Opera Software - Setbacks and Failures
Has/Will setbacks make it wiser and stronger
At $1.2B market cap, Opera stock has been languishing for 3 year since going IPO at $12, but now with 50% YoY revenue growth to $245M expected in FY’21 and forecast of 20%-30% growth in next few years, additional revenue and exciting growth acceleration opportunities with its fintech and gaming initiatives, I think it is ripe for a big move to upside soon.
But that is not the intent of this post. Those who follow me know that I believe Opera is one of the most undervalued stocks on Nasdaq and has gotten even ridiculously cheaper with strong execution in last 3 quarters and exponential growth in its minority stakes in OPay, Starmaker and Nanobank. The intent of this post is to call out the failures and setbacks Opera has experienced in its journey and will/has Opera come out stronger, post these setbacks.
Let’s talk about some of the failures and setbacks, some may be temporary and transient, Opera has along its journey since going public.
Opera tried to improve the stickiness of Opera ecosystem in Nigeria by building a classified offering called Olist back in 2019. Opera had grand plans to optimize the fragmented offline transactional market, more specifically real estate, with this offering. This was the fastest execution I have seen from Opera, to take an idea and then deploy it live in Nigeria with in few quarters. They tried to build up offline sales force in real estate market under Oplace brand name. As fate had it, covid hit hard in early 2020 and impacted Opera’s revenue and profits, they had to abandon Olist, well before they had any chance to scale this offering. Oplace was the first business Opera sacrificed well before it even got any chance to get off its foot. Since then, Opera has not invested any more in Olist and seems to be content to cede the market to Jiji.
The idea here was to build an offering similar to Zillow and Redfin but Nigerian real estate market is not mature enough for offline to online conversion and is still run by muscle men, so it was a prudent call to stop investing here until the market matures and business conditions are more favorable.
Opera’s Crypto La-La Land
Opera was the first browser to integrate crypto wallet in browser back in 2018. Now, we are well into 2021, and Opera still does not have a cohesive crypto strategy. While Opera has been trying to figure out what to do with its crypto strategy since launching its Crypto Wallet integration in 2018, many new startup’s have been founded with limited seed funding and have now grown into hundreds of millions of valuation and credible intellectual property. Crypto is one of Opera’s epic fail but they still have not given up on it. Other than few PR announcements here and there, which neither move the needle nor bring sticky users to Opera ecosystem, there has not been any progress on this front.
Crypto is a fast evolving field with new protocols and frameworks being introduced at fast pace. Opera does not have right talent and expertise to trail blaze and make a difference in this area. Unless Opera acqui-hire team of product experts and smart engineers with Crypto expertise, who can lead the vision and execution of Crypto strategy, I think Opera should abandon this effort and focus the engineering and product resources and R&D dollars on other opportunities(like Dify and Gaming) until it has superfluous funds to make such green field bets.
There are few initiative, which can really move the needle for Opera and which Opera should have prioritized and put resources in, have not seen the broad light of day despite Opera’s claim otherwise. I would not call them failures as yet, but they have been adversely impacted by execution challenges.
When Opera was much smaller and had almost half of its current revenue, it was more agile and decisive in its decision making which helped it to execute on its strategy to bring innovations to its browser and new products like Opera News. Now, Opera is much bigger and thus has geographically distributed teams which is showing up as drag on its execution speed and decision making.
Opera bought smaller companies(Pocosys, YoYo Games) to help expedite its fintech and gaming forays and this introduced further integration risk, execution delays and product quality challenges if Opera leadership is not decisive around product vision and strategy.
Here are the few initiatives which have been hit by execution delay and my take on it.
Opera bought Pocosys in Jan 2020 to get product, IP and license to operate a fintech in EU.
Opera announced they were testing BNPL solution in Spain in Q3 2020 with pilot users.
Opera announced Dify in Feb 2021 in Spain but has not launched BNPL offering yet, despite testing in Q3’20.
Opera had plans to launch Dify in additional countries like Germany in 2021 but at this time, it looks like these launches will be either delayed or launched with subset of product capabilities which Opera has originally planned.
Opera has changed its original direction around integrating cashback directly into browser and is going with the same approach as Rakutan and Honey - A browser extension which works across different browsers like Opera, Chrome and Firefox ( Still no Safari extension yet)
Been in IT industry, I have experienced first hand, how a project of this complexity can be delayed without clear vision and communication, Crisp and mostly frozen technical and product requirements and design, especially when teams are spread across multiple location even if they are in same/similar time zones. This initiative has been spread across teams in Norway, Sweden, Poland, Estonia and China and, Opera must be feeling the effect of lack of close collaboration across different teams and geographies.
Looks like the new EVP which they hired for fintech org in March 2021 has changed the product direction and Dify is running at least 6 months behind the internal launch schedule.
Opera bought YoYo Games in Jan 2021 and has launched a Gaming Division along with its Opera GX browser. While Opera GX is on fire, Opera still has not figured out a comprehensive gaming strategy.
Opera’s terms of service, as updated May 10th 2021, shows a new product offering called Gamebox which is steam like service where gaming publisher can publish games and Opera would take a cut when users make in app purchase or subscribe to the games. This service is yet to be launched.
Opera also has a gaming content site called gamedrops.opera.com which it beta launched over a year back but it has not moved out of beta until now. As of this week, this service seems to be decommissioned although you can still access it through the route 53 DNS - https://www.production.gamedrops.route53.opera.com/en/
While too early, I think this gaming division may end up in the same state as Dify without well laid out strategy and execution quality. Hopefully Opera Management take cue from its Dify execution and avoid similar pitfalls on the gaming strategy.
Opera has dabbled into Ecommerce/Lead generation business with https://deals.opera.com/ .
This is a comparison portal similar to credit Karma or bankrate.com.
This was launched more than a year ago and there has not been any movement on this front.
This is another green field bet Opera has placed but not sure if Opera has enough resources to take it to next level. Without proper direction and resource investments, this might end up as another of Opera’s shuttered experiment .
Opera bought a 10% stake in Fjord bank In July 2020, completion of remaining 90% stake depending on regulatory approval. Fjord bank has specialized banking license which will allow Opera to offer deposit and loan products. It has been over a year and this acquisition has not yet closed. Once closed, Opera will need to put significant resources if the strategy here is to become a Neo-bank in Europe.
Powerbets - Opera has 50% stake in it and Opera took a loss of $5M last year.
Olla - Ambitious Opera/Opay branded phone project in partnership with Opay, to own the hardware in Nigeria and then grow Opera ecosystem from there. Never really took off before it was shuttered.
A company of Opera’s size does not have financial wherewithal to place multiple bets and then have wishful thinking of them being successful. It needs to be decisive about where it can quickly scale and then put its focus, energy and resources on it.
Too many small experiments without enough resources end up just being hackathon projects and are productivity drain. Instead, those same resources could have been assigned to top 2 projects to speed up the execution and make an impact to top and bottom line.
In my opinion, Opera’s should focus on scaling Dify/Fjord bank as first priority where it has highest probability of being successful. With Opera’s scale, Opera has very little customer acquisition cost and it can use the gains from Dify to then further expand into other areas like ecommerce. Scaling Dify will also bring in premium ad inventory from leading retailers which Opera can further monetize with its ad network.
Despite some of the setbacks and execution delays in its green field bets, Opera’s Core businesses has grown much stronger coming out of Covid slowdown then going into it. Let’s talk about what is going very well for Opera.
Flourishing Browser Core
Over last 2 years, Opera Browsers has been coming out with one after another differentiated browser offering and is growing its user base despite not being the default on mobile, laptop or desktop. This is an amazing feet considering Opera is competing here with big guns and still able to innovate and grow its user base. In the western countries, Opera browser users have cult like following( including yours truly, a proud Opera browser user for over 10 years, as my personal browser , long before personal browser became a marketing tagline) and although the % share of Opera has stagnated around 2%, Opera is still adding users as new users start using its differentiated offerings.
Opera has built a completely new gaming focused browser, Opera GX and scaled it to around 10M users in just 2 years. Opera GX also has cult like following among gamers and once it reaches 15-20M users, it will see exponential growth from the viral effect. Most of the Opera GX users are in US and Europe and hence Opera is able to monetize them better than the generic Opera browser users.
Recent launch of Opera browser for Chromebook is another differentiated offering which would accelerate the adoption of Opera browsers in western countries.
All in All, Opera is flawlessly executing on its browser strategy and create a launch pad for building new legs as part of its browser+ strategy.
Opera’s AI based news app is the only personalized news app available in 50+ countries and in 30+ languages and the only which allow community sourced news via its Opera News Hub platform.
Opera news app has been #1 news app in all the major African economies for over 2 years since it was originally launched.
Opera launched its news app in US and Europe late last year and is investing heavily into growing its western presence. Most of the profit margins from Opera current businesses are going into scaling this offering in US and EU and has now become top 5 news app in both App store and google play store in US, UK, Germany and France.
Opera has just started monetizing its news app, so it has long runway ahead in terms of growing revenue from this leg.
Opera Ad Network
Opera is one of the top 10 publishers of ad inventory in the world, so it is not surprising that Opera is investing into building its own ad platform.
Opera has seen spectacular growth in Opera Ads: since 2019, revenue has jumped over 130%. The daily revenue run rate is up 50% year to date and is now exceeding $240,000 per day across our mobile products. It is tracking to over $80M in revenue for 2021.
Opera is targeting to bring in premium ad inventory through its own ad network as it scales Opera News and its Dify initiative in EU and US, which comes at very high margin and profitability.
Exponentially Growing Minority Stakes
Opay : Opay has gone from 0 to $1.5B valuation in around 4 years. Its last funding round in late 2019 was at ~$500m valuation and most recently, it was in talks to raise $400M at over $1.5B valuation — more than tripling its valuation in under 18 months, mind boggling when considering those 18 month overlapped with covid related lockdowns in Nigeria.
Starmaker : Starmaker has been on hockey stick growth path since 2020. Starmaker had 2018 exit run rate of $17m when opera invested $30m for 20% stake. Starmaker growth is accelerating —38% sequential growth from Q4’20 run rate of $130M to Q1’21 run rate of $180M.
Nanobank : Nanobank was most impacted by covid and has not recovered fully post covid. It was doing $120M per quarter pre covid at 30% margins, but has only recovered less than half of that run rate. With India on recovery path post covid 2nd wave, and expansions in Mexico and South America, Nanobank should reach the pre covid run rate by Q4’21 or Q1’22.
Opera Sum of part valuation of its Core business and its minority stakes is worth at least $30-$40 dollars, so market has not priced any contributions from its Dify and gaming initiatives. Even if we were to assume that both Dify and Opera Gaming will fail completely, it has no effect on Opera’s market valuation.
Opera is on its growth phase and is working on many exciting initiatives to grow revenue and earnings. The good part is, Opera FY’21 guidance did not bake in any meaningful contributions from Dify, so delays in ramping Dify should not have any impact on FY’21 guidance.
Opera’s new EVP of fintech, Allen Qilin Hu, rose the ranks in Paypal through its hyper growth phase and has engineering and product back ground. Considering his experience in launching WeChat pay, which since became the #1 finance app in China, I have very high confidence that he is the right leader to steer Dify into a differentiated product and quickly scale it when it gets launched in Germany and France and rest of Europe.
With the exception of Dify so far, execution speed and iterative product development in building differentiated features has been Opera’s DNA which is what has kept it alive when giants like Netscape perished in early 2000 amidst the Microsoft onslaught. I have no doubt that Opera can keep this mojo intact while it grows into multiples of its current revenue size. Temporary setbacks in Dify should serve as reminder to Opera Management on how to approach a new leg as it expands into newer verticals.
Setbacks and failures are parts of running business and only those companies which can learn and adapt from these setbacks, can go on to become successful in long run. Opera has the DNA, the user base and strong engineering and product teams to execute on its vision and strategy provided it does not spread itself too thin by dividing its attention on multiple moonshots at the same time.
I think Opera should double down on its Ad network, Dify and Gaming initiatives but pause its Olist, Crypto and E-commerce efforts such that it can allocate right sized teams to execute on the initiatives, which have the highest chance of being successful and make a difference to top and bottom line.
To summarize, I think Opera will come out smarter and wiser going into FY’22 and we will see continued acceleration in revenue growth in FY’22(compared to Opera Management projection of 20% to 30%) on the back of Dify and Gaming initiatives. Patient investor will be rewarded handsomely as even if only one of Dify and Gaming is even half as successful, along with continued growth in its minority stakes, Opera will command growth premium and should become a $8B-$10B company in FY’22.
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 and, despite some of the setbacks I mentioned in this post, I continue to believe that Opera is one of the most undervalued stock with its correct valuation around $4B, without taking into account of its new initiatives.