Shares of internet browser company Opera Ltd. (NASDAQ: OPRA) were falling in Thursday trading, down 8.6% as of 2 p.m. ET.
Opera reported earnings last night, and while revenue slightly beat expectations, earnings per share (EPS) missed. The company is spending heavily on a new artificial intelligence (AI) cluster, much like other big tech companies are. However, given the big spend on AI, some may have anticipated better second-quarter revenue and earnings guidance.
Still, the stock looks quite cheap.
Building an AI cluster
For Q1, Opera’s revenue came in at $101.9 million, up 17% on the year and slightly beating expectations. However, EPS came in at $0.17, below estimates of $0.24. The shortfall was perhaps due to slightly higher expenses but also a much higher tax rate than the prior year.
Even outside the income statement, Opera spent much more than some might have thought on its new AI data-center cluster located in Iceland, which ran the company’s capital expenditures up to $20.2 million, eating up most of the company’s operating cash flow. In the year-ago quarter, the company spent just $318,000 on capital expenditures — next to nothing.
Opera’s management also guided for roughly $108 million in revenue in Q2, up 15% relative to the prior year, but for adjusted EBITDA margins to fall to between 22% and 25%. The midpoint is down from the 24.5% EBITDA margin earned in Q1, suggesting spending pressures on profits will persist. Meanwhile, some may have anticipated a quicker revenue acceleration from AI investment.
Opera stock looks ridiculously cheap
Opera’s stock looks very cheap, trading at just around 13 times this year’s earnings estimates and less than 11 times next year’s estimates. Part of the discount could be due to the company’s majority ownership by a Chinese investment consortium, but the company is still headquartered in Norway, where it was founded.
Investors are clearly worried about whether the big spending on an AI cluster will result in better revenue growth and long-term profitability, or whether it’s just a new cost of doing regular business. While that remains to be seen, Opera still generated free cash flow last quarter even with the spend on the new AI data center. And with mid-teens top-line growth, the stock looks far too cheap at just a low-teens-earnings multiple. Value investors should dig in to Opera.
Should you invest $1,000 in Opera right now?
Before you buy stock in Opera, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Opera wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $488,186!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of April 22, 2024
Billy Duberstein has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Why Opera Limited Plunged Today was originally published by The Motley Fool
Signup bonus from
