Opera Ltd. 2020 Form 20-F Summary
Business context and reporting period
Opera Limited is a Cayman Islands holding company headquartered in Oslo, Norway, with ADSs listed on Nasdaq under OPRA. Each ADS represents two ordinary shares. The filing is an annual report for the fiscal year ended December 31, 2020, filed June 10, 2021; it is not a standalone quarterly filing. Opera reports under IFRS.
Opera’s principal businesses are PC and mobile browsers, the AI-powered Opera News platform, advertising and search monetization, technology licensing, and developing European fintech and gaming offerings. Average monthly active users exceeded 370 million in 2020. In the fourth quarter, total browser average MAUs were 333.2 million, PC browser MAUs were 78.9 million, and Opera News MAUs were 210.3 million.
Financial performance and key metrics
| Metric | 2019 | 2020 | Change or comment |
|---|---|---|---|
| Revenue | US$177.1 million | US$165.1 million | Down 6.7% |
| Browser and News revenue | US$155.0 million | US$155.5 million | Essentially flat |
| Search revenue | US$86.2 million | US$84.2 million | Down 2.3% |
| Advertising revenue | US$68.8 million | US$71.5 million | Up 4.0% |
| Technology licensing and other revenue | US$22.1 million | US$9.4 million | Down 57.6% |
| Operating profit (loss) | (US$0.5 million) | (US$2.4 million) | Operating margin declined to negative 1.5% |
| Profit from continuing operations | US$40.7 million | US$37.4 million | Margin of 22.7% versus 23.0% |
| Net income | US$57.9 million | US$179.2 million | Includes major discontinued-operation gain |
| Adjusted EBITDA | US$24.2 million | US$25.0 million | Up approximately 3.0% |
| Adjusted net income | US$50.5 million | US$62.9 million | Non-IFRS measure |
| Net cash from operating activities | (US$44.5 million) | US$93.3 million | Improved primarily from discontinued fintech working-capital effects |
| Cash and cash equivalents | US$139.5 million | US$134.2 million | Year-end balance |
Operating expenses were US$179.0 million, or 108.5% of revenue, compared with 100.3% in 2019. Marketing and distribution expenses declined 26.5% to US$47.9 million, while personnel expenses were broadly flat at US$62.1 million. Credit loss expense related to the divested Powerbets joint venture was US$10.5 million.
Net income was substantially affected by the August 2020 contribution of the emerging-market microlending business to Nanobank in exchange for a 42% interest. The transaction generated a gain of approximately US$151.4 million, reported in discontinued operations. Profit from discontinued operations was US$141.7 million in 2020, compared with US$17.2 million in 2019.
Balance sheet, debt and liquidity
- Total assets were US$1.110 billion and total equity was US$1.049 billion at December 31, 2020.
- Financial liabilities totaled approximately US$48.3 million, including US$8.6 million of lease liabilities and interest-bearing loans; total contractual commitments were US$47.5 million, including leases.
- Interest-bearing loans declined sharply after repayment of the credit facility used to fund the microlending business. Cash financing outflows included US$52.9 million of loan repayments and US$49.0 million of share repurchases.
- Working capital was US$138.6 million and the equity ratio was approximately 94%.
- Capital expenditures were US$11.3 million, including development expenditures, equipment, and purchased intangible assets.
- Management stated that available cash and cash equivalents were expected to fund ordinary-course working capital and capital expenditures for at least the next 12 months.
Material changes versus the prior comparable period
- Revenue declined because technology licensing and professional-services revenue was deliberately reduced, while search and advertising revenue remained relatively resilient despite COVID-19.
- Browser and News contribution increased to US$100.4 million, or 64.6% of segment revenue, from US$87.2 million, or 56.3%, primarily because marketing and distribution spending fell by US$17.6 million.
- The Other segment contribution fell to US$2.9 million from US$10.2 million as Opera reduced lower-margin licensing and operator activities.
- Opera discontinued its emerging-market fintech operating segment through the Nanobank transaction and terminated its retail business. Comparative results were re-presented as discontinued operations.
- Investments in associates and joint ventures increased to US$364.9 million from US$76.3 million, principally due to the US$264.9 million recognized investment in Nanobank.
- Opera recognized US$24.0 million of unrealized gains on preferred shares in OPay and StarMaker, compared with US$37.9 million in 2019. The 2020 year-end carrying values were US$49.0 million for OPay and US$55.0 million for StarMaker.
- Opera repurchased 5,893,139 ADSs for approximately US$49.0 million during 2020. The program ultimately repurchased 5,976,455 ADSs for approximately US$49.8 million through January 17, 2021.
- Expenses and financial statements were adjusted after the February 2021 preliminary results release. The audited filing reduced reported revenue and adjusted EBITDA by approximately US$0.2 million and increased 2020 net income by approximately US$3.1 million relative to that release.
Guidance, outlook, commentary and risks
The filing does not provide formal quantitative revenue or earnings guidance. Management expects continued investment in browsers, Opera News, AI and big-data capabilities, European fintech, gaming, content distribution and user acquisition. It expects personnel, hosting, rent and marketing expenses to rise in absolute terms, while longer-term operating expenses may decline as a percentage of revenue through scale and efficiency.
- COVID-19 reduced advertising and search monetization during much of 2020. The filing states that the negative revenue impact largely eased in the second half, but continued pandemic effects in 2021 remained highly uncertain, particularly for advertising and Nanobank.
- Google accounted for approximately 46.1% of 2020 revenue, up from 42.1% in 2019. Search revenue represented 51.0% of total revenue, creating significant partner and search-monetization concentration.
- Revenue concentration by partner domicile was also notable: customers and monetization partners domiciled in Ireland generated 48.4% of revenue in 2020.
- Opera disclosed a material weakness in internal control over financial reporting as of December 31, 2020. The weakness involved risk assessment, control design and review of complex accounting transactions, including valuation models for preferred shares. Management’s remediation may not be completed by the end of 2021.
- Goodwill and intangible assets totaled approximately US$425.0 million and US$112.0 million, respectively. No impairment was recorded in 2020, but future impairment remains possible if operating performance, user trends, competition or market values deteriorate.
- Opera faces regulatory and execution risks from privacy, data transfers, content moderation, fintech licensing, anti-money-laundering requirements, taxation, cybersecurity and international operations.
- Control is concentrated: Kunlun indirectly owned 54.57% of ordinary shares and the chairman and CEO, including his related holdings, could control approximately 63.04% of voting power.
- The company does not expect to pay cash dividends in the foreseeable future.
- Subsequent events included the acquisition of YoYo Games for approximately US$9.5 million, a US$0.9 million investment in Fjord Bank, and the June 2021 sale of OPay preferred shares for US$50 million, generating a gain of approximately US$31.1 million.
Most important facts for investors to verify
- Reconcile reported 2020 net income with continuing operations, discontinued operations and the US$151.4 million Nanobank-related gain.
- Assess the sustainability of revenue excluding preliminary and audited-result adjustments, particularly search revenue and the Google relationship.
- Review the material weakness remediation plan and whether subsequent filings conclude that internal controls became effective.
- Evaluate the valuation assumptions supporting Nanobank and the Level 3 OPay and StarMaker preferred-share investments.
- Monitor COVID-19 effects on advertising, search monetization, user engagement and Nanobank’s regulated lending operations.
- Confirm the post-period share count, completed repurchases, ownership concentration and any dilution from equity awards.
- Review the terms and financial impact of the OPay preferred-share sale and the YoYo Games acquisition.