OPera’s prolific growth around the world is getting stunted by unprecedented nemesis that is touching many of its platforms. About a week ago, equity research house, Hindenburg reported that Google may be aiming to take down Opera’s lending platforms, OKash and OPesa for flouting its Play store lending rules.
Opera operates lending apps in India, Kenya and Nigeria, and stipulates 30 days for loan repayment which goes contrary to the newly introduced Google rules of 60 days.
The trouble started as soon as Google introduced the new rule. According to Hinderburg Research: “Instead of disclosing to investors that its “high-growth” microfinance segment could be imperiled by these new rules, Opera immediately raised $82 million in a secondary offering without disclosing Google’s changes to investors.”
The sharp move signaled a suspicion that the research tried to unravel. The cover up of the new rules from investors is suggesting a financial vacuum that the company is trying to fill without getting investors alarmed.
Opera started as a browser and was gaining users until recently, after its IPO and new management, a serious decline started taking effect, owing mainly to competition. Google’s Chrome and Apple’s Safari become popular among computer and mobile phone users, resulting in significant decline in the popularity of Opera Browser users.
“When a new management team takes over a declining business, it can become race against the clock to cash out. This is what we think is going on at Opera, a company based around a once-popular web browser that is now seeing its userbase erode.” Hindedburg
In the 2019 Q3 report, there was a notable decline of 22.6%, from $76 million to $59 million in Opera’s year-on-year gross profit. The cash flow in nine months of 2019 that ended in September 30, yielded $24.5 million negative in operating cash flow, compared to $21.7 million for the same period in the past year.
But at the same time in 2019, there was the introduction of the Fintech segment of Opera. The OPay and lending platforms appeared to have shot the revenue up to 42.5%. The Fintech apps are operational in Africa and Asia, and were widely embraced in the beginning since it offers cheap loans and those who need it were many in countries where they were functional.
But that’s exactly where the problem lies. A former Opera employee told Hindenburg Research that the loans are given to people who can’t afford their basic needs.
“Most Kenyans, they are low income earners. And apparently most of them don’t have enough for their families.”
In Nigeria, the story isn’t different. OPay lends N8,000 on the condition that the loanee pays back N9,440 in a space of two weeks. That’s 18% interest in two weeks, and 468% interest in a year, a predatory practice that blatantly violates Google’s lending rules, and most of those taking soft loans are not aware of it. Even if they are, it wouldn’t change anything since the banks don’t offer a better alternative.
However, the lack of alternative from the banks doesn’t trump the reality that most of the people seeking these loans may not be able to pay back in two weeks. Then it creates two situations for OPay; more money or bad debt.
Hindenburg had alleged that Opera’s lending apps lure prospective customers with enticing loan rates that appear compliant with Google’s policy, but the apps manipulate the potential borrowers once they fill in their details by either denying them or granting them a short term loan instead.
Though Opera refuted Hindenburg Research claims, it did not provide alternative facts to back up its own claims. In a statement, the company said the report is full of errors: “The Hindenburg’s report is full of numerous errors, unsubstantiated statements, and misleading conclusion and interpretations regarding the business of and events relating to the company.”
Alejandro Vizquez, Opera’s Communications manager told BusinessDay: “The report mentioned is from a firm that specializes in making short calls, often sensational in nature, with their conclusions being designed for that single purpose.”
In November 2019, Opera’s chief financial officer, Frode Fleten Jacobsen, said the company’s average loan length was about two weeks, and the measure has been adopted to curtail exploitative practices by those who seek loans. The Google’s policy stipulating a sixty days period of repayment was updated in October last year.
Since Hindenburg published their findings, Opera’s shares have been pushed 22% lower.