Opera (OPRA): A Future Multi-bagger
I am a fan of the Coffee Can Portfolio, an “Active Passive” approach to investing. The idea is simple: Try to buy a basket of the best stocks you can and let them sit for years. You incur no costs with such a portfolio, and it is simple to manage.
You can follow and track my stock baskets here, on my Performance Scorecard.
Opera is a high potential Maverick, a Disruptor if I may.
What’s a Disruptor?
Recall that, in business, every industry does things a certain way. These “industry conventions'' are determined by the leaders of that industry. To prosper, innovative companies must therefore change the game entirely and create new ways of doing things. Companies who approach their industries in a completely new way are what I call Disruptors. (You can read more about Disruptors here).
Opera is certainly playing its own game, and has been doing so for a very long time (20+ years). If you’ve been following my Investment Scorecard, you may have noticed that I bought OPRA ~6 months ago on Dec 30, 2020 for $8.46/share. Today, shares are trading about 20% higher. Considering the recent significant declines in many growth stocks, the share price has held up very well.
What is Opera?
Opera is a global Internet brand with a large, engaged, and growing user base, primarily across Europe, Africa, and Asia, reaching over 380 million Monthly Active Users (MAUs).
It offers several products:
Their mainstay: The popular Opera Browser.
Opera News: A successful AI-powered content discovery service (>219 MAUs).
Opera GX: A gaming browser.
GameMaker: A game development platform.
Dify: a European payment and financial services initiative.
Opera also owns:
42% of Nanobank, a combination of Opera’s micro-lending and other Fin-tech services currently in Indonesia, India, Kenya and Mexico.
13% of OPay, a mobile-based platform for payment, transportation, food & grocery delivery in Nigeria, servicing more than $2 Billion dollars in monthly transaction volume.
19% of StarMaker, a social media music and entertainment company that ended 2020 with a $127 million run-rate.
I believe that Opera offers investors both business resilience AND optionality, which can make a great combination.
As a side note, looking at the laundry list of unique and interesting products and investments Opera has, I’d imagine Opera would be a fun place to work, especially for someone interested in innovation.
Opera’s Competitive Advantage
Opera is a very resilient business.
The fact that Opera is still alive is pretty darn amazing. Why? Just look at the list of its competitors: Google (Chrome), Microsoft (Internet Explorer), Apple (Safari) to name the majors. These are some of the most dominant businesses in the world.
In my mind, Opera should have died a long time ago, yet it survived, and continues to thrive, with over 380 million MAUs.
If that’s not an example of a resilient business, I don’t know what is.
How has Opera Managed To Survive?
I believe Opera’s resilience stems from three important factors:
A Focus on Niche markets
A Culture of Innovation
A High Product Velocity
With competitors like Google, Microsoft and Apple, to effectively compete, Opera must continuously provide ample reasons to potential customers to download and use their products. Opera does this by targeting specific user segments, and giving them products and features they can’t easily get elsewhere.
For example:
The Privacy conscious user can use the Opera Browser and reduce online tracking with an Ad Blocker and a VPN.
The Crypto enthusiast can get a Crypto Wallet right within the Browser itself.
Gamers can get a highly customized gaming experience with Opera GX.
Bandwidth constrained emerging markets users can benefit from a small and performant browser.
Below are a set of differentiated browser features Opera highlights on its website.
To carve out a niche, Opera must be willing to innovate. They must be willing to go into markets others don’t want to, and to create products others aren’t able to. Opera’s foray into emerging markets is a great example of the former; Opera News, the latter. Opera consistently innovates by moving fast, by experimenting, and by intelligently trying new things.
For Opera customers, the Opera Browser is the gateway to the Internet. Since this is the starting point for a user’s Internet session, Opera has managed to create a wonderful Search business (powered by companies like Google and Yandex). On the Browse side of things, Opera News, an AI-powered content discovery service has garnered >219 MAUs, resulting in a nice advertising business.
Opera’s Unfair Advantage: The Browser
The Browser also gives Opera the unique ability to monitor emerging trends, test and incubate new products in niches they identify, and scale the products that reach product market fit. When successful, such niches can be a source of wonderful high incremental margins.
Let me show you an example: Opera GX
Opera GX, Opera’s gaming browser is a perfect example of how Opera was able to leverage its unique browser assets for a completely new purpose. By owning the browser-based gaming niche, not only does Opera attract a specific self-selected customer segment, but also, minimizes and avoids competition.
Let’s see how: Opera has a treasure trove of data that helps it make intelligent decisions. Based on search queries, Opera knows that interest in browser gaming has been increasing. We can verify this by searching for “gaming browser” on Google Trends. Notice, the step function increase in the popularity of this search term over the past few years. Clearly, this is a growing niche. Opera knew this, and decided to invest in it by building Opera GX.
Now let’s see what we get when we Google “gaming browser”.
Notice how almost every result on Page 1 is Opera GX related!
Owning the niche is equivalent to a quasi-monopoly.
Remember
“Competition is for Losers”
--Peter Thiel
Since Opera has 380 million MAUs, once product market fit has been established, Opera can create instant traffic to scale products quickly, across geographies. This gives Opera a much coveted unfair advantage. It’s no surprise Opera GX has quickly amassed >9 million MAUs!
When successful, owning a niche can also be a source of wonderful high incremental margins. Again, Opera GX provides a great example: The company has said that every incremental 1 million Opera GX MAUs generates $2.5 million dollars in revenue. Guess what... most of those users are coming from word-of-mouth or seeded from browser traffic. So it costs Opera virtually nothing to get those users. Of course, we can expect CAC to increase over time, but those are incredible economics.
Risks
Every business has risks. Apart from the fact that Opera is still what I consider to be a Stage 1 Maverick, below are a few risks.
Competition:
Emerging markets can become more of a priority for the big browser companies like Google, Apple and Microsoft.
Super-Apps:
Will the browser remain the gateway to the Internet in Opera’s end-markets? We have already seen the prevalence of super-apps like WeChat elsewhere.
Management/Governance:
Admittedly, I have some questions I am still trying to answer. If you are familiar with Yahui Zhou, Opera’s CEO and Chairman, or have done any research on him, I’d love to connect and discuss the guy and his credibility.
Of course, allegations against the CEO in this Hindenburg Short-piece are concerning. That said, there is so much hyperbole in that report that it’s hard for me to take things written in there at face value. For example, related-party deals are always questionable, but on the positive side, separating out oPay and Nanobank, and investing in StarMaker provides those initiatives focused investment and resourcing rather than spreading the Opera team too thin, and still lets Opera participate in any future upside.
On the positive side, Yahui Zhou is clearly someone who knows how to make money. He is a billionaire who successfully acquired Opera in the Private market and unlocked tremendous value for himself and shareholders by taking the company public. After this acquisition, there has clearly been a flurry of innovative activity in the company, so things seem to be working well.
On the other hand, as the major shareholder and CEO, he comes across as a “distant-operator”. He doesn’t seem intimately involved in the day to day operations of the company. Did he even say anything during the last earnings call?
That said, the folks at Opera have a long track record of success, and can operate independently. I appreciate that the Co-CEO Song Lin has been there for 18 years and likely has the green-light to direct operations as he sees fit.
Valuation
Today, Opera trades at just around ~4 times 2021 revenue estimates. That is hardly a demanding valuation for such a resilient, high-margin, long-runway, global business, growing >40% YoY.
Conservatively, I don’t see why Opera can’t at least double or triple revenues in the following 3-5 years. Add to that a little multiple expansion, plus value unlock from their equity investments, and this gives Opera realistic multi-bagger potential.
Strategic Value
Separately, Opera has excellent strategic value.
As a browser company, it owns distribution. Opera has 100s of millions of MAUs. This means any acquirer would get instant scale in many markets. Also, with such distribution comes data, data, and more data. This data would make a wonderful strategic asset to pretty much any global big tech company in the world.
By comparison, let’s look at Honey (just a browser extension), which Paypal acquired in 2019 for a whopping $4 Billion. At that time, Honey had only 17 million MAUs, meaning Paypal paid ~$235/MAU! Sure, Honey operated in developed markets, while Opera’s user base is spread across several emerging markets, so even if we assume a 10X differential in ARPU potential between the two companies, that’s still a $23.5/MAU price tag. Yes, Honey was growing faster, but as a browser, Opera has higher strategic value; plus the 10X differential doesn’t give credit to users who are not in emerging markets, and to the fact that Opera is looking to make more headway into developed markets (Opera News).
Pick a number you’re comfortable with…all I can say is there is a big difference between $23.5/MAU vs the $3/MAU price tag the market is offering today.
That’s cheap.
Optionality We Get For Free:
Let’s not forget the optionality we get for free.
Opera Gaming Platform
Today, Gaming is monetized primarily with ads. There is certainly potential for a Roblox-like in-game app-store platform. GameMaker is an attempt at just that.
Opera Cashback (Dify)
Opera recently announced the formation of Dify, its payment and fintech brand for Europe. The initial Dify product is a browser-based cashback offering that utilizes the Dify mobile wallet to provide cashback to Opera users for shopping online.
This can be a highly profitable business that presents a win-win for all constituents involved:
Retailers/eComm sellers tend to have affiliate programs to incentivize distribution partners to help them find customers. Opera can help with such discovery.
Customers love it because they save money in the form of cashback. No matter how small, who doesn’t like getting a notification saying “you’ve received money!”?
Opera can play matchmaker and create a very high-margin business.
In fact, Rakuten has already shown that this is a well-proven business. In 2014, Rakuten, one of Japan’s largest eCommerce sites, bought a company called eBates for $1 Billion dollars. eBates connects shoppers with retailers, and collects a commission when a purchase is made. It then shares a portion of this commission with the buyer in the form of cash back. The business is so good that Rakuten has decided to change what its brand means. It now means cash back! If you visit Rakuten.com today, it simply shows you a list of cash back deals.
Therefore, in my opinion, Opera’s cash back offering faces primarily execution risk, not market risk.
Opera’s Investments
Opera owns:
13% of OPay, a mobile-based platform for payment, transportation, food & grocery delivery in Nigeria, servicing more than $2 Billion dollars in monthly transaction volume. They are supposedly raising a new growth round of funding at a $1.5 Billion valuation. They have some high profile investors, namely, Meituan, Softbank, Sequoia, IDG, and Redpoint, to name a few.
42% of Nanobank, a combination of Opera’s microlending and other fintech services in Indonesia, India, Kenya and Mexico (and more markets to come).
19% of StarMaker, a social media music and entertainment company that ended 2020 with a $127 million run-rate.
That’s a lot of value the company can unlock over the coming years.
In summary, we are getting a lot for free.
Let’s Wrap Up
In conclusion, Opera is a resilient and innovative Disruptor, creatively leveraging its browser assets and unfair advantages to build leading, niche, and highly profitable Internet products at scale.
I believe Opera offers investors both business resilience AND optionality, which make a superb combination. If I am right about the company, the core search and advertising business is not expensive, and provides a great margin of safety. Add to that the high-optionality bets outlined above. If successful, any one of them has the potential to be worth more than Opera’s entire market cap today!
Opera trades at just around ~4 times 2021 revenue estimates. That is hardly a demanding valuation for such a resilient, high-margin, long-runway, global business, growing >40% YoY. Conservatively, I don’t see why Opera can’t at least double or triple revenues in the following 3-5 years. Add to that a little multiple expansion, plus value unlock from their equity investments, and this gives Opera realistic multi-bagger potential.
Do you agree?
Discussion, as always, is welcomed. Please comment below or feel free to tweet @ me or email me (playingfordoubles[at]gmail).
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If you’re New to Playing For Doubles
Read more about my Investment Philosophy here:
The Three Stages of a Maverick: Stage 1 The Disruptors
The Three Stages of a Maverick: Stage 2 The Contenders
The Three Stages of a Maverick: Stage 3 The Leaders