Opera Ltd : Updated Q2'22 Analysis
Q2’22 Earnings Summary
Search revenue $33.7M , +13% YoY
Advertising revenue $43.1M , +49% YoY
85% GM ( ~10% lower than last year due to higher pass through ad revenue)
AEBITDA $16.6M - 21% Margins
28% YoY reduction is Marketing and Distribution Expenses
$15M of un-realized loss in Marketable securities
Repurchased 1.3 million ADS at $5.30 average price
Increased FY’22 rev guidance to $313-319M and ABITDA to $53-60M.
Overall a strong quarter beating top end of rev guidance by $4M and ABITDA by $4M. The market reaction to earnings has been muted, mostly due to current market conditions but also partly due to Nanobank deal restructuring.
What is Next
Opera Gaming initiatives are on fire and though they have not monetized either GX, Gamemaker or GX.games fully but this offer an interesting upside in 2023.
Opera mentioned that they are looking into other customized browsers which is wonderful idea to cater niche segments. I have already requested this feature for Parents from Opera, hopefully this see the light of the day someday.
Opera has good shot at $100M revenue in Q4 if economy does not crater. I think this will mark the turning point in stock if Opera can do that. by that time, hopefully Opera can buy another 3-4 million ADS and reduce the float to 111 million
We have to assume that Opera may not be able to collect most of the $131M at this moment from the Nanobank deal, given that this friend and family deal make Opera assume all the downside risks but does not allow Opera to participate in the upside, if any.
Opay seems to be doing great in Pakistan and Egypt so would be watching out for an IPO in FY’23 at around $3-4B valuation. Opera’s 6.4% stake, which is worth $128M could be worth $200+M by next year.
Combining Opera’s cash/marketable securities of $187M, with remaining $52M payment for StarX sale and $~200M of Opay stake and assuming no further payments for ~$130M Nanobank sale, core Opera is trading for less than ~$100M.
Who is Selling ( and buying)
Institutions with reporting requirements sold net 380K ADS from Q1 to Q2 ( holding 7.63M in Q1 to 7.24 in Q4).
Genesis has trimmed down its position from 5.7M to 1.8M in last 1 year. Wondering how much more selling Genesis will do. Hello, Why not reach out to Opera and sell directly.
Opera bought 1.2M ADS in Q2 and another 600k in Q3 so far.
This begs the question, that around 820K ADS were sold by someone to Opera in Q2 who does not have reporting requirements. Who sold these ADS ? Is it Tospring/BitMain which was holding around 4.1M ADS or GIC which is holding around 4.5M ADS but GIC have reporting their holding in the past.
The top 5 funds like Greenhouse and Goldman are still accumulating. So at some point, Opera would run out of ADS to buy to complete its 50M buyback unless both bitmain and GIC sell out completely ? Million dollar question and if anyone knows if GIC and BitMain still holding , pls update.
But if GIC and BitMain did not sell and hold their current positions, then there is very little ADS available for Opera from 114.2M outstanding ADS.
Around 113M is held by these institutions and Opera has outstanding ADS count of 114.2M at the end of Q2 and since then they have already bought another 600k shares. That leaves another ~600k shares to go around for Opera to buy, assuming current institutions maintain their position. This brings interesting what if scenario. If we get couple of days of 500k+ volume, What would happen to stock price.
Back to reality. Most likely bitmain and/or GIC are selling ADS or else there is very limited supply of ADS available for Opera to buy.
At this time, I expect Opera to meander around $5 until Q1 2023. Management is no hurry to raise Opera’s stock price given that buyback allows they to retires shares on the cheap and I would love them to buy another 3 million ADS at $5-6 price. The last 2 buybacks were at $9.5 and $7.5 average price; Opera addressable market , revenue and AEBITDA were all significantly lower back then.
So basically Core Opera continue to trade at below $0 to ~$100M depending on which math you are comfortable with. I think Once Opera can show its first $100M quarter, most likely Q4’22, market sentiment would turn around and who knows meme crowd may take note as well.