In a move that could upend the browser market, Google (GOOG) faces potential divestment of its Chrome browser following a DOJ ruling that labeled it an illegal monopoly. This verdict and subsequent actions will take some time to play out. Still, smaller players like Opera (OPRA), with impressive growth in gaming, AI, and e-commerce, are well-positioned to capitalize effectively.
Pick the best stocks and maximize your portfolio:
- Discover top-rated stocks from highly ranked analysts with Analyst Top Stocks!
- Easily identify outperforming stocks and invest smarter with Top Smart Score Stocks
Opera is going from strength to strength with the introduction of Opera One R2, an AI-powered browser with unique features like a Command Line interface and Image Understanding, which is part of its recent success. A partnership with Spotify (SPOT) has also improved the user experience for music lovers. User response has helped drive revenue in the third quarter that exceeded expectations, with upgraded revenue and EBITDA predictions pointing to ongoing upside.
The stock is up 60% year-to-date while still trading at a relative discount to peers, making it an attractive option in the Communication Services sector.
Opera Launches Next Gen AI-powered Browser
Opera, a Norway-based software company known for its advanced web browsers, continues to build on its growth momentum. The company recently released the next generation of its flagship product, Opera One R2, equipped with top-of-the-line features and enhancements.
Opera One R2 boasts robust AI features such as Image Generation and Image Understanding, which allow users to generate and understand images. Aria, the powerful Command Line interface, permits users to analyze webpages, compare products when shopping online, and generate images from the Command Line or the sidebar chat. Users can also ask Aria to explain the content of uploaded images.
Growth Exceeding Expectations
The company witnessed remarkable growth in the third quarter, with revenue of $123.2 million exceeding expectations, marking a year-over-year 20% increase. Advertising revenue was a significant contributor, with an increase of 26% to $76.8 million and a 13% increase in search revenue to $46.3 million. In addition, the firm recorded an average of 296 million monthly active users (MAUs). This was primarily due to the rise in average revenue per user (ARPU) despite a slight dip in feature phone users in emerging markets. The Opera GX gaming browser had 31.9 million MAUs across PC and mobile, marking a 22% year-over-year growth.
Operating expenses increased by 16% to $100.7 million. Yet, the company reported an operating profit of $23.2 million, representing a 19% margin, an increase from the third quarter of 2023 when the operating profit was $16.1 million and the margin was 16%. Net income was reported at $17.9 million, representing a 15% margin, and adjusted net income came in at $22.9 million, representing a 19% margin. The GAAP earnings per share (EPS) of $0.20 slightly missed consensus expectations by $0.01.
The free cash flow from operations was $29.7 million, or 97% of adjusted EBITDA. Net operating cash flow stood at $34.9 million, while cash and cash equivalents totaled $106.0 million by the end of the quarter. The company announced a semi-annual cash dividend of $0.40 per share to shareholders recorded as of the close of business on January 6, 2025.
Management has raised both revenue and adjusted EBITDA full-year guidance to 19% year-over-year growth with a corresponding increase in adjusted EBITDA expectations.
The Stock Shows Momentum and Value
The stock has been on a multi-year upward trend, climbing over 263% in the past three years. It trades at the high end of its 52-week price range of $10.11 – $20.70 and demonstrates ongoing positive price momentum as it trades above all major moving averages. Despite the prolonged price increase, the stock trades at a relative discount to industry peers, with a P/E ratio of 11.86x compared to the Information Technology sector average of 25.8x.
Analysts following the company have been bullish on OPRA stock. For instance, Goldman Sachs analyst Eric Sheridan, a five-star analyst according to Tipranks’ ratings, recently raised the price target on the shares to $23 (from $19.50) while maintaining a Buy rating. Sheridan noted the company’s operating momentum around high ARPU users, its monetization trends, and high-profile gaming sponsorship with League of Legends, all pointing to additional growth in forward periods.
Opera is rated a Strong Buy overall, based on the recent recommendations of five analysts. The average 12-month price target for OPRA stock is $24.40, representing a potential upside of 22.00% from current levels.
Opera in Summary
Opera keeps soaring thanks to its AI-powered Opera One R2 browser, partnerships like the one with Spotify, and a booming user base. The browser’s innovative features have led to an impressive Q3 performance, with revenues exceeding expectations. Although the company’s expenses increased, Opera reported a notable operating profit, underscoring its strong financial health. The company’s stock has reflected the uptrend, climbing 60% this year. Despite its significant growth, Opera’s stock trades at a discount relative to its industry peers, making it a promising option for value-oriented investors.
