Is It Too Late to Buy Opera Limited Stock?

Shares of Opera Limited (OPRA -1.91%) dropped to their all-time low of $3.49 per share on Oct. 24, 2022, which was 71% below its initial public offering price of $12 from 2018. But after reaching that trough, Opera's stock soared to a record high of $27.83 on July 13, 2023.

That rally was driven by two main catalysts. First, it partnered with OpenAI, the creator of ChatGPT, to add AI-generated content services to its web browser's sidebar. That partnership led to the launch of Opera One, a new version of its browser with integrated AI features, in late June. Second, it posted a series of solid quarterly reports.

Image source: Getty Images.

At its all-time high, Opera's enterprise value reached $2.4 billion -- or six times this year's sales -- which still seemed reasonable for a company that grew its revenue by more than 20% year over year for nine consecutive quarters. However, its stock plunged 29% on July 14 after the company filed a $300 million mixed shelf offering, which would enable its existing investors to sell up to 141.7 million shares. Does that planned sale suggest it's too late to buy Opera's stock?

How rapidly is Opera growing?

Opera only controls 3% of the global web browser market, according to StatCounter, which puts it in a distant fourth place behind Alphabet's Google Chrome (at a 63% share), Apple's Safari (21%), and Microsoft's Edge (5%).

Those competitive headwinds are tough, but Opera still ended the first quarter of 2023 with 319 million monthly active users (MAUs) across its web, mobile, and GX gaming browsers (with that last one optimized for online games), as well as its Opera News app. However, that still marked a 5% year-over-year decline and a 2% drop from the previous quarter.

Opera has been offsetting its slower MAU growth by boosting its average revenue per user (ARPU) through new search and advertising features. That strategy worked well throughout 2022 and boosted its annual revenue by 32% to $331 million.

Data source: Opera. YOY = Year over year.

However, Opera's ARPU growth is still gradually cooling off as it faces tougher competitive and macroeconomic headwinds, and it expects its revenue to rise by only 13% to 18% in 2023. Analysts expect its revenue to grow 17% to $386 million.

How profitable is Opera?

Opera was profitable on the basis of generally accepted accounting principles (GAAP) last year, but it usually gauges its own growth with its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

Its adjusted EBITDA more than doubled to $68 million in 2022, and its margin jumped from 11.6% to 20.6%. That expansion continued in the first quarter of 2023, when its adjusted EBITDA nearly tripled year over year to $22 million and its margin expanded from 10.3% to 25%. For the full year, it expects its adjusted EBITDA to grow 13% to 22%, which would give it a margin of 21% at the midpoint.

On a GAAP basis, analysts expect Opera's net income to more than triple to $48 million. The company attributes that impressive profit growth to its more disciplined spending, lower marketing expenses, and its robust growth in higher-ARPU markets like North America and Europe.

Opera even generated enough cash to pay out its first semiannual dividend of $0.40 per American depositary share at the end of June. Paying out another $0.40 dividend in the second half would give it an impressive forward dividend yield of 4.2%.

Is it too late to buy Opera?

With its current enterprise value of $1.65 billion, Opera looks reasonably valued at 4 times this year's sales and 20 times its adjusted EBITDA. However, its valuations are likely being compressed by concerns about its declining MAUs, decelerating ARPU growth, and competitive headwinds. The fact that it's owned by a Chinese consortium of investors could also expose it to the ongoing tech war between the U.S. and China.

Therefore, I wouldn't say it's too late to buy Opera's stock as a long-term investment. But I also wouldn't rush to buy it when its existing shareholders are taking profits through a mixed shelf offering -- especially when so many other high-quality growth stocks are still trading at reasonable valuations.