Opera - Analysis of Stellar Q2 2021 Result
While it may seem like Opera stock can never go up despite any amount of positive news and consistently great results, I think patients holders will be rewarded handsomely for ignoring all the noise and negative news and that time may come very very soon.
87% QoQ Revenue Growth to $60.2M — A beat by $4.1M(7% beat to midpoint)
17% sequential increase in revenue —Largest increase since going public
Breakeven adjusted EBITDA
95% gross margin
49% sequential increase in Opera News revenue
Increased FY’21 revenue guidance 2nd time this year to $242-247M ( 48% YoY growth at midpoint)
Adjusted EBITDA FY’21 guidance of $10-$20M
Cash and cash equivalent of ~$200M
Despite 4 successive stellar quarterly results which showed that Opera has come out stronger from covid slump than when it entered it, it has not gotten any investor love.
Stock has been languishing around $10 for major part of Q2’21 despite following 2 positive news
Beat and raise Q1’21 results
News of $400M Opay’s funding round at ~$1.5B. Opera had 13.1% stake before and since then, they have sold 29% of that stake for $50M.
Toroso Investment, which most like caused the spike in SP from $9 to $13 when they bought 1.2M ADS back in Feb’21 liquidated their entire OPRA holding early June’21 causing ~25% drop from ~$12 to ~$8.70 in 2 days. Although stock immediately recovered into low 10’s , and since then has been hovering around $10, until the Q2’21 results announcement.
It is a mystery why would Toroso buy entire 1.2 million shares in couple of days causing the SP jump and then sell all of that in 1 day causing stock to drop, in turn causing them a loss of 30-40% on their investment.
Other value funds like Roumell Asset Management scooped up these shares at the fire sale price of $9 as seen by Q2 filings. Toroso’s loss = Roumell’s gain
My Take from earning call
Caution - I have lot of conjecture here and I could be completely wrong in my thinking but still want to write this out to see if any one else with more experience can confirm or poke holes in my thinking.
Compared to Q1’21 earnings call, despite a beat and raise qtr, Q2’21 call was bit subdued. Only 3 analysts showed up and only asked low ball questions.
Opera did not have any commentary about its minority stakes in its prepared remarks or earning release other than that small bit about 29% Opay stake sale, which was surprising given that Opera has talked extensively about them in last 2 earning announcement and also in prepared remarks.
Opera did not even disclose what is its current Opay stake. Why? I do not understand. Why would they not say that current stake is 9.3% ( or X% ) if that is true. Why talk in relative terms — 29% of its stake. Is that stake same as 13.1% after the $400M funding round as reported in media, or that stake was diluted significantly lower as part of funding round.
I think the knowledge of who participated in Opay’s funding round and who Opera sold their stake too, would be immensely positive for Opera’s stock and hence it has been kept secret.
It almost felt like Opera management already had another private call with these analysts and they collectively agreed to not ask any questions about Opay, Starmaker and Nanobank. It gave me that vibe that Opera management and Analysts did not want to create any excitement around Opera stock since it was trading around lows of the year($9.55) when earnings were announced. Why would Opera management do that ? I am still scratching my head and if you have any theory or rebuttals, pls comment so i can learn as well. if I have to guess —
This is last ditch attempt to frustrate retail holders to make them sell their stock. Opera management and Analyst know that stock price can not stay at these depressed level much longer than may be a quarter or two, and may be many investors are inquiring about Opera stock already and dropping the stock price to mid $8’s is a feeble attempt to avoid limelight by sowing doubts. Almost no volume in OPRA after the earning annoncement so MM can manipulate SP which ever way they want.
What is contrarian arguments on the stellar earnings - Opera’s marketing and distribution expenses increased sequentially from $25.3M to $35.3M —increase of 40%. This is about $20 million higher than the average spend over the previous 8 quarters. It can be construed as Opera is buying revenue. I think major part of this increase is distribution agreement with publishers for Opera news and that involves upfront cost but no analyst will point it out.
Not a single analysts brought up any questions about minority stakes other than use of cash proceed from Opay stake sale. The question about how they plan to use cash was just a low ball question to fill up earning call time when they already knew the answer to that questions. Why? Did they not find it odd that Opera did not talk about any of its minority stakes. In prior calls, same analysts asked couple of questions on nanobank , starmaker and Opay but not a single one in the Q2’21 call. I find it fishy.
This tells me we are nearing an event like Starmaker or Opay IPO/public listing, which would cause the Opera stock price to at least double and analyst(proxy for smart money) already know that.
I thought after Q1’21 results, Opera stock will continue its march towards mid $20’s especially when news have been very positive in Q2 and after validation of the value of minority stakes from the recent Opay funding round. Starmaker would have even higher valuation jump as it is on hockey stick growth since 2020. The entire Q2 and almost half of Q3 has passed, and after yet another stellar results, stock is still at yearly lows. I do not think there is any downside here for longer period, but lack of upward action has been frustrating to say the least.
I will continue to hold though as I believe Opera will have similar stock movement like Tesla when it catches attention. I remember, when Tesla was busy executing, all the analysts were downgrading stock, media was full of negative news around Elon Musk and Tesla. The same analyst had about turn in few months after Tesla’s stock prices more than doubled and since then Tesla has gone up more than 10x from those lows. I believe in same for Opera.
Opera has been busy executing last 4 quarters. I like their execution. Other than slight delay in Dify ramp up, they are executing very well. I thought Dify would provide around ~15M-20M upside to FY’21 $245M guidance had they launched in Germany and BNPL by now, but that does not seem to be the case. All that upside would be in FY’22 and current FY’22 estimates at $280M seems to be quite low.
At $1.0B market cap, Opera stock has been languishing for 3 year since going IPO at $12 but now, while revenue have gone from ~$134M in 2018 to 48% expected YoY growth to $245M FY’21 revenue, and many exciting growth acceleration opportunities with its fintech and gaming initiatives in execution phase, I think it is ripe for a big move to upside very soon.
While it may seem like Opera can never go up despite any amount of positive news and consistently great results, I think patients holders will be rewarded handsomely for ignoring all the noise and negative news and that time may come very very soon.
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, theory or conjecture or missed any key aspects. I own OPRA shares .These are my thoughts on why I think OPRA is massively undervalued by market but will eventually realize its true value as it keeps on delivering good results. If this analysis, intrigued you to look into Opera, please do your own due diligence, research and reply/comment on my twitter or on this blog if you agree/disagree with my analysis.