The artificial intelligence (AI) wave has supercharged Opera (OPRA -1.91%) stock this year, with shares of the web browser company soaring an impressive 111% so far in 2023. But there has been a sharp pullback in the company's stock price over the past couple of months.
On July 14, it emerged that Opera will be raising $300 million in capital by issuing new shares. While this move seems like a smart thing to do to fund the company's growth and avoid taking on debt in a high interest rate environment, it nevertheless spooked investors. Opera stock has been heading south ever since the announcement was made, losing 35% of its value.
The pullback looks like an opportunity to buy into a fast-growing company at an attractive valuation, especially one whose growth could be supercharged by the growing adoption of generative artificial intelligence (AI). Let's look at the reasons why.
Opera has been growing at a nice clip
Opera released second-quarter 2023 results on Aug. 24. The company's revenue increased 21% year over year to $94 million, marking the 10th consecutive quarter of a 20%-plus top-line jump. Opera also reported a profit of $0.15 per share as compared to a loss of $0.05 per share in the year-ago period. The numbers were better than analysts' expectations of $0.12 per share in earnings on revenue of $91.7 million.
However, Opera stock plunged following the report as its Q3 guidance points toward slowing revenue growth. The company anticipates a 15% year-over-year jump in revenue in the current quarter at the midpoint of its guidance range, which means its 10-quarter streak of reporting revenue growth of more than 20% is likely to snap. But at the same time, investors would do well to focus on the bigger picture as Opera has raised its full-year revenue forecast.
The company now expects revenue of $385 million in 2023 at the midpoint of its updated guidance. It was earlier anticipating $381 million this year. The upgraded guidance means Opera is currently on track to end 2023 with a 16% increase in revenue. While that's lower than the 32% growth it achieved in 2022, the stock's valuation suggests that it is still worth buying at current levels considering the long-term opportunity it faces.
Opera is currently trading at 3.6 times sales. That's lower than the company's five-year average price-to-sales ratio of 4.1. It is worth noting that the stock was trading at a much richer 7.5 times sales a couple of months ago.
OPRA PS Ratio data by YCharts.
What this means is that investors are getting a good deal on a company that's going big on AI to capitalize on the huge revenue opportunity in the web browser market.
Why AI could be a big deal for the company
AI adoption has gained traction across multiple applications, including web browsers. This explains why Opera has been laser-focused on integrating AI functionalities in its web browser, as this strategy can help it corner a bigger share of the lucrative web browser market.
The company's Aria browser AI is a generative AI service that it is currently offering for free. It allows users to compose emails and tweets, translate articles, and get relevant answers to search queries without having to sift through multiple results. The generative AI-powered browser can be used on both mobile and desktop. What's more, Opera points out that its AI is powered by real-time information from the internet instead of relying on past data that is unable to provide the latest results.
Additionally, Aria also has an integrated chatbot that allows users to get quick answers to their questions. Opera's move to integrate generative AI into its browser could be a smart long-term move as the adoption of this technology is forecast to increase at an annual rate of 47% through 2030, according to Fortune Business Insights. The good part is that Opera already has a massive installed user base to monetize Aria.
Opera ended Q2 with 316 million monthly active users (MAUs). While that was lower than the 327 million MAUs Opera had in the prior-year period, it is worth noting that its annualized average revenue per user (ARPU) increased an impressive 25% year over year to $1.17. Opera could drive further growth in ARPU with the help of generative AI features that it is now offering with its browser.
Also, generative AI could help the company grab a bigger share of the web browser market that's expected to generate a whopping $326 billion in revenue in 2028, according to Adroit Market Research. As such, it is not surprising to see why analysts are expecting the company's revenue to increase in the mid-teens over the next couple of years.
OPRA Revenue Estimates for Current Fiscal Year data by YCharts.
Assuming Opera does hit $511 million in revenue in 2025 and maintains its current sales multiple of 3.6, its market cap could increase to $1.84 billion. That would be a 53% jump from current levels. Stronger gains cannot be ruled out if the market rewards Opera with a higher sales multiple considering its five-year average price-to-sales ratio stands at 4.1, and if its AI-driven growth leads to higher sales in the coming years.
All this indicates why investors looking to add an AI stock to their portfolios would do well to buy Opera on the dip as it could turn out to be a solid long-term investment.
