Opera: High-Growth And Cheap Valuation Poised For More Upside (NASDAQ:OPRA)

Opera Limited (NASDAQ:OPRA) investors have benefited from a significant recovery since my last update in December, when I upgraded OPRA. I assessed that OPRA’s overoptimism had been deflated as investors bailed out. Accordingly, OPRA bottomed out at the $10.3 level through late February before we saw a significant post-earnings surge.

Opera reported its fourth-quarter earnings release in late February 2024. The company demonstrated its ability to gain more share in higher value users as it looks to increase ARPU in higher-margin western regions. In addition, its gaming-focused GX browser has also performed admirably, opening up a highly lucrative opportunity in a largely untapped TAM through its industry-leading browser technology.

Opera management’s FY2024 guidance suggests topline growth is expected to slow further from FY23. Accordingly, the company telegraphed revenue of between $450M and $465M, with an estimated adjusted EBITDA margin of 24%. Revised analysts’ estimates largely align with the company’s outlook, indicating revenue growth of about 15.3% (down from FY23’s 20% uptick). However, the post-earnings surge in OPRA suggests the market wasn’t unduly concerned with the growth normalization, suggesting the investors have likely priced in the deceleration.

Opera’s thesis is simple to understand, even though it remains to be seen whether it can garner a sustainable moat to justify a much higher valuation re-rating from the current levels. With just 313M monthly active users as of Q4, it has captured a mere 8% of global internet users. As a result, bullish OPRA investors could point to a potentially significant market opportunity relative to Google Chrome’s dominance in the market. However, OPRA bears could point to Google’s highly sticky ecosystem of adjacent services helping the Mountain View-headquartered company to maintain its grip.

Despite that, Opera has also proved its ability to deliver best-in-class “A+” profitability. Therefore, Opera has demonstrated that its revenue model (60% advertising, 40% search) can be sustainable if it outcompetes Chrome with superior browser technologies.

Moreover, the EU Digital Markets Act, or DMA, is expected to open up Apple’s (AAPL) ecosystem for independent players like Opera to enter. Opera management is sanguine about the EU possibilities, coupled with its AI-powered browser technologies bolstering the appeal for EU users. As a result, I gleaned that the market likely anticipates a more positive response from Opera in the EU, opening another significant growth vector to juice its topline growth. Furthermore, Opera management alluded in its earnings conference that it hasn’t factored in the near-term monetization opportunities in AI. As a result, I assessed that Opera has several growth optionalities not considered in its forward guidance that could spring pleasant upside surprises for OPRA investors.

As seen above, OPRA bottomed out resoundingly at the low-$10s level between December 2023 and March 2024. Coupled with a solid forward dividend yield of more than 5% at the current levels, I see a reasonable blend of growth and value, notwithstanding its sharp recovery from December.

Given the growth optionalities discussed earlier, I believe the market has likely priced in a much better-than-expected potential for Opera in its western markets expansion.

I also expect Opera to substantiate more robust tailwinds in the EU as Apple opens up to third-party software partaking in the growth of the iOS ecosystem. As a result, I view OPRA as well-poised for a further recovery, supported by robust growth and valuation metrics and an uptrend bias assessed from OPRA’s price action.

Rating: Maintain Buy.

Important note: Investors are reminded to do their due diligence and not rely on the information provided as financial advice. Please always apply independent thinking. Note that the rating is not intended to time a specific entry/exit at the point of writing unless otherwise specified.

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