Opera Shares Jump as Forecast Is Music to Investors' Ears. But Is It Too Late to Buy the Stock?

Shares of Opera (NASDAQ: OPRA) rose after the web browser operator saw a huge jump in revenue and issued upbeat guidance. While the stock is down year to date, its shares are up more than 20% over the past year.

For those unfamiliar with Opera, the company operates a portfolio of web and mobile browsers that are designed to optimize speed and battery life. Its browsers have been particularly popular in emerging markets, although lately it has been more focused on adding higher-valued users from developed markets. On this front, its fastest-growing browser is Opera GX, which is designed to optimize gaming performance.

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Opera makes money in two main ways. The first is simply through advertising and its Opera ad platform. It also has a revenue-sharing agreement with Google, where it gets a portion of the ad revenue when people use one of its built-in search bars.

Let's take a closer look at the company's Q1 results to see if the stock's momentum can continue.

Strong revenue growth

For the first quarter, Opera saw its revenue surge 40% to $142.7 million. That was well ahead of its Q1 guidance for revenue of between $130 million to $133 million. Advertising revenue soared 63% to $95.6 million, while search revenue climbed 8% to $46.6 million. The company also recorded $500,000 in technology licensing revenue.

The growth in advertising was led by e-commerce, which the company said offset typical seasonality. Revenue from the vertical more than doubled. Meanwhile, it still sees the U.S. e-commerce industry as having a lot of growth ahead.

It also noted that its advertising revenue is performance-based as opposed to brand advertising, and as such, expects it will be more resilient during any period of economic weakness. With search revenue, meanwhile, the company said it was successfully leveraging artificial intelligence (AI) to more effectively identify user intent, which was allowing it to "optimize the click stream."

Demonstrating the company's focus on higher-valued users, its annualized average revenue per user (ARPU) soared 45% year over year to $1.94. Its number of monthly active users (MAU) fell 4% year over year from 304 million to 293 million. However, Opera GX, its highest monetizing browser, saw its user base grow 14% in the quarter to 34 million MAUs.

The company also noted that its new Opera Air browser, targeting Western users, was downloaded 500,000 times in its first two months. The browser was designed to integrate science-backed mindfulness to reduce digital stress and promote focus.

Also on the innovation front, Opera has turned to agentic AI with its Browser Operator. The company said that while users are still in control, the browser could help with things such as making travel bookings and even ordering flowers to a particular hotel room. The company said in a live demo it was able to book a trip to Lisbon, Portugal; find a Portuguese florist; and fill a shopping cart with the specified flowers, along with all relevant delivery and payment information, all with English prompts. The user then just had to click the final checkout.

On the profitability front, Opera's adjusted EPS rose 35% to $0.27 and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) climbed 29% to $32.3 million. Looking ahead, the company forecast Q2 revenue to rise by around 24% to between $134 million to $138 million. It projected adjusted EBITDA to increase by 23% to a range of $30 million to $32 million.

It also boosted its full year guidance. The company now expects revenue to range from $567 million to $582 million, representing a 20% annual growth at the midpoint. That's up from a prior revenue outlook of between $555 million to $570 million. It's now looking for adjusted EBITDA of between $135 million to $145 million, up from a prior range of $132 million to $138 million.

Opera was optimistic it would be able to navigate the current uncertain macro environment and political tensions. It also thinks any open competition that results from big tech antitrust cases could be a long-term opportunity.

Image source: Getty Images.

Is Opera stock a buy?

Trading a forward price-to-earnings ratio (P/E) of 14.6 times this year's analyst estimates with 20% projected revenue growth, Opera stock is not expensive.

The company also has $103.5 million in net cash and an investment in OPay valued at $258.3 million on its balance sheet. OPay is a fast-growing fintech company that provides digital financial services in Africa, primarily in Nigeria.

Previously, Opera had to increase the carrying value of its Opay investment due to the rapid expansion of its customer base. Opera expects OPay to grow its revenue at a 35% annual rate between 2023 and 2030. Opera owns more than a 9% stake in OPay, which is a nice asset some investors may not know about.

Given its strong advertising growth, inexpensive valuation, and investment in OPay, Opera looks like a solid stock to own at current levels.

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Geoffrey Seiler has positions in Opera. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.