Opera Moves Up to #1 in Barchart’s Top 100 Stocks: Is It Too Late to Buy?

Norwegian-based web browser Opera (OPRA) gained more than 8% in Monday’s trading, moving into the top spot in Barchart.com’s top 100 stocks to buy. 

That Opera’s stock is on a roll would be a massive understatement. Up nearly 14% in the past month, 241% over the past six months, and 373% over the past 52 weeks, it’s hard to imagine any more room left for the $2.5 billion market cap to run. 

Think again. Here’s why.

The Browser of the Future

I don’t know if you’ve ever noticed, but Google Chrome is brutally slow and unresponsive when used on the SEC website. As someone who uses the SEC site regularly to check out 10-Ks and 10-Qs, I must get speed and efficiency from my browser. 

Opera gives me that. Plus, for those who care, it comes with extras such as a built-in ad blocker, a VPN, messaging, and a generative AI chatbot named Aria. Most importantly, Opera continues to grow at a healthy clip while also making money, which many tech companies consider an afterthought.

On June 20, Opera launched its new Opera One browser, the 100th browser released by the Norway company. 

“As people who obsess over browser innovation, we saw fit to rethink the role of the browser in light of the recent developments in the AI space,” said Joanna Czajka, product director at Opera.

“As opposed to other browser companies, Opera didn't simply add AI services to its browser. We went back to the drawing board and redesigned our flagship browser. Opera One is built around Aria, our native browser AI, and is the culmination of our work so far.”

Opera finished the first quarter with 319 million MAUs (monthly active users). Interestingly, while that’s down from 339 million a year ago, its revenue rose by 21.6% in the quarter to $87.1 million, its ninth consecutive quarter of 20%+ year-over-year growth. That works out to $1.08 per user on an annualized basis, up 30.1% from Q1 2022. 

For all of 2023, Opera expects revenue between $373 million and $390 million with adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $80 million at its midpoint. That’s good for a 21% margin. 

Opera increased its free cash flow in the last three quarters, from $15.03 million in Q3 2022 to $23.3 million in Q1 2023. 

A Better Focus

As Co-CEO Lin Song said in Q1 2023’s conference call with analysts and investors, the company focuses better on the right customers. 

“Over the past 2 years, we have been quite vocal in our strategy of focusing on those users with the greatest potential for monetization,” Song stated.

“The success of that strategy is apparent when looking at our ARPU [average revenue per user), which has doubled over that 2-year period. Annualized ARPU was $1.08 in the first quarter, an increase of 40% compared to last year.”

Its Opera GX gaming browser is doing even better. It generated annualized ARPU of $3.17 in the first quarter, 80% higher than in Q1 2022. According to Opera’s May 2023 presentation, Opera GX has approximately 5% of the total addressable market of 400 million users. There is plenty of upside for its gaming browser. 

To grow its business, it is working with OEMs (original equipment manufacturers) to have Opera pre-installed in new machines sold to end-user customers. While it’s early in the process, none of the revenues generated by working with OEMs is included in the company’s guidance for 2023. The upside from this one initiative should be good for its share price.   

Opera began paying a recurring semi-annual dividend on June 30. The first payment was $0.40 per ADS (American Depositary Shares), equivalent to two ordinary shares. The size and timing of future dividends will depend on the business's financial health. In this respect, its quarterly dividend will be similar to special dividends. 

I’ve always thought that’s what all companies should do. In my opinion, it’s a better way to allocate capital.

The Bottom Line

Opera stock trades at 6.46x sales, higher than it’s been since it went public in 2018. Virtually all of its valuation metrics are more expensive than they’ve been since its IPO. 

Does that mean you’ve missed the bus? Not necessarily. 

There’s no question its share price has moved higher in the past year due to AI. However, there’s also no doubt that it’s generating more revenue from each user. As it continues hammering home the browser’s strength for AI and gaming, more people will become active users, leading to higher advertising, search revenue, and, ultimately, higher profits. 

This will undoubtedly move its share price over the long haul. In the meantime, investors interested in buying shares should consider possible options plays to get a better entry point. 

For example, the Jan. 19 $17.50 put has a $2.00 bid price with 199 days to expiration. Selling these puts would give you a 9.3% yield based on the July 3 closing price. Annualized, that’s a 17.1% yield. If the shares fall to $17.50 by early 2024, your net price paid would be $15.50. It last traded at around $15.50 in May. 

At the very least, investors should try the Opera browser and news feed. You might learn to love it sending Google Chrome to the penalty box. 

 

 

On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.