Opera: Fast Growing Browser Business Buttressed With Cash And Investments

OPRA is a Norwegian domiciled company We believe investors misunderstand Opera’s (NASDAQ: OPRA ) exposure to Russia and Ukraine and, as a result, the stock price has overshot on the downside. One can glean from reviewing OPRA’s 20-F and discussions with management that Browser Search and Advertising revenue in Russia and Ukraine is about 10%. With the first two months of the year already in the books before Russia’s invasion, we estimate that OPRA revenue could be negatively impacted by roughly 8% at the high end. Regarding OPRA’s joint venture investments, OPay and Nanobank do not operate in Europe at all and StarMaker may have a relatively small number of users, if any.

On Opera’s earnings’ call, for the full year of 2022, Opera expected revenue of $300 million to $310 million, representing a 22% year-over-year increase at the midpoint and adjusted EBITDA to be between $50 million and $60 million, or an 18% margin at the midpoint. Indeed, the company’s browser business (along with the recently released Gaming browser), appears to be on a clear, and meaningful, growth trajectory.

We view the value of OPRA as extremely compelling based on the following:

Price (3/17/22) $5.34

Shares 115mm

Market Capitalization $614mm

Less:

Cash & Mkt Securities $181mm

Enterprise Value $433mm

Less:

OPay 1 $104mm

Nanobank 2 $176mm

StarMaker 2 $57mm

Implied Browser Value $96mm

1 80% of estimated fair market value of $130mm based on August 2021 capital raise to account for recent multiple compression.

2 Based on carrying value per company’s financials. Nanobank was marked down in the most recent quarter. StarMaker has double-digit growth and appears significantly undervalued, but given the lack of comps, the company appears to be very conservative in its carrying value. Recall, when OPRA sold 29% of its OPay stake last year, the price came in at roughly 175% of its carrying value, underscoring the company’s conservatism, in our opinion.

If you assume 2022 EBITDA of $50mm (2022 EBITDA $55 less 8%), you’re getting the Browser for less than 2x.

Current multiples:

EV/’22 revenue = 1.4xEV/’22 EBITDA = 7.9xWe expect revenue to grow 20% annually and normalized EBITDA margins of 30%. We can assume 2023 revenue of $337mm (2022 revenue $305mm less 8% multiplied by 1.2) and EBITDA of $101mm.We estimate the total value of the three investments ($104 million OPay + $176 million Nanobank + $57 million StarMaker) to be $337 million. Nanobank was written down from $260 million to $176 million as of December 31, 2022 due to the exit of its operations in India, with no indication of when they might resume. StarMaker’s fair value may be worth 3x its carrying value based on a revenue run rate of $300 million, a 3x multiple and OPRA’s 19.4% ownership.SOTP:10x Browser EBITDA $1,010mmCash & Mkt Securities $181mmInvestments $337mmSum $1,528mmShares 115mmValue per share $13.30Founder/Co-CEO/Chairman of Opera, Yahui Zhou, beneficially owns 64% of OPRA. Zhou has effectively been buying stock given his ownership in Kunlun Tech Ltd (KTL). Zhou is the Chairman/CEO of KTL and largest shareholder of KTL. In November 2021, KTL purchased 1.9mm shares of OPRA for a total purchase price of $16.5mm ($8.51 per share average).Additionally, OPRA announced a $50mm buyback which signals the company’s belief that its shares are undervalued. With its large cash balance, we expect OPRA to report that it repurchased a significant number of shares in its next earnings release. We note that the buyback did not begin until mid-February and that the company is limited to 25% of trailing 20-day volume.OPRA is committed to increasing shareholder value. We believe that the company will monetize one of its investments this year, as it has indicated that the three are not core to long-term strategic plans. After monetization, one avenue for consideration is instituting a dividend.Based on the above, we believe OPRA has meaningful upside with limited downside.Disclosure: The specific security identified and described does not represent all of the securities purchased, sold, or recommended, and the reader should not assume that investment in the security identified and discussed was or will be profitable.This article was written byJim Roumell is Founder and President of Roumell Asset Management, LLC. Mr. Roumell founded the firm in 1998 after more than a decade as a financial advisor. Mr. Roumell is highlighted in, “The Art of Value Investing: How the World’s Best Investors Beat the Market” by John Heins and Whitney Tilson. Martin J. Whitman, Founder of Third Avenue Value Funds, says, “Jim’s investment philosophies and his actual investments snugly fit into my criteria for securities investment.” Mr. Roumell was selected to participate in, and won, two consecutive […]

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