Opera Software( $OPRA ) owns 42% of Nanobank. Nanobank is fintech company in emerging markets of Indonesia, India, Kenya, Mexico with plans to launch additional countries. Nanobank’s focus is on small short duration micro loans but has plans to offer additional fintech products in emerging markets. Nanobank was formed by merging the emerging market fintech offering of Opera and Mobimagic. Opera now hold 42% stake in Nanobank.
Nanobank had 209M revenue and 30%+ adjusted margins prior to Covid.
They scaled back their growth during Covid and now just started scaling it back up. Just prior to covid hit in Q1 2020, Nanobank had annual revenue runrate of 480M with profit. They took a credit loss provision of around 30M in Q1 otherwise they would have shown 30% margins even during Covid. They subsequently recovered most of credit loss provision as well.
Opera subsequently proved that their credit loss provision was very conservative as they had better recovery than they forecasted.
Since the cautious approach during Covid, Nanobank has made a swift recovery and what is remarkable is that they are able to achieve 30% margins now.
For the quarter, Nanobank posted revenue of $46 million, up 32% compared to the third quarter and disbursed 3.2 million loans, representing $239 million in total value. Adjusted EBITDA was $13.8 million, representing a 30% margin and post-tax profits were $12.3 million. We continue to believe Nanobank will scale meaningfully in 2021 as its markets fully recover and it launches in new geographies and add products. We expect this to be more evident toward the middle to later part of the year.
Also, Opera has guided that Nanobank can reach pre covid level run rate in 2021.
With that said, we expect revenue to continue to scale rapidly in the fourth quarter. And with scale, we expect to see a restrengthening of profit margins. We believe Nanobank is on a trajectory to reach pre-COVID levels within 2021. As a reminder in the fourth quarter of 2019, Nanobank generated $92 million revenue and $37.8 million adjusted EBITDA
Now, How does it all compares to UPST ( Upstart holding). Upstart provide long duration loans in US but it relies on CreditKarma for significant part of origination volume. It offer AI based credit worthiness check services to lenders who uses its platform to offer loans. In its most recent quarter Q4 2020, Upstart has 87M revenue at 18% margins compared to 46M revenue for nanobank at 30% margins.
UPSTART and Opera/NanoBank Financial Comparison
Although Opera has not provided revenue guidance for FY2021 for Nanobank, other than the tidbit of reaching Pre covid level in 2021 and also full recovery towards the middle to later part of year, I am forecasting , 64M rev for Q1 2021, 70M rev for Q2 2021,80m for Q3 2021 and 92m rev for Q4 and at overall Adjust FY21 EBITDA gross margin of 25% at midpoint. This bring forecasted revenue of 306 M, a growth rate of 41 % at adjusted EBITDA margins of 25%.
Nanobank’s higher margin profile shows that despite lack of credit infrastructure in emerging markets, Nanobank has sophisticated technology/AI to evaluate the credit worthiness of its users to operate at much higher margin. At this time, it has chosen profitable growth but it has proven that it can quick scale into 500M run rate which Upstart is guiding for 2021.
Now, if UPST is valued at ~8B, either it is overvalued or Nanobank is massively undervalued. Both has risks, UPST reliance on CreditKarma or Nanobank’s reliance on emerging markets with changing regulations patterns and lack of credit history of buyers. Even applying the emerging market discount to Nanobank, it is hard to believe that a standalone Nanobank would not be worth 3-5B dollars by applying the same lenses as for Upstart holding.
What is more interesting is that, Opera’s Nanobank stake could be worth much more than its entire market cap of 1.4B and Nanobank is just one of the 3 minority investment OPRA has. Add Opera’s 380M MAU and its 100% fintech offering in Europe, It is hard not to argue that OPRA is massively massively discounted and may be investor community is purely evaluating OPRA based on browser company when it is much more than that. In fact, Browser is the secret trojan horse Opera has to launch new businesses.
One recent developement is flutterwave latest funding round at 1B+ valuation. Opay is processing much higher volume(2B/month in Dec) with 4.5x growth compared to 2x+ growth of flutterwave. My guess is that Opay could very well be on its way to become the first decacorn of Africa in which Opera hold 13% stake. This could further prove that how ridiculously low Opera’s valuation is.