What happened
Opera (OPRA +1.59%) investors had a rough day on Friday. Their stock was down 22% by 11 a.m. compared to a 0.3% increase in the wider market. The drop didn't erase much of their short-term returns, though. The mobile browser specialist is still up by over 200% so far in 2023 while the S&P 500 has gained 18%.
Friday's slump came after Opera announced a new stock issuance.
So what
Opera said in an early morning filing with the SEC that it is seeking to raise as much as $300 million by issuing approximately 140 million new shares. For context, the company's current market capitalization is nearly $2 billion.
The move would allow the company to avoid using debt markets, which have become more expensive and harder to navigate. Stock offerings, in contrast, provide a quick and direct way that a company can raise capital.
Moves like these tend to pressure a stock price simply due to the increased supply that's heading onto the market. More shares in circulation mean that existing shareholders have a relatively smaller claim against the company's earnings, making each share less valuable .
NASDAQ: OPRA
Key Data Points
On the bright side, Opera will get more capital that it can direct toward its growth initiatives and toward expanding its services. The company is currently working to incorporate more artificial intelligence tech into its browsers, for example.
It's hard to argue with management's timing, too. The shares have been soaring in the past few months and are up over 250% in 2023. Capitalizing on this move, especially while interest rates are so high, makes good financial sense. Stock prices can drop as quickly as they rise, and so it is understandable that executives want to make this issuance happen at this time.
Now what
The stock issuance is no reason to abandon the bullish thesis for this growth stock. But it is a reminder that Opera isn't yet in a position to fully fund its growth internally. Ideally, a company wouldn't need to frequently tap equity or bond markets but could sustain itself through operating cash flow.
That's a reason to be cautious about any stock, especially one that has risen so high so quickly. Investors are paying over 6 times annual sales for shares even following Friday's decline, which is near the company's pandemic high. Look for more volatility around that share price, in either direction, in the future.
