US E-Commerce And AI Will Unlock Future Opportunities

Key Takeaways

• Expansion in e-commerce and AI-driven technologies is expected to drive strong revenue growth and improve net margins through high-intent advertising.
  
• Strategic focus on high ARPU markets and innovations in browsing technology are likely to boost profit margins and attract high-value users.
  
• Heavy reliance on performance-based advertising and possible market volatility could pose risks to revenue and growth potential in key markets.

Catalysts

Provides mobile and PC web browsers and related products and services in Norway and internationally.

• Opera's growth in the e-commerce vertical, particularly the untapped U.S. market, presents significant opportunities. This expansion is expected to drive revenue growth as the company leverages its strong performance in high-intent advertising.
  
• The adoption of AI-empowered browsing and advertising technologies, which enhances targeting and monetization, is likely to improve net margins and drive higher earnings as the company capitalizes on performance-based advertising.
  
• The introduction of new browser innovations such as the AI agentic browsing and Opera Air reflects the company's strong product development capabilities. These innovations are expected to attract high-value users, driving an increase in annualized ARPU and contributing to revenue growth.
  
• Opera has strategically focused on high ARPU markets and high-intent advertising, which is expected to lead to stable or increased profit margins as they scale up revenue without proportional increases in operating costs.
  
• The ability to remain resilient in a volatile market environment through a diversified geographic footprint and a focus on performance-based advertising is expected to support stable EBITDA margins, contributing positively to earnings.

Opera Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Opera's revenue will grow by 15.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.1% today to 17.8% in 3 years time.
• Analysts expect earnings to reach $143.7 million (and earnings per share of $1.55) by about July 2028, up from $84.2 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.8x on those 2028 earnings, up from 17.4x today. This future PE is lower than the current PE for the US Software industry at 46.9x.
• Analysts expect the number of shares outstanding to grow by 1.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.9%, as per the Simply Wall St company report.

Opera Future Earnings Per Share Growth

Risks

• Opera's heavy reliance on advertising revenue, particularly from performance-based e-commerce advertising, could be a potential risk. Any downturn in the advertising market or changes in advertiser behavior could significantly impact revenues and profits.
  
• The relatively stable user base, alongside shifting focus to high ARPU users, might limit the opportunity for broad user growth, potentially impacting long-term revenue expansion.
  
• Political tensions and unresolved trade disputes present ongoing volatility, which could lead to uncertainties in revenues, particularly from U.S. e-commerce and advertising markets.
  
• Currency fluctuations, especially a strong U.S. dollar, have been a consistent headwind, impacting revenue growth on a constant currency basis.
  
• Macro challenges in key markets, such as the U.S., might delay some growth potential, affecting the company's ability to capitalize on opportunities to scale revenue.

Valuation

• The analysts have a consensus price target of $25.929 for Opera based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $33.0, and the most bearish reporting a price target of just $23.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $806.5 million, earnings will come to $143.7 million, and it would be trading on a PE ratio of 20.8x, assuming you use a discount rate of 7.9%.
• Given the current share price of $16.41, the analyst price target of $25.93 is 36.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.