Opera (OPRA -1.91%) has been a divisive investment since its IPO in 2018. The bears will note its namesake web browser controls less than 3% of the global market (according to Statcounter), it's losing monthly active users (MAUs), and its sales growth is decelerating. The bulls will point out that it's boosting its average revenue per user (ARPU) by rolling out new search and advertising features, and that its stock looks reasonably valued at 19 times this year's adjusted earnings.
I recently dove deeper into Opera's business and concluded it wasn't too late to buy its volatile stock. Today, I'll focus on four other aspects of its business that smart investors should consider before pulling the trigger.
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1. Opera doesn't only make web browsers
Opera is best known for its PC and mobile web browsers. However, it also produces a GX gaming browser that is optimized for online games, as well as the Opera News app, which aggregates personalized news stories. At the end of the second quarter of 2023, it served 316 million MAUs across all of those apps.
Opera expects the monetization of its mobile browser, gaming browser, and Opera News to consistently boost its ARPU even as its MAU growth stalls out. Those efforts lifted its annualized ARPU by 25% year over year in the second quarter even though MAUs declined by 3%. As a result, its total revenue still jumped 21% year over year, marking its 10th consecutive quarter of 20%-plus growth.
2. Opera's AI ecosystem is expanding
Opera might be a distant underdog in the web browser market, but it's been beefing up its browsers with new artificial intelligence (AI) features.
Back in February, 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 introduction of Aria, an integrated AI assistant, in May. The following month, it rolled out Opera One, a brand-new version of its browser with even more integrated AI features.
Those new features could lock in its users, make it easier to ramp up its monetization efforts, and help it keep pace with Alphabet's Google Chrome, Apple's Safari, and Microsoft
3. Opera is controlled by Chinese investors
Opera was founded 28 years ago in Norway, but it was acquired by a consortium of Chinese investors in 2016. That acquisition paved the way for its IPO in 2018. That ownership structure has been scrutinized over the past five years as the U.S. and China clashed over various trade, tech, and data privacy issues.
Allegations that Opera's browsers were infected with Chinese spyware even drove the company to counter those claims in a blog post earlier this year. But in its latest 20-F filing, Opera still warns that "privacy concerns relating to our services and the use of user information could negatively impact our user base or user engagement, or subject us to governmental regulation and other legal obligations."
4. Opera pays a generous dividend
Opera didn't initially pay any dividends, but it paid out its first special dividend of $0.80 per American depositary share (ADS) this February. It subsequently initiated a recurring semiannual dividend of $0.40 per ADS, which was first paid at the end of June. That hefty forward yield of 5.9% makes it an attractive income play and could limit its downside potential.
Do these four facts favor the bears or bulls?
Opera's expansion beyond PC browsers and its rollout of new AI tools should boost its ARPU and total revenue even as it gains fewer MAUs. That's why analysts expect its revenue to rise at a compound annual growth rate (CAGR) of 16% from 2022 to 2025, and for its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to increase at a CAGR of 22%. Its new dividend could also make it an appealing alternative to the tech sector's highest-yielding stalwarts.
Opera's Chinese ownership might attract more regulatory scrutiny in the future, but it probably won't be pilloried like ByteDance's TikTok because it only controls a tiny sliver of the web browser market. Therefore, I believe Opera's strengths still outweigh its weaknesses -- and it could have plenty of room to run over the next few years.
