Opera stock - 2022 Recap and what to look for in 2023

Introduction

Continuing the 2021 theme, Opera stock price action continued to disappoint in 2022 while Opera the company, continued to deliver record performance and financial metrics. Opera started the year with a forecast of $305M revenue at 22% growth; and $55M AEBITDA — a 95% growth over FY’21. Also, AEBITDA margins were projected to increase from 11% to 18% margin. But as the year progressed, and despite some impact from Ukraine war and stronger US dollar, Opera continued to raise guidance and is now expecting FY’22 revenue of $325M(29% growth) and AEBITDA of $63M(125% growth) at 19% margin.

Opera started the year with market cap of ~$812M and despite 3 beat and raise quarters, ended the year with ~$560M.

I still strongly believe in Opera’s potential and my conviction has gotten even stronger considering the widening disconnect between how Opera is valued in market and how well Opera is executing and delivering strong results in this macro backdrop. I still believe Opera was massively undervalued at $12 when I wrote my original analysis back in March’21 and it has been 2 years since that article and yet Opera has not been given the right value by market. At some point market has to rationalize and I already see some green shoots when I see Opera SP up almost 50% in last 2 months.

Just a brief summary of how ridiculously low Opera is trading, here are the numbers:

• Market Cap: ~560M

  • Cash, cash equivalent & marketable securities : ~$73M

  • Receivables from Nanobank/StarX stake sale : $168M

  • Opay 6.4% stake (based on $2B opay valuation) : $128M

• Opera Core= $560M - $73M - $168M - $128M = $191M

  • Opera GM = 82%

  • Opera's AEBITDA Goal = 25%-30% of revenue

    • Proved from Q3'22 results that they can operate at 25% AEBITDA margin

    • Opera is still investing for growth and I expect this theme to continue in FY‘23.

• Opera FY' 22 Forecast(high end) - $326M revenue, $64M AEBITDA

  • Currently trading at ~0.6x FY’22 revenue and ~3x AEBITDA. Compare this to beginning of year when it was trading at ~0.92 x FY'21 Revenue and ~8.3x FY’21 AEBITDA.

Let's take a moment to have these numbers sink in. Opera, a 80+% gross margin company, with 30% FY’22 growth, is trading at ~0.6 times its FY’22 revenue and 3x AEBITDA. I expect Opera to beat Q4 revenue and to report ~330M FY’22 revenue and $68M AEBITDA. If one take my 17% FY’23 growth forecast of $386M revenue and 22% AEBITDA, Opera is trading at ~0.4 times FY’23 revenue and 2 times AEBITDA.

2022 Recap

Opera continued to beat and raise guidance, despite ~10% hit from strong US dollar, unlike many other companies which reported lower revenue and EPS due to stronger US dollar.

The Good -

• Continued momentum and acceleration in Opera business through FY’22. Opera is probably the only internet company which beat Q3 expectations by big margin and to top it off, raised the FY’22 guidance. Market seemed to acknowledge that with a stealth 50% rally in SP since Q3 release.

• ~20% AEBITDA guidance in FY22 despite investments in Web3, GX, Gamemaker and Ad platform.

• Opera launching the $50M buyback program and retiring 2.9M ADS at average price of $5.07. Opera still has $35.3 left under this buyback program. Opera can continue buying aggressively until Opera SP is in teens and it would still be very good use of cash in the long run. As a reference, Yahui Zhou personally bought about 1.2M ADS at average price of around $8.5 last year.

• Opera buying back 20.6% stake at $5.5/ADS from its pre-IPO shareholder - 360 Security. I am still very intrigued on what prompted 360 to sell at significantly below fire-sale price.

• Opera GX momentum with 20M monthly active users. At this baseline, Opera GX can grow virally now with limited marketing and promotion activity. Besides, with limited monetization, Opera GX is already grossing $3 ARPU and has long runway left to further monetize this vibrant user base.

• Opera is making right investments in Gamemaker to truly realize the vision of democratizing game development. Once Opera build in game monetization using Opera Ad platform, one viral game hit can bring significant revenue upside to Opera’s projection.

• Strong growth in ARPU contributed by Western/US market focus aided in part by laying the foundation to grow its Opera Ad business.

• Continued momentum in Opay with strong launches in Egypt and Pakistan. Opera continues to hold 6.4% stake.

• Opera finally launching Opera Cashback in US, UK and Germany. We will see the full benefit of this in Q4’23 though as they are still ironing out the kinks with the product and have not yet promoted it meaningfully to its 300M browser use base.

The Average -

• Lack of sell-side analyst interest in Opera. Opera has not been able to attract sell-side analysts to initiate coverage on Opera despite going to many investor conferences.

• No CEO presence or prepared remarks from CEO Yahui Zhou in earnings call.

• Not a single post on Business Blog for more than a year.

• Opera still has not figured out which consistent business metrics they will report on QoQ or YoY.

The Bad -

• Opera Stock Price - Opera stock price acted irrationally again all of FY’22 and it is now trading at ~$6, significantly below even firesale valuations much like the last 2 years.

• Opera’s decision to sell its 20% starX stake sale at below firesale valuation of ~$400M. This robbed Opera shareholder from significant upside from StarX as it continues to be the leading social media platform around music.

• Opera decision to collect the proceeds from Nanobank and StarX stake sale in installment over 2+ years instead of up-front payment.

• Slow ramp of Opera’s cashback and ecommerce offering in 2023. Had Opera launched Opera Cashback in big 4(US, UK, Germany and France) by first half of 2022, it would have led to significant revenue contributions in Q4’22.

What to Expect in 2023

• Opera will again guide conservatively for FY’23 when they report FY’22 numbers. For FY’22, I expect Opera to report $330M revenue and $68M AEBITDA with 20.6% AEBITDA margin. It is possible though that Opera withhold FY’23 guidance much like many other internet companies citing macro related uncertainty.

• For FY’23, my estimate is Opera guiding to 17% growth at midpoint to $386M revenue, $85 AEBITDA at 22% margin. The most recent press release on momentum in Opera GX growth alluded to continued investment to accelerate this growth, so it will not surprise me if AEBITDA margin is in high teens instead of twenties.

• Opera GX browser continue to gain momentum and grow into 30M+ active users. Gamemaker will have tighter integration in Opera GX and GX.games. Opera will introduce ad based monetization features in Gamemaker to leverage Opera Ad platform. Opera has significant opportunity to grow gamemaker 2D engine into schools and universities in US, Europe and India and I expect Opera to invest marketing dollar to grow gamemaker and build the next generation of casual game developers by offering no-code and easy to build tools and features so that anyone can make a game in less than a week and publish for free to GX.games.

• With the turbulence in crypto market, Opera may slow down investment into crypto space. Opera seems to have build a good collection of web3 products with Opera Crypto browser, NFT analytics platform Degenknow and recently announced NFT creation tool in the browser. I think Opera’s Crypto offerings came a year or two too late and will fade away if the crypto winter continues through FY23.

• Opera will continue its focus on Opera cashback as part of its larger ecommerce offering. Opera Cashback was launched in US and Germany in Q4’22 , so we may just see a tiny contributions in financial metrics in FY’22. But this will be a big growth driver for Opera in FY’23. I expect Opera to expand its cashback and other ecommerce offerings to other regions and countries. With the program fully operationalized in big 4 (US, UK, Germany and France), I expect Opera ecommerce initiative to have several multiple revenue(with high margin) contribution over Q4’22 come the Q4’23 shopping season and I won’t be surprised to see $125M+ Q4’23 revenue quarter at 30% AEBITDA margin.

• Potential IPO/funding round of Opay in FY’23 at $3B+ valuation.

• I was expecting Opera to shut down Loomi by now - its video on demand service with a social twist. Not sure what Opera management is planning here. Streaming space has already gotten crowded and don’t think Opera has any significant opportunity here. I expect they will shutdown loomi in FY23.

• My wishlist hopefully - A dedicated browser for Kids. I think this is large untapped market with much bigger TAM than gaming.

• Acquisition - Hopefully they do not overspend and it is not one of Yahui’s “3 degree of separation” companies.

• Wishful thinking : Opera reaches out to Oprah or Oprah reaches out to Opera and form marketing partnership to promote Opera browser and its ecommerce product in US for a tiny stake.

Opera Stock Price in 2023

I have been talking about the parabolic move in Opera into $30’s for quite some time which did not materialize in neither 2021 nor 2022, so will refrain from making that prediction again for 2023. To some, Opera story is now lot more simplified with Nanobank and StarX stake sale, at some point market will give the right revenue and AEBITDA multiple to Opera. A bull case FY’23 revenue of about $400M at close to $100M AEBITDA will not keep Opera stock price irrational forever.

Let's take few more moments to have these numbers sink in — again. Opera, a 80+% gross margin company, with 30% FY’22 growth, is trading at 0.6 times its FY ’22 revenue and 3x AEBITDA. I expect Opera to beat Q4 revenue and to report ~330M FY’22 revenue and $68M AEBITDA. If one take my 17% FY’23 growth forecast of $386M revenue and 22% AEBITDA, Opera is trading at 0.4 times FY’23 revenue and 2 times AEBITDA.

I rest my case.

Disclosures : 

• 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.