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Why Shares of Opera Slumped Today

By Timothy Green – May 20, 2020 at 1:26PM

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The pandemic is slowing the company's growth and hurting its bottom line.

What happened

Shares of Opera (OPRA -4.30%) sank on Wednesday after the software and fintech company reported its first-quarter results. Revenue nearly tripled from the prior-year period, but the company missed analyst estimates for earnings and declined to provide new guidance for the full year. The stock was down about 12.9% at 12:40 p.m. EDT.

So what

Opera reported first-quarter revenue of $138.2 million, up 177% year over year and $3.25 million higher than the average analyst estimate. Search revenue was down 4.5% to $19.7 million, and advertising revenue was up 18.5% to $16.8 million. Search was impacted by monetization declines due to the pandemic, while advertising benefited from an increase in PC and smartphone users.

A declining stock chart.

Image source: Getty Images.

The fintech business generated revenue of $94.7 million, up from just $5 million in the prior-year period. That business was also affected by the pandemic, as explained by CFO Frode Jacobsen: "In anticipation of near-term challenges in key countries like India and Kenya, we significantly reduced our microloan volumes from mid-March. Further ... we took significant additional loan loss provisions at the end of the first quarter to capture a conservative view on repayment probabilities."

Non-GAAP (adjusted) earnings per share came in at a loss of $0.14, down from a profit of $0.07 in the prior-year period, $0.04 worse than analysts were expecting. The loss was driven partly by a loan loss provision of $27 million on top of ordinary loss provisions, which accounted for collection risks related to the pandemic.

Now what

Opera pulled its full-year guidance in April, and the company is not yet ready to provide a guidance update at this time due to uncertainty. The company is seeing some initial signs of recovery in its search and advertising businesses, and it's preparing to rapidly rescale its fintech business.

While Opera's revenue came in ahead of estimates, investors weren't impressed with the company's report as a whole. Including Wednesday's slump, shares of Opera are down about 59% from their 52-week high.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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