This incredibly cheap tech stock is skyrocketing and is likely to continue rising

opera (OPRA -6.12%) may not be a familiar name among technology investors. The company plays a minor role in the global web browser, search engine and advertising markets dominated by the big guys. But the stock’s recent performance in the market following its latest quarterly report should attract the attention of investors looking to add a growth stock to their portfolios.

The company released second-quarter (ended June 30) 2024 results on August 22. The stock rose a remarkable 14% in a single session thanks to better-than-expected numbers and improved full-year guidance. Let’s take a closer look at Opera’s quarterly results and see why buying this tech stock seems like a no-brainer right now.

Opera’s solid results point to improved monetization

Opera’s revenue increased 17% year-over-year to $109.7 million in the second quarter, beating the consensus estimate of $108.5 million. In addition, the company reported significantly stronger earnings growth as its profit increased 47% year-over-year to $0.22 per share, driven by an improvement in its margin profile. More specifically, Opera’s net profit margin increased 4 percentage points year-over-year to 18%.

The margin increases were driven by a 25% increase in Opera’s annual average revenue per user (ARPU) to $1.46, reflecting better monetization of the company’s web browsers as well as strength in its advertising and search businesses. More specifically, Opera’s advertising revenue increased 20% year over year to $64.6 million. Search revenue, on the other hand, increased 15% to $45 million.

The good news is that Opera has built a large user base that it can monetize and leverage to sustain healthy growth over the long term. The company ended last quarter with 298 million monthly active users (MAUs). Of these, 78 million used Opera’s browsers on personal computers (PCs), with the rest on mobile devices.

Opera makes money from these users by serving ads in its browsers. Advertisers and brands can display ads on Opera’s browser homepage and they can even choose to place their ads in the form of shortcodes for which they have to pay a premium. So the increase in ARPU shows that Opera is landing more high-value customers.

At the same time, the company makes money from search through revenue-sharing agreements with brands. For example, if someone wants to book a hotel, Opera suggests booking sites to the user through its search bar. This allows the company to earn money when the user lands on those sites via the recommendations.

Considering that Opera has already built a huge user base, it’s easy to understand why the company is seeing increased advertiser spending on its platform, leading to improved ARPU and margins. As a result, the company has raised its full-year revenue guidance to a range of $464 million at the midpoint of its forecast, representing a 17% increase year-over-year.

When it released its first-quarter results in April, the company had expected revenue to increase by 16%. It’s also worth noting that Opera’s original revenue forecast for 2024 (published in February this year) called for revenue to increase by 15% year-on-year. This means the company has raised its forecast for two quarters in a row.

A similar scenario could emerge in the future as well if monetization continues to advance. This is probably the reason why analysts have also raised their growth expectations.

OPRA revenue estimates for the current fiscal year, data from YCharts

A clear reason to buy the stock

Opera’s revenue growth is expected to accelerate starting in 2024. This growth is also expected to impact the bottom line, which is not surprising given the company’s margin improvements.

OPRA EPS estimates for the current fiscal year, data from YCharts

The chart above shows that Opera’s earnings could grow by over 20% over the next few years. With Opera stock currently trading at 9 times trailing earnings, a buy is a no-brainer given the likely healthy earnings growth.

So investors looking to add a potential growth stock to their portfolios – especially one that trades at an attractive valuation – would do well to buy Opera, as its improving financial performance could be rewarded with further upside in the market. According to analysts, the median price target for the stock over the next one year is $23, suggesting a 42% upside from current levels. The stock could indeed offer such solid upside potential.