Value Investing Long Thesis on OPRA ( OPRA limited) |
Long Thesis on OPRA ( OPRA limited) Posted: 09 Sep 2021 07:30 AM PDT To see this long thesis with all graphics, please visit the Google doc: https://docs.google.com/document/d/1u2sVah9rTgzXKkSW4c8DCgfMYB263ZSXw7_wP9RywZY/edit?usp=sharing Introduction Despite stellar Q2' 21 Earnings, $60M in revenue and yet another revenue guidance raise, Opera stock dropped further to ~$9. It is now trading at year to date lows and offers significant value upside to patient investors. Following are the highlights from Opera's Q2 '21 results.
Opera By the Numbers I am using data from 2020 Annual filing(20-F) and the most recent monetization of Opera's 29% preferred shares to make the case on how undervalued Opera is and how market is not giving any valuation to Opera's core business which is generating $245M of annual revenue(FY' 21 estimated) and aggressively investing for future growth by plowing all adjusted EBITDA growth from FY' 20 to expand into new verticals and geographies.
The recent $400M Opay funding round from Softbank at $2B valuation and subsequent monetization of 29% of Opera's preferred share in OPay at $50M shows how undervalued Opera minority investments are on the books.
Whichever multiple one is comfortable with for Opera Core business, which has gross margins of 95% with 25-30% AEBITDA margin profile, growing at 48% YoY in FY'21 and should continue to grow between 20-25% for next several years due to investments into growing new legs in fintech/cashback and gaming and also expanding in Europe and America where advertising impression are 10x better monetized compared to Africa and Asia, where majority of its 400M users are currently located, it is hard not to see how undervalued Opera is.
Opera History Opera Ltd, the Opera browser company, was established in Norway in 1996 and is one of the few survivors from the Internet Explorer era of early 2000 . It was bought by a consortium led by Yahui Zhou in 2016 for $600M. In 2018, It was listed on Nasdaq as OPRA. Now, Opera is no longer just a browser company. In fact, its core browser business only contributes about half of its revenue through search and ad monetization. The other half of revenue is contributed by advertising, mostly via its Opera news app which is now a top 10 news app on both android and iOS in all of Africa, Germany, France, UK and now in the US. What Opera has done successfully is to take its browser user base of 300 million MAUs and then get them to other services like News, Fintech and Gaming. Opera calls it Browser+ strategy. It also used its browser user base to spin off 2 very successful businesses:
It also opportunistically invested $30M for 19.35% stake in starmaker -- a social network for music lovers and Karaoke artists -- and is growing like a wildfire, 250% YoY growth to $180M run rate in Q1' 21 with sequential acceleration of 41% from $127M revenue run rate in Q4'20. Opera Products Opera browser : Amongst the giants, Apple Safari and Google Chrome, Opera has built a niche and cult following of users who like Opera browser for many of its differentiated features - Integrated Messaging apps, Integrated music players, built in VPN, ad blocker and many more. Opera browser for desktop is available on MacOS, Windows and Linux and has seen install base growing from 42 million MAUs in 2016 to 80 million MAUs in 2020, a CAGR of 17%. Opera Mobile browser and its data saving browser Opera Mini, have grown from 164 million to 190 million MAUs, a CAGR of 4%. Opera GX : Opera GX, the gaming browser which Opera launched for Gamers with differentiated features like CPU and RAM limiter, Gaming aesthetics, discord integration and Gaming corner which surfaces deals and news related to Games. Since its launch in June 2019, It has grown to over 10 million MAUs in just over 2 years. Opera News App : Opera News is AI based News aggregator which personalizes the news based on their browsing history. It is #1 news app in all of the major African economies - Nigeria, South Africa, Egypt, Kenya and Ghana. Since its launch in Germany, France, UK and US in Q4'20, It has become #1 or #2 news apps in Germany, France and the UK and in the top 10 in the US. It has grown at 42% CAGR -- from 72 million MAUs in Q4'17 to 211 million MAU in Q4'20 and is growing revenue at 160% YoY as of Q4'20. Opera Ad Network : Opera is one of the top 10 publishers of media impression given its scale in browser and its news app. Instead of relying on 3rd party ad networks, Opera has launched its own ad network, primarily to serve its own ad inventory and since its launch 2 years ago, it has grown at 130% YoY. It is tracking to $80 million in FY'21 revenue, 50% growth in daily revenue run rate year to date. Dify : Opera acquired 2 small companies in 2020 - Pocosys and Fjord bank and used Pocosys to build a new fintech product called Dify which was launched in Spain in Feb '21. Initially Dify will provide an integrated mobile wallet, Debit Card and Cashback for its users with plans to launch additional services like BNPL/Credit and fractionalized share investing to its 50M active users in Europe. Opera Gaming : Early 2021, Opera acquired leading 2D gaming engine company, YoYo Games and launched a Gaming division combining it with its gaming focused browser Opera GX, which has grown quite rapidly to 10M active users since its launch in June 2019. Opera plans to build a gaming community around these 10M+ users and its thousands of GameMaker developers and has plans to launch a steam like service --Gamebox-- to offer gaming publishers a platform to monetize their games. Business Model
Financials Opera Search and Advertising revenue have grown at ~22% CAGR, from $33.5M in Q2' 18 to $60.2M in Q2' 21. This revenue comes at ~95% gross margin and has AEBITDA margin profile of 20-30%. Opera has been investing for growth so it's AEBITDA margin have fluctuated from 0% to 41% since its IPO. Opera has forecasted FY' 21 revenue of $242-247M , 48% growth over FY '20. It has forecasted FY '21 AEBITDA of $10-20M, despite its stated objective of investing up to $100M into scaling its fintech initiative, Dify in FY' 21 and investing for growth in Opera News, Dify and Opera Gaming. With covid recovery, momentum in its advertising business, over 10% browser growth in EU, and ramp up of Opera News App in US and Europe, Opera has projected to grow its search and advertising revenue at 25% YoY for next several years. Opera has always taken a very conservative approach with its forecast and has not assumed any significant contributions from its Fintech(Dify) and Gaming(YoYo Games) initiatives in its FY '21 guidance. Assuming moderate success from these initiatives where Opera is investing over $100M, Opera should easily grow at upwards of 30% YoY for the next several years and reach around $500M revenue in FY '23 at 25%+ AEBITDA margins. Opera's Minority Stake
Opera SUM-OF-PART valuation
Starmaker announced 3x growth in 2020 and $127m run rate at the end of Q4 '20. In Q1 '21, it has revenue run rate of $180M. I am using $45M as Q1 revenue and applying sequential growth of 25%, 15% and 5% to get to Q4 revenue of $68M. Using arithmetic series sum over $45M Q1 '21 revenue and $68M Q4 '21 revenue gives 2021 revenue of $226m [ 4*(45+68)/2 ] Opay does not report revenue run rate but TPV. Since Opay reported 4.5x TPV growth in 2020, TPV grew from $445M in January 2020 to $2B in December 2020. I am taking arithmetic series sum to get the total TPV of $14.7B for 2020 [12 * (445 + 2000)/2 ] . Although Opera did not reveal the TPV for March 2021, they stated that the TPV is growing nicely. Along with additional product launches in additional countries, I am projecting 2x growth in TPV in 2021(a deceleration from 4.5x growth in 2020), with a TPV of $2B for Jan 2021 and $4B for Dec 2021. Taking the arithmetic series sum gives an expected 2021 TPV of $36B. I have looked at airtel Mobile Money and M-pesa revenue to TPV ratio ( 0.008 for airtel and 0.006 for M-pesa). Applying the average of 0.007 revenue to TPV ratio, gives Opay 2020 revenue of $103M and 2021 revenue of $252M. Currently Opay services are heavily discounted so their take rate is much lower than more established players like airtel and M-Pesa. Opay reported 2020 revenue of $69M and I am forecasting $21M as Q1 '21 revenue and applying 20% sequential growth rate through FY '21 gives Q4 '21 revenue of $37M. Using Arithmetic series sum, gives forecasted FY '21 revenue of $116M. Before we do the sum of the part valuation of Opera, let's look at comparable companies :
📷 The above sum of part analysis is done using a super conservative valuation just to highlight the massive disconnect in market valuation of Opera's stock price. Opera and all its minority stakes are in hyper growth mode, and if one were to apply growth multiples, it can easily more than double this conservative sum-of-part valuation.
The base case assumes the market will give Opera's high gross margin(~95%) and 25-30% AEBITDA business, a higher multiple with a revenue forecasted to grow at 25% for next several years and valuing Opay and Starmaker which are growing upwards of 150% YoY a 30 to 40 multiple which similar companies have commanded during their hyper growth phase. 📷
As if Opera is not undervalued enough, Opera also has 2 new growth initiatives which could offer *significant* additional upside to base case.
Assuming Dify and Gaming takes off, I do expect significant revenue expansion of Opera Core from $250M-260M in FY '21(55% YoY growth), to $360-380M in FY '22( 45% YoY growth), and to $480-520M in 2023(26% YoY). This growth would be at 20-30% AEBITDA margin. This type of growth commands a revenue multiple of 20+. 📷 Catalyst
Short Report Opera was the target of Hindenburg short report back in Jan 2020. more than 18 months have passed since then, time has proven that short thesis wrong. With the benefit of time on my side, following is the rebuttal to that short report. https://docs.google.com/document/d/1F_3HbFJ2_vQeKWl_JEzgbH7fJXZzniAtMSm80pqBows/edit Conclusion Overall, I think risk-reward weigh heavily on Opera long side and offer significant upside opportunity to patient investors. Disclosure/Disclaimer : \**This is not investment advice or recommendation. Do your own DD on OPRA and let me know if you agree/disagree with my thesis and/or have contrarian views .I own OPRA shares.* [link] [comments] |
Interview with Willy Shih on the Global Chip Shortage Posted: 09 Sep 2021 04:53 AM PDT |
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