AI stocks are hot, but many are richly valued, and few pay dividends. Enter Opera (NASDAQ:OPRA) — an underrated AI stock that’s profitable, trades at an alluring valuation, and features an enticing forward dividend yield of 5.1%.
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I’m bullish on Opera based on its user and average revenue per user (ARPU) growth, the advances it is making in using AI technology to enhance its products, its attractive valuation, and its big-time dividend yield of 5.1%, which makes it a rarity among tech stocks. Additionally, analysts believe that Opera has upside potential of over 50%, making this stock an interesting bargain in the AI space.
What Is Opera?
Founded in 1995 and based in Oslo, Norway, Opera is a provider of web browsers for Windows, iOS, and Linux computers, as well as mobile browsers. Opera describes itself as “a user-centric and innovative software company focused on enabling the best possible internet browsing experience across all devices.”
How does the company make money? Opera generates 58% of its revenue money through advertising and 42% through search. You can think of Opera as a much smaller competitor to Alphabet’s (NASDAQ:GOOGL) Google, but without the “Other Bets” segment the larger company comes with.
Growth Opportunities Abound
Opera is much smaller than its competitors and only accounts for 2.5% of web browser market share worldwide as of May 2024. However, this can also be seen as an opportunity, as Opera has plenty of room to grow and try to take share from larger competitors.
While it isn’t easy going up against massive, well-resourced competitors like Alphabet and Apple (NASDAQ:AAPL), Opera can differentiate itself and compete with them by innovating and offering differentiated features that other browsers lack.
For example, Opera features free VPN, tracking protection, a built-in ad blocker, cryptomining protection, and integrated messengers, which Google’s Chrome lacks. Opera also touts the fact that it is more RAM/CPU friendly than Chrome. In a comparison between Opera and Apple’s Safari, Opera boasts features like free VPN, browser AI, a built-in ad blocker, built-in crypto wallets, integrated messengers, and other features that Safari lacks.
Opera also differentiates itself by serving lucrative niche audiences, such as via its Opera GX browser, which specifically caters to gamers. Opera GX allows users to set limits for CPU, RAM, and network usage to optimize performance, integrate Discord and Twitch directly from its sidebar, and use GX Mods to fully customize the browser and create custom keyboard shortcuts.
The Opera GX browser has 30 million users and is Opera’s most lucrative product in terms of ARPU. Opera believes it has a long runway ahead in this niche, estimating its total addressable market (TAM) to be 500 million users worldwide, an appropriately conservative estimate, given that it estimates there are 1.8 billion PC gamers globally.
Additionally, the company is growing its user base and revenues. Its user base in Western markets has grown by 64% over the past four years, from 31 million to 51 million, and its ARPU has grown by 248% over the past four years. Additionally, Opera GX has grown by 1,400% from two million users to 30 million over the same time frame.
Opera may also have regulatory tailwinds at its back. The EU’s Digital Markets Act (DMA) now requires Apple and others to give users choices for default browsers on mobile devices, and Opera says this led to a spike in daily active users in the EU.
Co-CEO Song Lin said, “We are starting from a modest base due to previous platform limitations, leading us to believe that the growth potential is substantial.” Lin added that Opera is “very excited about this development and will increase our iOS investments now that the playing field is more level with other key regions potentially also opening up.”
AI Advances
While Opera hasn’t received the same fanfare as many other AI stocks, it has released a spate of exciting AI-related updates in recent weeks. Aria, its new in-browser AI assistant, combines the ChatGPT model with up-to-date information.
In late May, the company announced plans to collaborate with Google to integrate Google’s Gemini AI feature into its Aria AI browser. It also unveiled plans to incorporate AI into “on-device browser capabilities to its flagship browser, Opera One, and its gaming browser, Opera GX.” While the companies compete in some areas, it appears to be a mutually beneficial arrangement for both.
OPRA’s Alluring Valuation
Despite these exciting AI growth prospects, Opera trades like a value stock at just 16.6 times 2024 consensus earnings estimates. Going out to next year, the stock looks downright cheap, trading at just 13.3 times forward earnings estimates.
For comparison, Alphabet trades at a reasonable but far higher 23.5 times earnings estimates, and the S&P 500 (SPX) sports an average P/E ratio of 23.4. Meanwhile, the tech-focused Nasdaq 100 trades at a considerably higher average P/E multiple of 30.9.
Opera’s Dividend Makes It a Rarity Among Tech Stocks
While many AI stocks are years away from profitability, let alone returning capital to shareholders, Opera pays a generous dividend and currently yields an enticing 5.1%. The company paid its first special dividend in January 2023 and subsequently declared a regular semiannual dividend of $0.80 per share.
Opera’s yield is more than six times higher than that of the Nasdaq 100 (0.8%), illustrating just how remarkable OPRA’s dividend yield is compared to its tech-sector peers.
Opera also engages in share buybacks and has bought back 35.5 million American depository shares since 2020, representing about 30% of shares outstanding at the start of 2020.
Is OPRA Stock a Buy, According to Analysts?
Turning to Wall Street, OPRA earns a Moderate Buy consensus rating based on two Buys, zero Holds, and zero Sell ratings assigned in the past three months. The average OPRA stock price target of $23.50 implies 53.3% upside potential from current levels.
A Rare Bargain in the AI Space
While many tech and AI-related stocks trade at sky-high valuations due to their immense growth opportunities, Opera looks like a downright bargain. I’m bullish on Opera based on its inexpensive valuation, considerable growth runway, exciting potential to further leverage AI into its products, and its 5.1% dividend yield, which is difficult to beat in the tech sector.
