The past three months have been incredible for Opera (OPRA -4.81%) investors. Shares of the company behind the popular web browser of the same name have gained 47% thanks to its solid results.
Most recently, the stock popped by 10% following the release of Opera's third-quarter earnings report on Oct. 29. But could it head higher in the near term, and is it still worth buying Opera now with that impressive surge already behind it?
Opera's beat-and-raise quarter paves the way for stock upside
Opera's third-quarter revenue grew 20% year over year to $123 million, beating the $120 million consensus estimate. Earnings surged at an even faster pace of 34% to $0.26 per share, crushing the $0.20 per share consensus estimate.
Opera's performance easily exceeded the guidance that it issued in August when it called for Q3 revenue of $120 million and an adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margin of 23%. It is worth noting that Opera's adjusted EBITDA margin landed at 25%, up from 24% in Q2.
This improved margin performance can be attributed to the stronger monetization of Opera's internet properties. More specifically, Opera's annualized average revenue per user (ARPU) came in at $1.66 last quarter, an increase of 27% from the same period last year. The company attributed this increase in the ARPU to growth in the number of high-value customers that are spending more on its offerings.
Opera got 62% revenue from its advertising business last quarter, as ad sales grew 26% year over year. Management points out that the growing adoption of its Opera Ads platform, along with an improvement in the monetization of its browsers, has played a central role in the growth of the advertising business.
Opera's browsers allow advertising partners to buy spots on its landing page as well as pre-installed speed dials that are customized according to the region in which the browser is being used. The company gets a tenancy fee or a revenue share from these advertisers. On the other hand, the company also offers native advertising or sponsored content.
Opera's strong base of 296 million average monthly active users means that advertisers have access to a robust audience that they can target, which helps explain why they have been spending more money on the company's ad offerings. Meanwhile, its search business is benefiting from revenue-sharing agreements, leading to a 13% year-over-year jump in revenue last quarter.
Encouraged by the solid momentum in both search and advertising, Opera has increased its 2024 revenue guidance to a range of $470 million to $473 million, which would amount to an increase of 19% at the midpoint. It was earlier anticipating a 17% jump in revenue this year. It is now expecting an adjusted EBITDA margin of 24% as compared to its earlier estimate of 23%.
As such, it is not surprising to see why Opera stock rose impressively after the Q3 release. Analysts have increased their growth expectations for the company for the next couple of years, expecting its top line to clock healthy double-digit percentage growth rates.
OPRA Revenue Estimates for Current Fiscal Year data by YCharts.
The valuation is too attractive to ignore
Even though Opera stock has surged during the past three months, it remains attractively valued. It has a price-to-sales ratio of 3.7, which is lower than the U.S. tech sector's average of 8. Buying the stock at this valuation looks like a no-brainer as the robust growth in its revenue should translate into impressive bottom-line growth in the future. That's because its improved monetization has led to a nice bump in its margin profile.
OPRA Operating Margin (TTM) data by YCharts.
As it turns out, analysts are expecting Opera's earnings to increase at an annual rate of 84% for the next five years, giving investors yet another reason to buy this tech stock before it flies higher.
