Coupled with fast digitization across nearly every industry, the rising ubiquity of internet usage worldwide has poised the internet sector for significant advancement and extension now and beyond.
In this article, I have evaluated two internet stocks, Opera Limited (OPRA) and Overstock.com, Inc. (OSTK), to determine which one of these could be a better choice.
OPRA, headquartered in Oslo, Norway, provides mobile and PC web browsers, whereas OSTK is an online furniture and home furnishings retailer and technology-focused innovator.
Before I compare the fundamentals of the stocks mentioned above, let’s see what’s happening in the internet industry.
Digitization drives global progress and opens doors for infinite opportunities. In today's fast-paced world, the internet has become an inseparable part of our daily lives and revolutionized the ways we work, learn, game, shop, communicate, and manage finances.
There were 311.3 million internet users in the United States in January 2023, and the internet penetration rate stood at 91.8% of the total population at the beginning of 2023. In addition, a Kepios analysis indicates that internet users in the United States increased by 1.5 million, or up 0.5%, between 2022 and 2023.
Moreover, government support for digital transformation initiatives has contributed to the digital revolution taking place. Consequently, the digital divide would be bridged, simultaneously enhancing the possibility of empowering individuals, boosting economic growth, and encouraging innovation.
Furthermore, the growing proliferation of internet and smartphone users, the widespread adoption of cloud computing and the Internet of Things (IoT)-enabled platforms, and the large-scale installation of wireless sensors in smart infrastructure are primarily driving the internet industry. The global wireless connectivity market is anticipated to reach $233.50 billion by 2028, exhibiting a CAGR of 13.8%.
OSTK has gained 22.5% over the past year versus OPRA’s 372.8% returns. Over the past three months, OSTK has gained 53.1% to close the last trading session at $32.06, while OPRA has gained 110.9% to close the last trading session at $21.51. However, OPRA gained 8.3% intraday, whereas OSTK lost 1.6% intraday.
But which stock is a better buy now? Let’s find out.
Latest Developments
On June 22, Aria, OPRA’s new browser AI, was made available for all users of the Opera browser for Android. As a result of OPRA's collaboration with OpenAI, Aria affords users free access to a leading generative AI service, expanded through
OPRA's own composer architecture, and with access to live results from the web. Natively built into the browser, Aria marks a new type of browsing experience for the future of the web.
On June 29, OSTK announced the completion of its acquisition of certain intellectual property assets of the Bed Bath & Beyond banner from Bed Bath & Beyond, Inc. under a Bankruptcy Court supervised process. This acquisition is a significant and transformative step for the company.
OSTK’s CEO, Jonathan Johnson, said, “The combination of our winning asset-light business model and the high awareness and loyalty of the Bed Bath & Beyond brand will improve the customer experience and position the Company for accelerated market share growth.”
Recent Financial Results
OPRA’s revenue for the first quarter that ended March 31, 2023, increased 21.6% year-over-year to $87.05 million. Its adjusted EBITDA increased 195.8% year-over-year to $21.74 million.
Additionally, its net income attributable to owners of the parent and net income per ADS came in at $15.48 million and $0.17, compared to net loss and net loss per ADS of $9.44 million and $0.08, respectively, in the prior-year quarter.
For the same quarter, the company’s free cash flow from operations stood at $23.32 million, up 102.6% year-over-year. OPRA’s net cash flow from investing activities increased 286.6% year-over-year to $22.58 million.
OSTK’s net revenue for the fiscal first quarter that ended March 31, 2023, declined 28.9% year-over-year to $381.14 million, while its gross profit stood at $89.71 million, down 28.4% from the previous-year quarter. Its operating loss for the quarter came in at $8.36 million, compared to an operating income of $12.45 million in the year-ago quarter.
The company’s net loss and net loss per share of common stock came in at $10.31 million and $0.23, compared to net income and net income per share of $10.12 million and $0.21, respectively, in the year-ago quarter. For the same quarter, the company’s cash and cash equivalents came in at $374.93 million, down 24% from the year-ago quarter.
Past and Expected Financial Performance
OPRA’s revenue has grown at 19.4% CAGR over the past five years, while OSTK’s revenue has grown at 0.2% CAGR over the same period. Additionally, OPRA’s tangible book value grew at 42.6% CAGR over the past five years, while OSTK’s grew at 36.7% CAGR over the same period.
For the fiscal years ending December 2023 and 2024, OPRA’s revenue is expected to increase 16.6% and 14.6% year-over-year to $386.02 million and $442.25 million, respectively. For the fiscal years 2023 and 2024, Street expects its EPS to come in at $0.73 and $0.83, up 190.8% and 13.9% year-over-year, respectively.
Furthermore, OPRA’s revenue and EPS for the fiscal third quarter ending September 2023 are expected to come in at $99.35 million and $0.19, up 16.4% and 85% year-over-year, respectively. The company surpassed revenue estimates in each of the four trailing quarters, which is impressive.
OSTK’s revenue for the fiscal year ending December 2023 is expected to decline 16.9% year-over-year to $1.60 billion, while its EPS is expected to remain negative at $0.64. For the fiscal third quarter ending September 2023, OSTK’s revenue is expected to come in at $402.74 million, down 12.5% year-over-year.
Its EPS for the same quarter is expected to come in at negative $0.16. Moreover, OSTK failed to surpass consensus EPS estimates in each of the four trailing quarters and revenue in three of the four trailing quarters, which is disappointing.
Profitability
OPRA’s trailing-12-month gross profit margin of 59.12% compares to OSTK’s 22.98%. OPRA has a trailing-12-month net income margin of 11.53% compared to OSTK’s negative 3.14%. Also, OPRA’s trailing-12-month levered FCF margin of 24.28% compares with OSTK’s negative 2.68%.
Thus, OPRA is more profitable.
Valuation
In terms of forward EV/Sales, OSTK is trading at 0.70x, 85.4% lower than OPRA, which is currently trading at 4.80x. However, OPRA’s forward EV/EBITDA multiple of 22.70 is 63.3% lower than OSTK’s 61.82.
POWR Ratings
OPRA has an overall rating of B, translating to Buy in our POWR Ratings system. On the other hand, OSTK has an overall D rating, which equates to Sell. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. OPRA has an A grade for Sentiment in sync with its favorable analyst estimates. Whereas OSTK’s Sentiment grade of D is justified by its poor analyst estimates.
OPRA’s Quality grade of B is in sync with its trailing-12-month ROCE of 4.35%, which is significantly higher than the industry average of 0.09%, and trailing-12-month levered FCF margin of 24.28%, which is 248.3% higher than the industry average of 6.97%.
Conversely, OSTK’s C grade for Quality is evident from its trailing-12-month cash per share of $8.29, which is 244.5% higher than the industry average of $2.41, while its trailing-12-month gross profit margin of 24.98% is 34.8% lower than the industry average of 35.25%.
Moreover, OPRA’s B grade for Growth is justified by its robust financial performance in the last reported quarter. Conversely, OSTK has a D grade for Growth, which is evident from its poor financial performance in the previous quarter.
Within the Internet industry, OPRA is ranked #10, while OSTK is ranked #47 out of the 57 stocks.
Beyond what we’ve stated above, we have also rated both stocks for Value, Momentum, and Stability. Get all ratings of OPRA here. To view OSTK’s ratings, click here.
The Winner
There has been a global shift to remote and hybrid ways of working post-pandemic, which led to unprecedented rises in gaming, streaming, and AR/VR adoption, driving the demand for high-speed internet and, consequently, helping the industry sustain its resilience.
However, considering OPRA’s robust profitability scenario, cheaper valuation, and promising bottom-line estimates, the stock could be a better choice over OSTK now.
Moreover, on June 14, 2023, OPRA declared a regular dividend of $0.40 per common share, which is scheduled to be paid to shareholders on July 7. Its annualized dividend rate of $0.80 per share yields 4.64% on prevailing prices. OPRA’s four-year average dividend yield is 0.82%.
This reflects the company’s reliable dividend payments. Hence, investors could buy the stock to ensure a steady passive income.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy or Buy. View all the top-rated stocks in the Internet industry here.
What To Do Next?
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OPRA shares were trading at $22.59 per share on Wednesday morning, up $1.08 (+5.02%). Year-to-date, OPRA has gained 267.01%, versus a 16.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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