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Opera: The Curtains Rise, Shares Cheap As GX Continues To Grow (Rating Upgrade)
OperaOpera(US:OPRA) Seeking Alphaยท2024-08-27 09:24

Core Viewpoint - Opera Limited has reported strong Q2'24 earnings, raising guidance for FY'24, indicating positive growth in advertising and search revenues. The stock has seen a significant increase following the earnings report, reflecting market confidence in the company's performance and future prospects [3][17]. Financial Performance - Revenue increased 17% year-over-year to $109.7 million [3] - Advertising revenue reached $65 million, up 20% year-over-year [3] - Search revenue was $45 million, up 15% year-over-year [3] - Net income rose to $19.303 million, a 43% increase year-over-year [3] - Earnings per share (EPADS) was $0.22, meeting analyst expectations [3] - Annualized average revenue per user (ARPU) increased 25% year-over-year to $1.46 [3] - Average users decreased slightly to 298 million from 304 million in Q1'24 [3] User Growth and Product Adoption - Opera GX, the browser targeted at gamers, added 500,000 users in the quarter, reaching 30 million monthly active users (MAUs) and achieving a year-over-year user growth of 27% [3][4] - Despite a seasonal decline in overall MAU figures, Opera GX's growth indicates strong demand for the product [3][4] Future Outlook - The company expects ARPU to rise 10% quarter-over-quarter to $1.61 for Q3'24 [6] - The ongoing partnership with Google for search services has been extended through 2025, indicating Opera's importance as a search partner [7] - OpenAI's new search engine, SearchGiPT, may present future opportunities for Opera in search distribution [8] Valuation - Opera is currently trading at 17x forward earnings, below the sector median of 23.86x, suggesting it is undervalued [10] - A conservative valuation model suggests a fair value of $21.41 using a 20x FY 2025 earnings multiple, with a potential upside to $25.46 based on sector median [10][13] Dividend and Ownership Concerns - The current dividend payout ratio is 67% of net income, raising concerns about sustainability [14] - Kunlun's ownership of approximately 72% of the company continues to be a concern for some investors due to its connection to China [16] Conclusion - Opera shares are considered significantly undervalued, with strong growth prospects and a potential lucrative search deal on the horizon. The current market conditions may present an ideal opportunity for investors [17]