Opera Ltd. Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2019. The filing is an annual Form 20-F, not a standalone fourth-quarter filing; clear Q4 financial statements are not provided. Financial statements are prepared under IFRS in U.S. dollars, with amounts generally in thousands.
Business Context
Opera is a Cayman Islands holding company headquartered in Oslo, Norway. Its principal businesses are Browser and News, app-based fintech and microfinance, retail sales of airtime and handsets, and technology licensing and other services. The company reported more than 350 million average monthly active users in 2019, including approximately 318 million browser users and 124 million Opera News users.
Financial Performance and Position
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | US$334.9 million | US$172.3 million | +94.4% |
| Operating profit | US$20.7 million | US$45.3 million | -54.4% |
| Operating margin | 6.2% | 26.3% | Down 20.1 percentage points |
| Net income | US$57.9 million | US$35.2 million | +64.7% |
| Diluted earnings per ADS | US$0.51 | US$0.34 | Higher |
| Adjusted EBITDA | US$45.5 million | US$65.8 million | Down |
| Adjusted net income | US$67.6 million | US$46.1 million | Higher |
| Net cash from operating activities | (US$44.5 million) | US$33.8 million | Turned negative |
| Cash and cash equivalents | US$139.5 million | US$177.9 million | Down |
| Cash, equivalents and marketable securities | US$181.6 million | US$179.0 million | Slightly higher |
Revenue growth was driven by fintech revenue of US$128.4 million, Browser and News revenue of US$155.0 million, retail revenue of US$29.8 million and Other revenue of US$21.7 million. Fintech represented 38.3% of total revenue, compared with 1.0% in 2018.
Operating expenses increased to US$314.2 million from US$127.0 million, or 93.8% of revenue versus 73.7% in 2018. Major 2019 expenses included cost of revenue of US$74.0 million, personnel expenses of US$61.0 million, marketing and distribution of US$73.2 million, and US$54.3 million of other changes in fair value of customer loans, primarily reflecting credit losses.
Net income benefited materially from a US$37.9 million increase in the fair value of preferred shares in associates, principally US$33.9 million related to OPay and US$4.0 million related to StarMaker, as well as US$8.8 million of net finance income. These items were partly non-cash and valuation-sensitive.
Liquidity, Cash Flow and Debt
- Operating cash flow was negative US$44.5 million, principally because the expanding loan book absorbed approximately US$90.0 million of cash.
- Investing cash outflow was US$107.0 million, including US$52.9 million deposited as collateral for an Indian subsidiary’s loan facility and US$35.3 million of net purchases of marketable securities.
- Financing cash inflow was US$113.2 million, including approximately US$82.6 million of net proceeds from the 2019 follow-on offering and US$43.2 million of borrowings.
- Loans to customers increased to US$93.1 million from US$3.1 million. Fourth-quarter non-performing loans were approximately 5.5% of total loan value.
- Interest-bearing loans totaled approximately US$43.9 million at year-end, primarily an Indian rupee-denominated facility of US$42.2 million. Total lease liabilities and other loans were approximately US$55.9 million.
- Total contractual commitments were US$131.4 million, including US$120.5 million due within one year.
- Management stated that available cash and cash equivalents were sufficient for ordinary working capital and capital expenditures for the following 12 months, although cash was being used to fund the capital-intensive microfinance operation.
Material Changes Versus 2018
- Fintech revenue increased from US$1.7 million to US$128.4 million as microfinance scaled in Kenya and expanded into India and Nigeria.
- Browser and News revenue increased 11.9%, while search revenue rose 7.5% and advertising revenue rose 14.9%.
- Browser and News contribution declined to US$87.1 million, or 56.2% of segment revenue, from US$104.1 million, or 75.2%, due largely to increased marketing investment.
- Fintech contribution increased to US$35.8 million, but its contribution margin fell to 27.9% from 39.5% because of credit losses, operating costs and marketing.
- Operating margin contracted sharply despite revenue growth, reflecting the cost of scaling fintech and increased marketing.
- Operating cash flow turned negative as loan funding requirements expanded.
- Opera adopted IFRS 16 Leases in 2019, recognizing right-of-use assets and lease liabilities and changing the presentation of certain expenses.
- Full-time employees increased from 464 to 819, while outsourced call-center and similar in-market staff increased to approximately 6,000.
Guidance, Outlook, Risks and Unusual Items
- Management expected continued growth in microfinance, additional geographic expansion and broader fintech products, while also expecting higher personnel, hosting, cost-of-revenue and credit-loss expenses in absolute terms.
- Management expected operating costs to decline as a percentage of revenue over time through operating efficiencies and scale; the filing does not provide formal numerical revenue or earnings guidance.
- Key risks include borrower defaults, loan-valuation estimates, regulatory changes affecting online lending, limited experience in financial services, dependence on third-party payment and collection providers, and the need for additional funding to scale lending.
- Google contributed approximately 22.3% of 2019 revenue, down from 39.4% in 2018. Search revenue still represented 25.7% of total revenue, creating partner and monetization concentration risk.
- Revenue from India, Ireland, Kenya and Russia represented 69.5% of total revenue based on partner domicile; this does not necessarily reflect end-user location.
- Management identified material weaknesses in internal control over financial reporting relating to complex accounting transactions and risk assessment and oversight of multi-country microlending operations. Disclosure controls were therefore considered ineffective at December 31, 2019. Remediation was in progress.
- COVID-19 was a subsequent event with no impact on 2019 financial statements, but management reported increased user traffic, lower monetization, and materially reduced microlending volumes beginning in March 2020.
- The company was named in a putative securities class action filed in January 2020. The case was at a preliminary stage, and the filing provides no estimate of potential loss.
- Opera did not expect to pay dividends in the foreseeable future. Its chairman and CEO beneficially controlled approximately 60.2% of voting power.
Most Important Facts to Verify
- Whether microfinance revenue growth and reported profitability are sustainable after credit losses, regulatory changes and COVID-19-related lending reductions.
- The accuracy of loan fair-value estimates, including the US$93.1 million year-end loan book and approximately 5.5% Q4 non-performing loan ratio.
- Progress and effectiveness of remediation for the disclosed material weaknesses in internal controls.
- The valuation assumptions supporting the US$80.0 million carrying value of preferred shares in OPay and StarMaker and the related US$37.9 million 2019 gain.
- Liquidity after restricted collateral of US$52.9 million, negative operating cash flow, debt maturities and continued lending requirements.
- Renewal terms and economics of major search-partner agreements, including Google’s agreement scheduled to extend through December 2020 and Yandex’s agreement through April 2023.
- Potential financial and reputational effects of the securities litigation, related-party transactions and the COVID-19 impact on advertising and collections.