Opera could get $2.5B/year of transactions/payment through them.If average cashback is 5% of transaction amount, dify’s rev can be be $125M/year. Although too soon, if Opera’s is successful in getting 10% of its browser users in Europe to use Dify or gain additional browser users due to popularity of Dify, one could argue that Dify, in itself, can grow into billions of dollar of business. You can see how Klarna, Afterpay are valued in private valuations today. For comparison, think, Honey, which paypal bought for 4B dollars and Cashback aspect of Honey is just one part of overall Dify value proposition.
Opera also recently bought YoYo Games, makers of popular indie 2D game engine, game maker. Time will tell if they can compete against powerhouses like Unity or Roblox, but you have to give benefit of doubt to Yahui Zhou, the 60% owner of Opera. He has knack for identifying boring assets and turning them into growth engine. Who would have thought that Opera Browser business, which he bought for 600M, can launch many new and exiting businesses and also grow its core with differentiated offering. We just need to wait and see what future brings for this.
They also bought a bank in Europe, Fjord Bank. They have not shared their plans on what they are going to do here, but if they have ambition to be neobank like N26 or revolut, Opera can quickly scale this neobank given its large user base. They can offer investment services once they reach critical mass as part of this fintech offering.

Assuming Dify and Gaming takes off, I do expect significant revenue expansion of Opera Core from 260M-270M in 2021(63% YoY growth), to 380-400M in 2022( 47% YoY growth and 500-550M in 2023(35% YoY). This growth would be at very high margin and I expect OPRA to generate 25-30% margin with that. This type of growth commands a revenue multiple of 20+.

Conclusion

I believe Opera is massively undervalued and this disconnect primarily stems from Wall Street Analyst not able to size and value the exponential increase in the valuation of Opera’s minority investment in 2021. This makes Opera one of the most undervalued hidden gems to be discovered in the market.

P.S :

Disclaimer : This is not investment advice or recommendation. Do your own DD on OPRA and let me know if I am wrong in my analysis.I own OPRA shares.These are my thoughts on why I think OPRA is massively undervalued by market. Appreciate if you do your own DD and research as well and reply/comment on my twitter.

Bryce’s Analysis on undervalued growth stocks

Opera - A Massively Undervalued Story