The Browser Underdog: Opera's Surprising Surge◉ Abstract
Opera Limited (OPRA) presents a compelling investment opportunity, boasting an attractive valuation with a P/E ratio of 10.1x, significantly lower than the peer average of 66.5x. The company demonstrated strong financial performance in FY23, with 20% revenue growth reaching $396.8 million, accompanied by impressive cash flow growth of $82.8 million. Opera's debt-free status adds to its financial health. However, challenges persist, including its limited 2.4% market share in the competitive browser market, heavy dependence on browser revenue, and regulatory and technical risks. Despite these challenges, Opera's strengths and resilience, coupled with the industry's growth prospects, make it an attractive investment choice.
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◉ Introduction
The internet browsing market is highly competitive, with approximately 5.3 billion monthly active users as of 2024. Google Chrome dominates the market with a 65.18% share, followed by Safari at 18.55%, Microsoft Edge at 5.26%, and Mozilla Firefox at 2.74%.
The market is expected to continue growing, driven by increasing internet penetration, the proliferation of smart devices, and the demand for enhanced web experiences. Additionally, the shift towards mobile browsing, with mobile devices accounting for a significant portion of internet traffic, will further fuel this growth, leading to projected expansion and innovation in the industry.
◉ Key Growth Drivers
1. Increased Internet Penetration: Global internet user numbers are steadily rising, particularly in developing regions where access to technology is improving.
2. Mobile Device Usage: The shift towards mobile browsing is significant, with browsers like Chrome and Safari leading in mobile usage due to their integration with popular operating systems (Android and iOS) respectively.
3.Technological Advancements: Continuous improvements in browser technology, including speed enhancements, security features, and user-friendly interfaces, attract more users.
4. Focus on Privacy and Security: Growing concerns about online privacy have led to increased demand for browsers that prioritize user data protection. This trend benefits browsers like Firefox and Opera, which emphasize privacy features.
5. Integration with Ecosystems: Browsers that integrate well within their respective ecosystems (e.g., Safari with Apple devices) tend to retain users more effectively due to seamless functionality across devices.
◉ Major Players
Today, our discussion will center on Opera, a niche browser vendor navigating the global internet browsing market dominated by Google Chrome and Safari.
This report presents an in-depth examination of Opera's technical and fundamental metrics.
◉ Company Overview
Opera Limited NASDAQ:OPRA is a Norway-based tech innovator, established in 1995. Listed on NASDAQ (OPRA), Opera boasts a global team of 500+ employees. Its diverse portfolio includes Opera Browser, Opera Mini, Opera GX, and Opera News. The company operates through four segments: Browser and Search, Advertising, AI-driven Content Discovery, and Fintech (Opera Pay). Opera's growth strategy focuses on emerging markets, AI enhancements, advertising expansion, and fintech development.
◉ Investment Advice
💡 Buy Opera Limited NASDAQ:OPRA
● Buy Range - 16.8 - 17.8
● Sell Target - 23.5 - 24.5
● Potential Return - 33% - 38%
● Approx Holding Period - 12-15 months
◉ Revenue Breakdown (FY23)
● Total Revenue: For the full year 2023, Opera reported total revenue of $396.83 million, up from $331.04 million in 2022, marking a 20% year-over-year growth.
● Advertising Revenue: Advertising revenue constituted approximately 59% of total revenue, amounting to around $234 million. This segment grew by 24% year-over-year, driven by the success of the Opera Ads platform and browser monetization strategies.
● Search Revenue: Search revenue accounted for about 15% of total revenue, totaling approximately $60 million, with a growth rate of 15% year-over-year. This growth is attributed to targeting users with higher monetization potential, particularly in Western markets.
● Technology Licensing and Other Revenue: This segment represents a smaller portion of the overall revenue, contributing roughly $0.1 million, reflecting the company’s ongoing efforts to monetize its technology beyond its core browser offerings .
◉ Strengths & Weaknesses
The company has experienced significant growth and innovation in recent years. However, it also faces various challenges. Here’s a detailed analysis of its strengths and weaknesses:
● Strengths:
1. Innovative Features:
➖ Opera GX Gaming Browser: Tailored for gamers with CPU and RAM limiters, plus integrations with Twitch and Discord.
➖ Built-in Ad Blocker: Improves browsing speed by blocking ads and tracking cookies.
➖ Free VPN: Enhances privacy by encrypting traffic and hiding IP addresses, allowing access to region-restricted content.
2. Diverse Revenue Streams: Revenue comes from multiple sources, including advertising (about 59%) and search (around 15%), providing financial stability.
3. Financial Growth: Consistent revenue growth, reaching $397 million in 2023, with positive projections for 2024.
4. Strategic Partnerships: Collaborations with major tech companies enhance service offerings and market reach.
● Weaknesses:
1. Limited Market Share: Holds only about 2.4% of the global web browser market, significantly trailing competitors like Google Chrome.
2. Heavy Dependence on Browsers: About 82% of revenue comes from web browsers, making the company vulnerable to shifts in user preferences and market trends.
3. Regulatory Vulnerability: Risks associated with changes in affiliate marketing regulations and data protection laws could impact revenue.
4. Technical Challenges: Users report stability issues and bugs that affect overall experience.
◉ Technical Aspects
● Weekly Chart
➖ In July 2023, the stock peaked at around the 27 level but then encountered considerable selling pressure, leading to a drop towards the 10 level.
➖ Following an extensive period of consolidation, the price has recently achieved a breakthrough and is trending upwards.
● Daily Chart
➖ The daily chart reveals the formation of an Inverted Head & Shoulders pattern.
➖ After a recent breakout, the stock price is currently consolidating just above the breakout level, with expectations of future increases.
◉ Technical Indicators
1. RSI (Daily Chart)
➖ Current RSI of this stock is 66.42, which indicates the strength of buyers.
2. ADX & DI (Daily Chart)
➖ Increasing ADX value above 20, indicated the strength of the trend, thereby uptrending ADX confirms the bullish or bearish supportive decisions. Along with the rising ADX, and the +DI is above (or crossing) -DI, indicates the long trades should be favoured.
3. MFI (Daily Chart)
➖ The current MFI is 59.04, suggesting that the stock is not in an overbought state.
4. EMA’s (Daily Chart)
➖ The stock price is currently positioned above all key EMAs, indicating robust momentum.
◉ Relative Strength
➖ The chart highlights Opera's impressive outperformance of the Nasdaq Composite index, driven by a substantial 50% annual return.
◉ Revenue and Profit Analysis
● Year-over-Year
➖ Opera Limited reported strong financial performance in fiscal year 2023, with revenue reaching $396.8 million, representing a 20% increase from $331 million in fiscal year 2022.
➖ The company's EBITDA also saw significant growth, rising 35% to $69.2 million from $51.2 million in the prior year, while the EBITDA margin expanded to 17.4% from 15.5%.
● Quarter-over-Quarter
➖ Opera Limited's quarterly performance ending September 2024 was equally impressive, with revenue climbing 12% to $123.2 million from $109.7 million in the preceding quarter and 21% from $102 million in the same quarter last year.
➖ Additionally, EBITDA increased 5% to $27.3 million, and diluted earnings per share (LTM) edged up to $1.78 from $1.75 in the previous quarter.
◉ Valuation
1. P/E Ratio
● Current P/E vs. Peer Average P/E
➖ Analyzing the P/E ratio reveals that OPRA stands at 10.1x, highlighting a substantial undervaluation when compared to the peer average of 66.5x.
● Current P/E vs. Industry Average P/E
➖ Within the US software sector, OPRA's P/E ratio of 10.1x is markedly lower than the industry average of 41.9x, signaling that it is relatively inexpensive.
2. P/B Ratio
● Current P/B vs. Peer Average P/B
➖ Examining the P/B ratio, OPRA's current figure of 1.8x falls short of the peer average of 5.5x, indicating a relative undervaluation.
● Current P/B vs. Industry Average P/B
➖ When juxtaposed with the industry average, OPRA's P/B ratio of 1.8x points to a notable undervaluation, as the industry average stands at 3.7x.3.7x.
3. PEG Ratio
➖ A PEG ratio of 0.07 implies that the stock is undervalued in relation to its anticipated earnings growth.
◉ Cash Flow Analysis
➖ In the fiscal year 2023, operational cash flow saw impressive growth, soaring to $82.8 million, a significant rise from the $56.7 million recorded in fiscal year 2022.
◉ Debt Analysis
➖ The company proudly maintains a completely debt-free status, showcasing its strong financial health.
◉ Top Shareholders
➖ Arrowstreet Capital's stake in the company stands at 1.23%, indicating a 4.9% reduction in holdings from the prior quarter.
◉ Analyst Price Target
➖ The 12-month consensus price target for Opera stands at $24.20, implying a substantial potential appreciation of 32% from current levels, presenting an attractive investment opportunity.
◉ Conclusion
Opera's attractive valuation and impressive financial performance make it a compelling investment opportunity. However, the company's financial outlook is not without challenges. Market uncertainty and unforeseen events pose risks, while its e-commerce monetization efforts remain vulnerable to market volatility and competition. Additionally, Opera operates in a highly competitive browser market, where intense rivalry could impact user engagement, retention, and revenue. Despite these challenges, the industry's significant growth prospects support a positive outlook, driven by Opera's strengths and resilience, making it an attractive investment choice.
