Opera - Chugging along towards $3B+ valuation with tailwinds

Summary

After 11 successive quarters of 20+% growth, law of large number finally caught up to Opera and it reported 17% YoY growth in Q4’23 when it reported in Feb. I was anticipating this as my own analysis did not find Opera monetizing better in Q4 than what I saw in previous quarters.

Overall for the year though, Opera managed to squeeze 20% YoY growth with $397M annual revenue, and it felt like this was indeed the internal target which they were shooting for. AEBITDA grew at much higher rate of 38% YoY to $94M at 23.6% margin.

Opera again guided conservatively to $450M-465M 2024 revenue with $108M AEBITDA, 24% margin at midpoint. I again think, as the year progresses, these targets would be revised upwards and Opera would again end up with 20% YoY growth($476M revenue) at 25% margin ( $119M). These margins would be sufficient to fund about $71M of total annual dividends($0.80/ADS) for foreseeable future along with providing enough liquidity for growth initiatives.

I expect even higher YoY growth than 20% if Opera manages to fix poor execution on the cashback front. Opera cashback has been the biggest disappointment from 2023 along with not partnering with Oprah. Opera’s cashback website is slow to load, has a “flea market” look and is not marketed at all. Just a single speed dial dedicated for top cashback offers, which dynamically changes based on number of impressions and clickthrough, would bring much higher traffic and revenue to accelerate growth towards 22-25%. It is hard to fathom that Opera with its deep expertise in building beautiful UX interfaces for GX, GX.games and Opera one, would let Opera Cashback look like a website from 19th century.

Despite the lack of attention to Cashback, Opera is well placed towards 20% YoY revenue growth in FY24 with couple of tailwinds.

DMA - Europe new law for gatekeepers

Europe’s Digital Market act has opened up opportunity for Opera to gain market share in 400M strong smartphone users. You can read all about DMA on internet. Opera called out 164% growth in new smartphone users for iOS and 54% for android right after DMA went into effect. You can not expect this growth rate to sustain but if Opera gets 3% of additional users due to DMA in next 12 months, that will amount to 12 million users.

Opera has 50M western users today based on latest data from Opera( chart below) and I think about 35M of those are desktop browser users, 5 M News App users and 10M mobile browser users. Out of 10M mobile browser users, I think 5M comes from western europe. So, 3% market share gain —12 million new users— would increase Opera’s european browser base by 240% and total western browser base by 27%.

Expanded Google Partnership

Opera’s current search agreement with google was signed in 2021 and was set to expire in Dec’24. Google has an option to extend it by 1 year and they just did that. I was expecting Opera to negotiate at much better terms with the next agreement since Opera’s western user base has grown significantly since and now has a gaming focused browser with close to 30M MAU which are majority western users thus monetiz-able at much higher rate than the generic one. Google pays mozilla $550M annual for search partnership and although Opera is not at the size of firefox but I do think that their is an upside of around $100M with better terms given Opera’s current revenue share from Google of about $180M.

My hunch is that Opera recently added display advertising to its google agreement and that may be the reason that why the search agreement was extended by 1 years well in advance by google. If this is true, this will be very material in FY24 and may mean significant upside revision to FY24 revenue guide.

Conclusion

I think Opera has the best product portfolio it ever had, and with all the trailblazing it is doing on AI front, it is getting good visibility in media. I think it will again come back to 20% YoY growth this Q1 and if the DMA tail wind, as reported by Opera, continued, even at lower rate, in rest of March, I won’t be surprised if we get to $106-108M revenue with 25% AEBITDA.

Here are links to past articles:

Disclosure

• I do not hold a position with the issuer such as employment, directorship, or consultancy.

• I and/or others I advise hold a material investment in the issuer's securities.

• This is NOT an investment advice/recommendations. I am not a financial advisor. Do your own Due Diligence if you decide to trade/invest into OPRA.