opra20190914_424b5.htm

 

Table of Contents

 

The information in this preliminary prospectus supplement is not complete and may be changed. This preliminary prospectus supplement and the accompanying prospectus are not offers to sell nor do they seek offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Filed Pursuant to Rule 424(b)(5)

Registration No. 333-233691

 

Subject to Completion. Dated September 16, 2019

 

PROSPECTUS SUPPLEMENT

(To Prospectus Dated September 10, 2019)

 

7,000,000 American Depositary Shares

 

 

Opera Limited

 

Representing 14,000,000 Shares

 


 

We are selling 7,000,000 American depositary shares, or ADSs. Each ADS represents two ordinary shares. We have granted the underwriters an option to purchase up to 1,050,000 ADSs at the price to the public less the underwriting discounts and commissions.

 

Our ADSs are listed on the NASDAQ Global Select Market under the symbol “OPRA.” On September 13, 2019, the reported last sale price for the ADSs was US$13.19 per ADS.

 

Investing in the ADSs involves risks. See “Risk Factors” beginning on page S-19 of this prospectus supplement and those included in the documents incorporated by reference in this prospectus supplement and the accompanying prospectus to read about factors you should consider before buying our ADSs.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

Per ADS

 

Total

Public offering price

US$

 

US$

Underwriting discounts and commissions(1)

US$

 

US$

Proceeds to Opera Limited (before expenses)

US$

 

US$

 

(1)

For a description of compensation payable to the underwriters, see “Underwriting.”

 

The underwriters expect to deliver the ADSs against payment in New York, New York on or about               , 2019.

 


 

Citigroup    CICC

 

  Cowen B. Riley FBR  

 


 

Prospectus Supplement dated                  ,2019

 

 

TABLE OF CONTENTS

 

 

PROSPECTUS SUPPLEMENT

 

Page

ABOUT THIS PROSPECTUS SUPPLEMENT

S-1

PROSPECTUS SUPPLEMENT SUMMARY

S-2

THE OFFERING

S-13

SUMMARY CONSOLIDATED FINANCIAL AND OPERATING  DATA

S-15

RISK FACTORS

S-19

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

S-44

USE OF PROCEEDS

S-46

DIVIDEND POLICY

S-47

CAPITALIZATION

S-48

DILUTION

S-49

TAXATION

S-50

UNDERWRITING

S-57

WHERE YOU CAN FIND ADDITIONAL INFORMATION

S-65

INCORPORATION OF DOCUMENTS BY REFERENCE

S-66

LEGAL MATTERS

S-67

EXPERTS

S-68

INDEX TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS F-1

 

 

 

PROSPECTUS

 

 

ABOUT THIS PROSPECTUS

1

WHERE YOU CAN FIND MORE INFORMATION ABOUT US

2

INCORPORATION OF DOCUMENTS BY REFERENCE

3

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

4

OUR COMPANY

6

RISK FACTORS

7

USE OF PROCEEDS

8

ENFORCEABILITY OF CIVIL LIABILITIES

9

TAXATION

11

DESCRIPTION OF THE SECURITIES

12

DESCRIPTION OF SHARE CAPITAL

13

DESCRIPTION OF ORDINARY SHARES

22

DESCRIPTION OF AMERICAN DEPOSITARY SHARES

23

DESCRIPTION OF OUR PREFERRED SHARES

31

DESCRIPTION OF DEBT SECURITIES

32

DESCRIPTION OF WARRANTS

35

PLAN OF DISTRIBUTION

38

LEGAL MATTERS

41

EXPERTS

42

 

 

ABOUT THIS PROSPECTUS SUPPLEMENT

 

This document is in two parts. The first part is the prospectus supplement, which describes the specific terms of this offering. The second part is the accompanying prospectus, which gives more general information, some of which may not be applicable to this offering.

 

If the description of the offering varies between this prospectus supplement and the accompanying prospectus, you should rely on the information in this prospectus supplement.

 

You should rely only on the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus supplement, the accompanying prospectus and the documents incorporated by reference is accurate only as of their respective dates. Our business, financial condition, results of operations and prospects may have changed since those dates. Neither this prospectus supplement nor the accompanying prospectus constitutes an offer, or an invitation on behalf of us or the underwriters to subscribe for and purchase, any of the ADSs and may not be used for or in connection with an offer or solicitation by anyone, in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation.

 

In this prospectus supplement and the accompanying prospectus, unless otherwise indicated or unless the context otherwise requires,

 

 

“active user” refers to a user, calculated based on device identification, that has accessed one of our mobile browsers, PC browsers or other applications at least once during a given period. A unique user that is active in more than one of the applications on our platform is counted as more than one active user;

 

 

“ADSs” refer to American depositary shares, each of which represents two ordinary shares;

 

 

“China” or “PRC” refers to the People’s Republic of China, excluding, for the purposes of this prospectus and any prospectus supplement, Taiwan and the special administrative regions of Hong Kong and Macau;

 

 

“MAUs” or “monthly active users” refer to the number of active users during each month within a given period, unless otherwise indicated;

 

 

“shares” or “ordinary shares” refer to our ordinary shares, par value US$0.0001 per share;

 

 

“South Asia” comprises the four distinct markets of India, Pakistan, Bangladesh and Sri Lanka;

 

 

“Southeast Asia” comprises the six distinct markets of Indonesia, Vietnam, Thailand, the Philippines, Malaysia and Myanmar;

 

 

“US$,” “U.S. Dollars,” “$” and “dollars” refer to the legal currency of the United States; and

 

 

“we,” “us,” “our company,” “the Group,” “our group,” “our” or “Opera” refers to Opera Limited and its subsidiaries, an exempt company incorporated under the laws of the Cayman Islands with limited liability that is the holding company of our group.

 

All discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.

 

 

PROSPECTUS SUPPLEMENT SUMMARY

 

This prospectus supplement summary highlights selected information included elsewhere in or incorporated by reference into this prospectus supplement and the accompanying prospectus and does not contain all the information that you should consider before making an investment decision. You should read this entire prospectus supplement and the accompanying prospectus carefully, including the “Risk Factors” sections and the financial statements and related notes and other information incorporated by reference, before making an investment decision.

 

Overview of Our Business

 

Opera is a leading global internet brand with a large, engaged and growing base of over 350 million average monthly active users. Building on over 20 years of innovation, starting with our browser products, we are increasingly leveraging our brand as well as our massive and engaged user base in order to expand our offerings and our business. Today, we offer users across Europe, Africa and Asia a range of products and services that include our PC and mobile browsers as well as our AI-powered news reader Opera News and our app-based microfinance solutions.

 

 Opera launched one of the world’s first PC browsers in 1996 and introduced the world’s first full web browser for smartphones in 2002. Since then, Opera has remained an innovator in the browser space, launching features including tabbed browsing, data savings, PC/mobile sync, and numerous features focused on privacy and security, including ad blocking and a built-in VPN. Today, our browser products include Opera Mini, Opera for Android, Opera Touch, Opera for Computers and Opera GX, a separate PC browser tailored for gamers. These products reached over 300 million average MAUs in the quarter ended June 30, 2019.  

 

Opera News, our AI-driven content platform enabled by big data technologies, was launched in 2017 and was initially launched as part of our browser, leveraging our large user base and well-known brand in order to deliver a personalized and relevant content experience at scale. In early 2018, we launched a standalone Opera News app, which now also supports short-form video functionality. Today, Opera News is available in 77 countries and 35 languages and was the most downloaded global news application during the second quarter of 2019 according to an online post by Sensor Tower dated July 19, 2019. In the quarter ended June 30, 2019, Opera News averaged 163 million MAUs, which included 37 million users from the Opera News app.

 

We rolled out our app-based microfinance service in late 2018, offering instant seven to 30-day microloans to approved borrowers under the “OKash” and other local brands, initially in Kenya and subsequently expanding to India and Nigeria (collectively referred to as “OKash”). Targeting consumers unserved or underserved by traditional financial institutions, our apps are intended to simplify borrowing for “last mile” financial inclusion. As we did with Opera News, we utilize our existing user engagement across our browser and news app in order to promote this product, enabling us to acquire users in a cost-efficient and scaled manner. Our service relies on our large repository of user behavior data as well as AI algorithms in order to credit-score potential borrowers, analyze the purpose of the loan as well as the repayment behavior of borrowers. The service also features an advanced security system that includes facial recognition technology in order to ascertain and confirm the identity of potential borrowers. The microloans we offered had average loan size of approximately US$40 dollars in the first half of 2019. Our microfinance service disbursed over 2.5 million short-term microloans, with an aggregate value of over US$90 million, in the same period.

 

Opera Ads is our advertising solution targeting digital agencies, advertisers and brands to connect and engage directly with Opera users through both programmatic and traditional advertising solutions. Launched during the second quarter of 2019, Opera Ads is an important part of our monetization strategy aimed at growing our average revenue per user. Driven by consumer engagement and leveraging our understanding of user behavior patterns and preferences, as well as our large and growing owned and operated advertising inventory, we believe that Opera Ads is well positioned to offer a compelling solution to advertisers across the markets where we operate.  

 

As we have done with Opera News and OKash, we intend to continue leverage our brand and large and engaged user base to launch additional consumer facing products in the future. An example is our recently-launched classifieds product, OList. This product will allow us to expand Opera Ads beyond large advertisers to include small and medium sized enterprises across verticals such as automotive, real estate and jobs. We also retail airtime transactions and mobile phones. We undertake these initiatives to build stronger relationships with mobile telecommunication providers, which enabled us to launch our microfinance business and achieve other goals. We intend to explore a wider array of retail opportunities, building on our scale and growing product portfolio.

 

 

Driven by the rapid adoption of our modern mobile and PC applications and the diversification of our product offerings, we have experienced strong revenue growth. During 2018, we had revenue of US$172.3 million, compared to US$128.9 million in 2017, representing growth of 33.7%. During the six months ended June 30, 2019, we recorded US$111.6 million in operating revenue, up by 40.7% from US$79.3 million for the same period in 2018. The acceleration of our growth trajectory in 2019 is fueled by investments in our product portfolio as well as additional marketing and distribution activities. We had a net income of US$35.2 million in 2018, compared to US$6.1 million in 2017. We had net income of US$7.8 million in the six months ended June 30, 2019 compared to US$14.0 million for the same period in 2018. Our adjusted net income was US$46.1 million in 2018, compared to US$17.8 million in 2017. Our adjusted net income was US$12.6 million and US$20.7 million in the six months ended June 30, 2019 and 2018, respectively. Our adjusted EBITDA was US$65.8 million in 2018, compared to US$34,119 million in 2017. Our adjusted net EBITDA was US$12.7 million and US$31.8 million in the six months ended June 30, 2019 and 2018, respectively. To see how we define and calculate adjusted net income and adjusted EBITDA, a reconciliation between adjusted net income and net income (loss) and adjusted EBITDA and net income (loss) (for each, the most directly comparable IFRS financial measure) and a discussion about the limitations of non-IFRS financial measures, please refer to “Summary Consolidated Financial and Operating Data--Non-IFRS Financial Measures.”

 

Our Competitive Strengths

 

We believe that the following competitive strengths enable us to compete effectively and drive rapid growth:

 

A massive and diversified global user base

 

We have a massive user base of over 350 million monthly active users in the quarter ended June 30, 2019 that we believe provides us with the scale and global reach necessary to capitalize on market opportunities and expand our offerings. Our global smartphone user base was 227 million MAUs, on average, in the quarter ended June 30, 2019, compared to 182 million MAUs in the second quarter of 2018. Our mobile browser user base reached 256 million average MAU in 2018, of which 181 million were smartphone users. Opera is among the market leaders in high growth mobile-first regions such as Africa and Asia in terms of market share, according to web traffic analyst StatCounter. Our PC products also had a substantial user base of 65 million average MAUs in the quarter ended June 30, 2019, compared to 57 million in the second quarter of 2018.

 

A strong brand across many key markets

 

We have built significant brand awareness and have become a trusted global Internet browser and news reader brand. This position enables us to more efficiently launch new products and drive adoption. As of June 30, 2019, we had 17 million followers across our social media channels, such as Twitter and Facebook. According to media intelligence provider Meltwater, there were 26,000 global news articles from independent media about Opera products in 2018, which helped educate users about our unique and differentiated products and enhance the visibility of our brand. In addition, our brand is well recognized in Africa and South Asia, with over 80% brand awareness among Internet users in key African markets including Kenya, Nigeria and South Africa, according to a survey that Pollfish conducted for Opera in April 2019. 

 

Innovative products propelling robust organic growth

 

We have a proven track record of creating and delivering innovative and differentiated products to our users. Our focus on creating compelling product experiences has led to robust organic growth, evidenced by continued growth in our user base and revenues. We served 292 million average smartphone and PC MAUs in the three months ended June 30, 2019, compared to 239 million MAUs during the same period in 2018. Further, we believe that our ability to quickly launch and scale new products in our core markets is a key advantage. We have significantly scaled Opera News since its launch in January 2017. In the quarter ended June 30, 2019, the average MAU of Opera News reached 163 million of which average MAU on the standalone Opera News app that was launched in January 2018 reached 37 million.  

 

 

Significant data assets and AI capabilities

 

Leveraging our large, engaged and growing user base, we are able to collect massive amounts of user data which, in turn, informs and helps us improve our AI capabilities. Over the past few years we have built and utilize powerful AI technologies as a key pillar across our new products, namely Opera News and OKash. Our Opera News platform utilizes AI technologies and big data in order to deliver highly personalized content experiences that consumers enjoy, helping us grow the service. Since the launch of Opera News, we have experienced tremendous user growth with 163 million average MAUs accessing Opera News in the quarter ended June 30, 2019, an increase from 101 million average MAUs in the second quarter of 2018. For our micro-lending product, we use our AI-capabilities in order to quickly determine credit profiles. Our Opera Ads solution leverages anonymized user data and sophisticated algorithms in order to improve ad targeting, thus improving the results for advertisers as well as monetizing of our inventory.

 

Proven monetization model

 

We have a demonstrated track record to monetizing our browser products through search and advertising partnerships. In addition, we have proven our ability to expand beyond these areas by launching Opera News which provided us with owned and operated native advertising inventory as well as OKash, which is rapidly scaling.

 

Global and visionary leadership

 

Our management team brings strong expertise and operational excellence. The combination of relevant experience in Europe, China, Africa and emerging Asia provides a competitive advantage as Opera launches and adapts consumer offerings across the world. 

 

Our Growth Strategies

 

Our objective is to continue building on our strong position in Africa, emerging Asian markets and in Europe, in order to grow our business. We intend to achieve this objective by pursuing the following strategies:

 

Continue to grow our smartphone and PC user base

 

We are focused on continuing to grow our smartphone and PC user base, as well as increasing time spent engaging with our products. We intend to accomplish this through a combination of product improvements, new features and product offerings, marketing and distribution efforts and broadening of our geographic focus areas.

 

Increase monetization

 

Increasing monetization on a per-product and per-user basis are key components to our strategy. We intend to improve our ad technology capabilities, increase monetization opportunities through newer products such as Opera News, and continue to optimize monetization for both mobile and PC browsers. An example of these efforts includes the launch of Opera Ads in May 2019, aimed at increasing monetization in markets where we have significant user bases, such as Nigeria. Additionally, some of our established markets are less developed in terms of digital advertising, and we expect to benefit as these markets continue to mature.

 

Leverage the Opera brand and user base to drive opportunities in adjacent markets

 

We intend to leverage Opera’s established global brand and our large, engaged and growing user base of over 350 million average MAUs in the quarter ended June 30, 2019 in order to expand our business beyond our current offerings. As an example, in late 2018 we rolled out our microfinance solution, OKash, followed by local brands, leveraging our strong consumer brand and engagement, enabling us to generate 2.5 million loans during the first half of 2019. Another example is OList which we launched in August 2019. Leveraging our brand and consumer engagement we were able to create a classifieds marketplace with over 800,000 listings within one month of launch. 

 

 

Invest in select businesses supported by favorable underlying trends where Opera can make a difference

 

We have invested in select emerging market ventures ranging from social media focused on music and entertainment, African mobile money and payment services, and African licensed sports betting. We are constantly observing traffic patterns to identify verticals that we believe have a positive trajectory and have chosen to invest where we see potential for accretive partnerships. We believe such investments allow us to participate in and support the emergence of new businesses and new opportunities. Furthermore, we believe that given our brand and market position we are able to support these in a way that may not be possible for typical financial investors. As an example, we have supported and invested in OPay, which is now one of the leading mobile wallet, motorbike ride sharing and food delivery players in Nigeria.

 

Our Challenges

 

We believe that the following are some of the major risks and uncertainties that may materially affect us:

 

 

our ability to maintain or grow the size of our user base or the level of engagement of our users;

 

 

intense competition and our ability to continue to innovate and provide products and services that attract users;

 

 

rapid changes in technologies, mobile devices and infrastructure;

 

 

managing or expanding our business across the expansive and diverse markets that we operate in;

 

 

managing credit and regulatory risk in particular related to our microfinance activities;

 

 

our ability to maintain profitability in the future;

 

 

our ability to manage our investments;

 

 

a small number of business partners contribute a significant portion of our total revenues; and

 

 

our existing business and expansion strategy depend on certain key collaborative arrangements, and we may be unable to maintain or develop these relationships.

 

In addition, we face risks and uncertainties related to our compliance with applicable regulations and policies in our principal markets and operations.

 

See “Risk Factors” and other information included in this prospectus supplement for a detailed discussion of the above and other challenges and risks.

 

 

Management’s Discussion & Analysis of Financial Condition and Results of Operation

 

Results of Operations

 

The following table sets forth a summary, for the periods indicated, of our consolidated results of operations and each item expressed as a percentage of our total revenue. The summary consolidated results of operations for the six months ended June 30, 2018 and 2019 have been derived from our unaudited condensed interim consolidated financial statements included elsewhere in this prospectus supplement. This information should be read together with the financial statements and related notes. Our historical results presented below are not necessarily indicative of the results that may be expected for any future period.

 

   

Six months ended June 30,

 
   

2018

   

2019

 
   

US$

   

%

   

US$

   

%

 
   

(US$ in thousands, except for share, per share, per ADS and percentages)

 

Revenue

                               

Search

    39,985       50.4       41,987       37.6  

Advertising

    26,634       33.6       30,300       27.2  

Fintech

    -       -       16,608       14.9  

Retail

    -       -       14,465       13.0  

Technology licensing and other revenue

    12,655       16.0       8,208       7.4  

Total revenue

    79,274       100.0       111,568       100.0  
                                 

Operating expenses

                               

Cost of revenue

    (2,079 )     (2.6 )     (17,883 )     (16.0 )

Personnel expenses including share-based remuneration

    (20,466 )     (25.8 )     (26,685 )     (23.9 )

Marketing and distribution expenses

    (15,176 )     (19.1 )     (35,770 )     (32.1 )

Credit loss expense

    329       0.4       (7,633 )     (6.8 )

Depreciation and amortization

    (6,766 )     (8.5 )     (8,423 )     (7.5 )

Other expenses

    (14,871 )     (18.8 )     (13,909 )     (12.5 )

Total operating expenses

    (59,029 )     (74.5 )     (110,303 )     (98.9 )
                                 

Operating profit (loss)

    20,245       25.5       1,265       1.1  
                                 

Share of net income (loss) of associates and joint ventures

    (1,624 )     (2.0 )     2,957       2.7  
                                 

Net finance income (expense)

                               

Finance income

    198       0.2       3,359       3.0  

Finance expense

    (77 )     (0.1 )     (326 )     (0.3 )

Net foreign exchange gain (loss)

    112       0.1       (154 )     (0.1 )

Net finance income (loss)

    233       0.3       2,879       2.6  
                                 

Net income (loss) before income taxes

    18,854       23.8       7,100       6.4  

Income tax (expense) benefit

    (4,824 )     (6.1 )     703       0.6  

Net income (loss)

    14,030       17.7       7,803       7.0  
                                 

Net income (loss) attributable to

                               

Equity holders of the parent

    14,030       17.7       7,803       7.0  

Non-controlling interests

    -       -       -       -  

Total net income (loss) attributed

    14,030       17.7       7,803       7.0  
                                 

Weighted average number of ordinary shares outstanding

                               

Basic, millions

    190.25               219.68          

Diluted, millions

    195.98               224.31          
                                 

Net income (loss) per ordinary share

                               

Basic, US$

    0.07               0.04          

Diluted, US$

    0.07               0.04          
                                 

Net income (loss) per ADS

                               

Basic, US$

    0.15               0.07          

Diluted, US$

    0.14               0.07          

 

 

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

 

Revenue increased to US$111.6 million in the six months ended June 30, 2019 from US$79.3 million in the same period in 2018, representing an increase of 40.7%.

 

 

Search revenue increased to US$42.0 million in first half of 2019, from US$40.0 million in the same period in 2018, representing an increase of 5.0% primarily due to search optimization and PC browser growth.

 

 

Advertising revenue increased to US$30.3 million from US$26.6 million in the same period in 2018, representing an increase of 13.8%, primarily due to growth in both smartphone and desktop users, and benefiting from direct advertiser campaigns, including following the launch of Opera Ads.

 

 

Fintech revenue was US$16.6 million, with no comparable revenue during the first half of 2018. Revenue was generated from our microfinance business, mainly in Kenya as well as from the mid-period launch in India.

 

 

Retail revenue was US$14.5 million, with no comparable revenue during the first half of 2018. This revenue came from our airtime, data and handsets sales.

 

 

Technology licensing and other revenue was US$8.2 million, compared to US$12.7 million during the first half of 2018, representing a decrease of 35.1%. We expect this revenue category will continue to decline over time as we focus our business on more scalable revenue streams.

 

Operating expenses increased to US$110.3 million in the six months ended June 30, 2019 from US$59.0 million in the same period in 2018, representing an increase of 86.9%.

 

 

Cost of revenue was US$17.9 million in the first half of 2019, compared to US$2.1 million in the first half of 2018. Within this total, US$14.4 million related to our retail business, US$2.3 million related to microfinance and US$1.2 million related to our browsers and Opera News.

 

 

Personnel expenses, including share-based remuneration, were US$26.7 million, a 30.4% increase versus US$20.5 million during the same period in 2018. This expense consists of cash-based compensation expenses of US$23.7 million, a 33.2% increase, driven primarily by increased headcount related to investee support, Opera News, Opera Ads, microfinance and other growth initiatives, and US$3.0 million of share-based remuneration expense.

 

 

Marketing and distribution expenses were US$35.8 million, an increase of 135.7% versus US$15.2 million during the same period in 2018, following our previously announced efforts to further invest in accelerating our growth in 2019. Browsers and Opera News represented 97.5% of the total, or US$34.9 million, whereas the remaining US$0.9 million related to the promotion of our microfinance services.

 

 

Credit loss expense was US$7.6 million in the first half of 2019, of which US$7.1 million related to our microfinance business and US$0.5 million related to our browsers and Opera News. This compares to a gain of US$0.3 million from provision reversals in the first half of 2018, solely related to our browsers and Opera News.

 

 

Depreciation and amortization expenses were US$8.4 million, representing a 24.5% increase from US$6.8 million in the first half of 2018. The increase is largely the result of the adoption of IFRS 16 on January 1, 2019.

 

 

Other expenses were US$13.9 million, a 6.5% decrease compared to US$14.9 million the first half of 2018.

 

Operating profit was US$1.3 million in the six months ended June 30, 2019, representing an operating margin of 1.1%, compared to US$20.3 million and a 25.5% margin. The decline was largely due to the increased investment in marketing and distribution activities in the period and increased headcount associated with our growth initiatives.

 

Share of net income of associates and joint ventures amounted to US$3.0 million in the six months ended June 30, 2019, including a non-cash gain related to the fair value of our preferred shares in OPay, following the increased valuation in connection with a round of funding that took place in the period.

 

 

Income tax benefit was US$0.7 million in the six months ended June 30, 2019, compared to an expense of US$4.8 million in the first half of 2018. The reduced tax cost is mainly driven by the lower operating profit in the first half of 2019 compared to the same period in 2018.

 

Net income was US$7.8 million in the six months ended June 30, 2019, compared to US$14.0 million in the first half of 2018.

 

Net income per ADS was US$0.07 in the six months ended June 30, 2019, and US$0.07 on a diluted basis. In the period, the average number of shares outstanding was 219.7 million, corresponding to 109.8 million ADSs.

 

Adjusted EBITDA was US$12.7 million in the six months ended June 30, 2019, representing an 11.3% adjusted EBITDA margin, compared to US$31.8 million and 40.1% in the first half of 2018. Adjusted EBITDA excludes share-based remuneration and expensed costs related to our 2018 initial public offering. See "Summary Consolidated Financial and Operating Data--Non-IFRS Financial Measures."

 

Adjusted Net Income was US$12.6 million in the six months ended June 30, 2019, representing a 11.3% adjusted net margin compared to US$20.7 million and 26.1% in the first half of 2018. Adjusted net income excludes share-based remuneration, amortization of intangible assets related to acquisitions (all of which relates to the Opera privatization in 2016), and expensed costs related to our 2018 initial public offering. Adjusted net income further includes partially offsetting reversals of the tax impacts of the foregoing adjustments. See "Summary Consolidated Financial and Operating Data--Non-IFRS Financial Measures."

 

Contribution Margin by Segment

 

Our operating segments are based on our main categories of products and services, namely Browser and News, Fintech, Retail and Other. The following table presents contribution for these segments, which represents revenue from the segment, less the sum of (i) cost of revenue, (ii) marketing and distribution expense and (iii) credit loss expense attributed to that segment, as wells as each item expressed as a percentage of the segment revenue during the periods indicated. Because contributions from both the Fintech and Retail segments were immaterial during 2017 and 2018, we have not provided revisions reflecting these operating segments to the financial information for those historical periods.

 

   

Six months ended June 30,

 
   

2018

   

2019

 
   

US$

   

%

   

US$

   

%

 
   

(US$ in thousands, except for percentages)

 

Browser and News

                               

Revenue

    66,619       100.0       72,287       100.0  

Cost of revenue

    (2,079 )     (3.1 )     (1,213 )     (1.7 )

Marketing and distribution expenses

    (15,176 )     (22.8 )     (34,899 )     (48.3 )

Credit loss expense

    329       0.5       (545 )     (0.8 )

Contribution

    49,693       74.6       35,630       49.3  

 

 

Browser and News contributed US$35.6 in the six months ended June 30, 2019, corresponding to 49.3% of revenue and comparing to US$49.7 million or 74.6% of revenue in the same period in 2018. While the segment revenue increased by US$5.7 million, this was offset by the effect of our strategic investments in additional marketing and distribution (increasing by US$19.7 million).

 

   

Six months ended June 30,

 
   

2018

   

2019

 
   

US$

   

%

   

US$

   

%

 
   

(US$ in thousands, except for percentages)

 

Fintech

                               

Revenue

    -       -       16,608       100.0  

Cost of revenue

    -       -       (2.261 )     (13.6 )

Marketing and distribution expenses

    -       -       (871 )     (5.2 )

Credit loss expense

    -       -       (7,088 )     (42.7 )

Contribution

    -       -       6,388       38.5  

 

 

Fintech contributed US$6.4 million in the six months ended June 30, 2019, or 38.5% of revenue. This business did not exist in the comparable 2018 period.

 

   

Six months ended June 30,

 
   

2018

   

2019

 
   

US$

   

%

   

US$

   

%

 
   

(US$ in thousands, except for percentages)

 

Retail

                               

Revenue

    -       -       14,465       100.0  

Cost of revenue

    -       -       (14.409 )     (99.6 )

Marketing and distribution expenses

    -       -       -       -  

Credit loss expense

    -       -       -       -  

Contribution

    -       -       56       0.4  

 

 

Retail contributed US$56 thousand in the six months ended June 30, 2019, or 0.4% of revenue. We expect to continue operating this segment near break-even contribution prior to potentially exploring a wider retail opportunity. This business did not exist in the comparable 2018 period.

 

 

   

US$

   

%

   

US$

   

%

 
   

(US$ in thousands, except for percentages)

 

Other

                               

Revenue

    12,655       100.0       8,208       100.0  

Cost of revenue

    -       -       -       -  

Marketing and distribution expenses

    -       -       -       -  

Credit loss expense

    -       -       -       -  

Contribution

    12,655       100.0       8,208       100.0  

 

 

The Other segment, which includes licensing of our proprietary technology, including related maintenance, support and hosting services, professional services, and customized browser configurations to mobile operators, contributed US$8.2 million in the six months ended June 30, 2019, or 100% of revenue, comparing to US$12.7 million or 100% of revenue in the same period in 2018.

 

 

Cash Flows and Working Capital

 

The following table sets forth a summary of our cash flows for the periods indicated:

 

   

Six months ended June 30,

 
   

2018

   

2019

 
   

(US$ in thousands)

 

Net income (loss) before income taxes

    18,854       7,100  

Income taxes paid

    (1,877 )     (617 )

Depreciation and amortization

    6,766       8,423  

Share of net loss (income) of associates and joint ventures

    1,624       (2,957 )

Share-based payment expense

    2,916       2,238  

Net finance (income) expense

    (233 )     (2,879 )

Change in trade and other receivables

    (9,467 )     (3,365 )

Change in loans to customers

    (164 )     (19,163 )

Change in trade and other payables

    (242 )     14,217  

Change in deferred revenue

    711       (714 )

Change in prepayments

    (874 )     (9,662 )

Change in other liabilities

    (1,470 )     (2,135 )

Other

    (1,650 )     2,594  

Net cash flow from (used in) operating activities

    14,893       (6,920 )
                 

Cash flow from investment activities

               

Purchase of equipment

    (2,023 )     (4,565 )

Release of escrow account

    2,508        

Receipt of contingent consideration

    2,945        

Disbursement of short-term loans

    (1,203 )      

Investment in, and loans to associates and joint ventures

    (1,398 )     (6,758 )

Net proceeds from sale and purchase of listed equity instruments

          (14,049 )

Development expenditure

    (2,116 )     (2,111 )

Net cash flow from (used in) investment activities

    (1,287 )     (27,483 )
                 

Cash flow from financing activities

               

Acquisition of treasury shares

          (5,780 )

Repayment of loans and borrowings

    (974 )     (900 )

Payment of lease liabilities

    (1,372 )     (2,485 )

Net cash flow from (used in) financing activities

    (2,346 )     (9,165 )
                 

Net change in cash and cash equivalents

    11,260       (43,568 )
                 

Cash and cash equivalents at beginning of period

    33,207       177,873  

Net foreign exchange difference

    (474 )     (149 )

Cash and cash equivalents at end of period

    43,993       134,155  

 

 

Operating Activities

 

Net cash used in operating activities was a US$6.9 million in the first half of 2019, compared to cash from operating activities of US$14.9 million in the first half of 2018. The net cash used in operating activities in the first half of 2019 was primarily due to an increase in loans to customers of US$19.2 million following the rapid growth of our microfinance business, as well as a change in prepayments of US$9.7 million following an agreement in which one of our distribution partners has accepted the financial risks related to the retention of acquired new users. These effects were partially offset by a change in trade and other payables of US$14.2 million in the first half of 2019 relating to our increased investment in marketing and distribution in the six months ended June 30, 2019.

 

Investing Activities

 

Net cash used in investing activities was US$27.5 million in the first half of 2019 compared to US$1.3 million in the first half of 2018. This included purchases of listed equity instruments of US$14.0 million, as well as investments in, and loans to joint ventures of US$6.8 million, which included a US$4.6 million cash impact resulting from our participation in OPay’s latest funding round (the remainder of the US$12.1 million investment was a conversion of loan to equity). Net cash used in investing activities also included US$4.6 million in purchase of equipment, predominantly servers supporting our suite of products, and US$2.1 million in capitalized development cost.

 

Financing Activities

 

Net cash used in financing activities was US$9.2 million in the first half of 2019, compared to US$2.3 million in the first half of 2018 which was attributable to the acquisition of treasury shares of US$5.8 million, as well as lease payments and the repayment of loans and borrowings relating to our hosting infrastructure totaling of US$3.4 million.

 

 

Corporate Information

 

Our principal executive offices are located at Gjerdrums vei 19, 0484 Oslo, Norway. Our telephone number at this address is +47 23 69 24 00. Our registered office in Cayman Islands is at the offices of Maples Corporate Services Limited at P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. Our agent for service of process in the United States is Cogency Global Inc., located at 10 East 40th Street, 10th Floor, New York, NY 10016.

 

Investors should contact us for any inquiries through the address and telephone number of our principal executive offices. Our website is www.opera.com. The information contained on our website is not a part of this prospectus supplement or the accompanying prospectus.

 

 

THE OFFERING

 

Offering Price

US                                   per ADS.

   

ADSs Offered by Us

7,000,000 ADSs (or 8,050,000 ADSs if the underwriters exercise their option to purchase additional ADSs in full).

   

ADSs Outstanding Immediately after This Offering

21,329,830 ADSs (22,379,830 ADSs if the underwriters exercise their option to purchase additional ADSs in full).1

   

Ordinary Shares outstanding immediately after this offering

234,576,326 shares (236,676,326 shares if the underwriters exercise their option to purchase additional ADSs in full).2

   

TheADSs

Each ADS represents two ordinary shares.

 

The depositary will hold the ordinary shares underlying your ADSs and you will have rights as provided in the deposit agreement.

 

We do not expect to pay dividends in the foreseeable future. If, however, we declare dividends on our ordinary shares, the depositary will pay you the cash dividends and other distributions it receives on our ordinary shares, after deducting its fees and expenses.

 

You may turn in your ADSs to the depositary in exchange for ordinary shares. The depositary will charge you fees for any exchange. We may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs, you agree to be bound by the deposit agreement as amended.

 

To better understand the terms of the ADSs, you should carefully read the “Description of American Depositary Shares” section of the accompanying prospectus. You should also read the deposit agreement, which is an exhibit to the registration statement that includes the accompanying prospectus.

   

Depositary

The Bank of New York Mellon.

   

Option to Purchase Additional ADSs

We have granted to the underwriters an option, exercisable within 30 days from the date of this prospectus, to purchase up to 1,050,000 additional ADSs.

 

 


 

1.

Calculated based on 14,329,830 ADSs outstanding as of September 16, 2019.

2.

Calculated based on 220,576,326 shares issued and outstanding as of September 16, 2019. The number of shares that will be outstanding immediately after this offering excludes shares issuable upon the exercise of options outstanding as of the date of this prospectus supplement.

 

 

Use of Proceeds

Our net proceeds from this offering are expected to be approximately US$87.2 million, or approximately US$100.3 million if the underwriters exercise their option to purchase additional ADSs in full, based on the assumed public offering price per ADS of US$13.19, the reported last sale price for the ADSs on September 13, 2019 on the Nasdaq Stock Market, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us.

 

We expect to use the net proceeds from this offering primarily for the general corporate purposes.

 

See “Use of Proceeds.”

   

Lock-up

We, our directors and executive officers, and certain shareholders have agreed with the underwriters, subject to certain exceptions, not to sell, transfer or dispose of any ADSs, ordinary shares or similar securities for a period of 90 days after the date of this prospectus, subject to certain exceptions. See “Shares Eligible for Future Sale” and “Underwriting” for more information.

   

NASDAQ symbol

OPRA

   

Risk Factors

See "Risk Factors" and other information included in this prospectus supplement, the accompanying prospectus and the documents incorporated by reference in this prospectus supplement, as such factors may be amended, updated or modified periodically in our reports filed with the Securities and Exchange Commission, or the SEC, for a discussion of factors you should carefully consider before deciding to invest in the ADSs.

   

Payment and Settlement

The ADSs are expected to be delivered through the book-entry transfer facilities of The Depository Trust Company in New York, New York, on or about           , 2019.

 

 

SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

 

 

The following summary consolidated statements of operations data for the period from January 1, 2016 to November 3, 2016 (the “Predecessor”) and from inception of Kunhoo Software LLC, to which Opera Limited become successor-in-interest, on July 26, 2016 to December 31, 2016 and for the years ended December 31, 2017 and 2018, and summary consolidated statements of financial position data as of December 31, 2016, 2017 and 2018 (the “Successor”) have been derived from our audited financial statements incorporated by reference in this prospectus from our annual report on Form 20-F for the year ended December 31, 2018, or 2018 Annual Report. The consolidated financial statements are prepared and presented in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board, or IFRS. The consolidated statement of operations data for the six month periods ended June 30, 2018 and 2019, and summary consolidated statement of financial position data as of June 30, 2019 have been derived from our unaudited condensed interim consolidated financial statements included elsewhere in this prospectus supplement. The unaudited condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting as issued by the International Accounting Standards Board.

 

Our historical results are not necessarily indicative of results expected for future periods. You should read this “Summary Consolidated Financial Data and Operating Data” section together with our audited consolidated financial statements and the related notes and our unaudited condensed interim consolidated financial statements and the “Item 5. Operating and Financial Review and Prospects” section included in our 2018 Annual Report.

 

The following tables also set forth the summary pro forma consolidated statement of operations for the year ended December 31, 2016 which reflects the effect of the acquisition of Opera Software AS and its subsidiaries and the Consumer Business on November 3, 2016, by Kunhoo Software LLC and its subsidiaries, or the Group, as if such transaction had occurred on January 1, 2016. Prior to the acquisition, the Group had no operations. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Unaudited Pro Forma Consolidated Financial Information” in our 2018 Annual Report for more information. The pro forma adjustments are based upon currently available information and certain assumptions that are factually supportable and that we believe are reasonable under the circumstances. The pro forma financial information does not necessarily represent, what our actual consolidated results of operations would have been had the transactions occurred on the dates indicated, nor are they necessarily indicative of results that may be expected for any future period.

 

 

Summary Consolidated Statement of Operations

 

   

2016

   

Successor Group for

the year ended

December 31,

   

Successor Group

for the six months

ended June 30,

 
   

Predecessor

for the

period from

January 1,

2016 to

November 3,

2016

   

Successor

Group since

inception on

July 26,

2016 to

December 31,

2016

   

Unaudited

pro forma

consolidated

Group for the

year ended

December 31,

2016(1)

   

2017

    2018(3)     2018     2019  
           

(US$ in thousands, except for percentages)

                 
                                                         

Revenue

    88,518       18,767       107,285       128,893       172,276       79,274       111,568  

Other income

                      5,460                    
                                                         

Operating expenses:

                                                       

Cost of revenue

    (638 )     (469 )     (1,107 )     (1,303 )     (13,316 )     (2,079 )     (17,883 )

Personnel expenses including share-based remuneration

    (35,493 )     (5,972 )     (41,465 )     (44,315 )     (40,968 )     (20,466 )     (26,685 )

Marketing and distribution expenses

                                  (15,176 )     (35,770 )

Credit loss expense

                                  329       (7,633 )

Depreciation and amortization

    (9,586 )     (3,082 )     (16,712 )     (16,604 )     (12,694 )     (6,766 )     (8,423 )

Other expenses

    (42,486 )     (19,032 )     (55,418 )     (58,652 )     (59,997 )     (14,871 )     (13,990 )

Restructuring costs

    (3,911 )           (3,911 )     (3,240 )                  

Total operating expenses

    (92,113 )     (28,555 )     (118,613 )     (124,114 )     (126,975 )     (59.029 )     (110,303 )

Operating profit (loss)

    (3,595 )     (9,788 )     (11,328 )     10,239       45,301       20,245       1,265  
                                                         

Share of net income (loss) of associates and joint ventures

    (2,664 )     (237 )     (2,901 )     (1,670 )     (3,248 )     (1,624 )     2,957  
                                                         

Net finance income (expense):

                                                       

Finance income

          37       37       1,054       1,637       198       3,359  

Finance expense

    (1,378 )     (24 )     (1,402 )     (238 )     (1,695 )     (77 )     (326 )

Net foreign exchange gain (loss)

    (1,212 )     212       (1,000 )     (1,881 )     (354 )     112       (154 )

Net finance income (loss)

    (2,590 )     225       (2,365 )     (1,065 )     (412 )     233       2,879  

Net income (loss) before income taxes

    (8,849 )     (9,800 )     (16,594 )     7,504       41,641       18,854       7,100  

Income tax (expense) benefit

    743       2,096       3,850       (1,440 )     (6,481 )     (4,824 )     703  

Net income (loss)

    (8,106 )     (7,704 )     (12,744 )     6,064       35,160       14,030       7,803  
                                                         

Basic and diluted income (loss) per share

                                                       

Basic, US$

    (0.04 )     (0.04 )     (0.07 )     0.03       0.17       0.07       0.04  

Diluted, US$

    (0.04 )     (0.04 )     (0.07 )     0.03       0.17       0.07       0.04  
                                                         

Basic and diluted income (loss) per ADS

                                                       

Basic, US$

    (0.09 )     (0.08 )     (0.13 )     0.06       0.34       0.15       0.07  

Diluted, US$

    (0.09 )     (0.08 )     (0.13 )     0.06       0.34       0.14       0.07  
                                                         

Non-IFRS Financial Measures

                                                       

Adjusted EBITDA (2)

    10,816       (6,706 )     10,210       34,119       65,794       31,788       12,657  

Adjusted net income (loss) (2)

    (7,229 )     (8,264 )     (9,226 )     17,796       46,136       20,653       12,609  

 

 

(1)

Including pro form adjustments. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Unaudited Pro Forma Consolidated Financial Information” in our 2018 Annual Report.

 

(2)

To see how we define and calculate adjusted EBITDA and adjusted net income (loss), a reconciliation between adjusted EBITDA and net income (loss), and adjusted net income (loss) and net income (loss) (for each, the most directly comparable IFRS financial measures) and a discussion about the limitations of non-IFRS financial measures, see “—Non-IFRS Financial Measures.”

 

(3)

Effective January 1, 2018, the Group adopted IFRS 9 and IFRS 15. The impact of adopting these standards is described in Note 3 to our consolidated financial statements included in our 2018 Annual Report.

 

 

Summary Consolidated Statement of Financial Position

 

    As of December 31,     As of June  
    2016     2017     2018     30, 2019  

 

  (US$ in thousands)  
Selected Consolidated Statement of Financial Position Data:                                

Total non-current assets

    561,511       561,989       587,213       610,140  

Intangible assets

    124,536       118,620       115,444       113,507  

Investments in associates and joint ventures

    1,043       5,517       35,060       44,290  

Total current assets

    78,967       74,311       238,090       242,194  

Cash and cash equivalents

    34,181       33,207       177,873       134,155  

Total assets

    640,479       636,300       825,303       852,333  

Total equity

    568,197       583,503       775,460       779,642  

Total non-current liabilities

    19,010       15,947       15,841       24,006  

Total current liabilities

    53,272       36,850       34,002       48,685  

Total liabilities

    72,282       52,797       49,843       72,691  

Total equity and liabilities

    640,479       636,300       825,303       852,333  

 

 

Non-IFRS Financial Measures

 

To supplement our consolidated financial statements, which are prepared and presented in accordance with IFRS, we use adjusted EBITDA and adjusted net income (loss), both non-IFRS financial measures, as described below, to understand and evaluate our core operating performance. These non-IFRS financial measures, which may differ from similarly titled measures used by other companies, are presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with IFRS.

 

We define adjusted EBITDA as net income (loss) excluding income tax expense (benefit), total net financial loss (income), share of net loss (income) of associates and joint ventures, restructuring costs, depreciation and amortization, share-based remuneration and expensed costs related to our recent initial public offering, less other income. We define adjusted net income (loss) as net income (loss) excluding share-based remuneration, amortization cost related to acquired intangible assets, and expensed costs related to our recent initial public offering, adjusted for the associated tax benefit related to such items. We believe that adjusted EBITDA and adjusted net income (loss) provide useful information to investors and others in understanding and evaluating our operating results. These non-IFRS financial measures adjust for the impact of items that we do not consider indicative of the operational performance of our business. While we believe that these non-IFRS financial measures are useful in evaluating our business, this information should be considered as supplemental in nature and is not meant as a substitute for the related financial information prepared and presented in accordance with IFRS.

 

 

The following table presents reconciliations of adjusted EBITDA and adjusted net income (loss) to net income (loss), the most directly comparable IFRS financial measures, for the periods indicated.

 

    2016                                  
   

Predecessor

for the

period

   

Successor

Group

from

   

Unaudited

pro forma

consolidated

   

Successor Group for the

year ended December 31,

   

Successor Group for the

six months ended June 30,

 
   

from

January 1,

2016 to

November

3, 2016

   

inception

on July 26,

2016 to

December

31, 2016

   

Group

for the year

ended

December

31, 2016 (1)

   

2017

      2018(5)       2018       2019  
   

(US$ in thousands)

 

Reconciliation of net income (loss) to adjusted EBITDA:

 

Net income (loss)

    (8,106 )     (7,704 )     (12,744 )     6,064       35,160       14,030       7,803  

Add: Income tax expense (benefit)

    (743 )     (2,096 )     (3,850 )     1,440       6,481       4,824       (703 )

Add: Total net financial loss (income)

    2,590       (225 )     2,365       1,065       412       (233 )     (2,879 )

Add: Share of net loss (income) of associates and joint ventures

    2,664       237       2,901       1,670       3,248       1,624       (2,957 )

Add: Restructuring costs (2)

    3,911             3,911       3,240                    

Add: Depreciation and amortization

    9,586       3,082       16,712       16,604       12,694       6,766       8,423  

Add: Share-based remuneration

    914             914       9,496       4,846       2,667       2,970  

Add: Expensed IPO related costs

                                    2,952       2,110        

Less: Other income (3)

                      (5,460 )                  

Adjusted EBITDA

    10,816       (6,706 )     10,210       34,119       65,794       31,788       12,657  

Reconciliation of net income (loss) to adjusted net income

 

Net income (loss)

    (8,106 )     (7,704 )     (12,744 )     6,064       35,160       14,030       7,803  

Add: Share-based remuneration

    914             914       9,496       4,846       2,667       2,970  

Add: Opera acquisition amortization

          853       5,120       5,120       5,120       2,560       2,560  

Add: Expensed IPO related costs

                            2,952       2,110       -  

Income tax adjustment (4)

    (37 )     (1,413 )     (2,516 )     (2,884 )     (1,943 )     (713 )     (724 )

Adjusted net income (loss)

    (7,229 )     (8,264 )     (9,226 )     17,796       46,136       20,653       12,609  

 

(1)

Including pro form adjustments. See “——Unaudited Pro Forma Consolidated Financial Information” in our 2018 Annual Report.

(2)

Restructuring costs in 2016 and 2017 mainly consist of severance payments to former employees and reductions of office space, with certain associated legal fees. Such costs are not recurring in nature.

(3)

Other income in 2017 was related to a sale of intellectual property and related costs, and not related to our ordinary business activities.

(4)

Reversal of the income tax benefit related to the social security cost component of share-based remuneration, deferred taxes on the amortization of acquired intangible assets and expensed IPO related costs.

(5)

Effective January 1, 2018, the Group adopted IFRS 9 and IFRS 15. The impact of adopting these standards is described in Note 3 to our consolidated financial statements included in our 2018 Annual Report.

 

 

RISK FACTORS 

 

You should carefully consider the risks described below and in our 2018 Annual Report, as well as the other information included or incorporated by reference in this prospectus supplement and the accompanying prospectus before you decide to buy our ADSs. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business. Any of the following risks could materially adversely affect our business, financial condition or results of operations. The value of our ADSs could decline due to any of these risks, and you may lose all or part of your investment. In addition, please read "Special Note Regarding Forward-Looking Statements" in this prospectus supplement where we describe additional uncertainties associated with our business and the forward-looking statements included or incorporated by reference in this prospectus supplement.

 

Risks Related to Our Business and Industry

 

We may fail to maintain or grow the size of our user base or the level of engagement of our users.

 

The size and engagement level of our user base are critical to our success. Our business and financial performance have been and will continue to be significantly affected by our success in adding, retaining and engaging active users. We continue to invest significant resources to grow our user base and increase user engagement, whether through innovations, providing new or improved content or services, marketing efforts or other means. While our user base has expanded significantly in the last three years, we cannot assure you that our user base and engagement levels will continue growing at satisfactory rates, or at all. Our user growth and engagement could be adversely affected if:

 

 

we fail to maintain the popularity of our platforms among users;

 

 

we are unable to continue to develop products that work with a variety of mobile operating systems, networks and smartphones;

 

 

we are unable to maintain the quality of our existing content and services;

 

 

we are unsuccessful in innovating or introducing new, best-in-class content and services;

 

 

we fail to adapt to changes in user preferences, market trends or advancements in technology;

 

 

our partners who provide content to Opera News and our other platform applications do not create content that is engaging, useful, or relevant to users;

 

 

our partners who provide content to Opera News and our other platform applications decide not to renew agreements or not to devote their resources to creating engaging content;

 

 

our global distribution partners decide not to pre-install our software on their products;

 

 

we fail to provide adequate service to users or partners;

 

 

technical or other problems prevent us from delivering our content or services in a timely and reliable manner or otherwise affect the user experience;

 

 

there are user concerns related to privacy, safety, fund security or other factors;

 

 

there are adverse changes to our platforms that are mandated by, or that we elect to make to address, legislation, regulation or litigation, including settlements or consent decrees;

 

 

we fail to maintain the brand image of our platforms or our reputation is damaged; or

 

 

there are unexpected changes to the demographic trends or economic development in the markets that we compete in.

 

 

Our efforts to avoid or address any of these events could require us to incur substantial expenditures to modify or adapt our content, services or platforms. If we fail to retain or continue growing our user base, or if our users reduce their engagement with our platforms, our business, financial condition and results of operations could be materially and adversely affected.

 

We face intense competition and if we do not continue to innovate and provide products and services that meet the needs of our users, we may not remain competitive.

 

We face intense competition in all of the products and services we offer. In the browser space, we generally compete with other global browser developers, including Google (Chrome browser), Apple (Safari browser) and Microsoft (Internet Explorer and Edge browsers) and with other regional internet companies that have strong positions in particular countries. In the content space, we have faced significant competition from other internet companies promoting their own content products and services globally, including Google and Apple, and traditional media such as local and global newspapers and magazines. In addition, we compete with all major internet companies for user attention and advertising spend. Moreover, in emerging international markets, where mobile devices often lack large storage capabilities, we may compete with other applications for the limited space available on a user’s mobile device. As we introduce new products, as our existing products evolve, or as other companies introduce new products and services, we may become subject to additional competition. For example, in 2018, we launched the Opera News App, our first standalone AI-powered news-publishing app, and we entered the fintech business with the acquisition of OKash. While we view our new products as extensions of Opera’s mobile product portfolio, adding new products and services subjects us to additional competition and new competitors.

 

Many of our current and potential competitors have significantly greater resources and broader global recognition and occupy better competitive positions in certain markets than we do. These factors may allow our competitors to respond to new or emerging technologies and changes in market requirements better than we can. Our competitors may also develop products, features or services that are similar to ours or that achieve greater market acceptance. These products, features and services may undertake more far-reaching and successful product development efforts or marketing campaigns, or may adopt more aggressive pricing policies. In addition, our partners may use information that we share with them to develop or work with competitors to develop products or features that compete with us. Certain competitors, including Apple, Microsoft and Google, could use strong or dominant positions in one or more markets to gain competitive advantages against us in areas where we operate, including by:

 

 

integrating competing features into products they control such as web browsers or mobile device operating systems;

 

 

making acquisitions for similar or complementary products or services; or

 

 

impeding Opera’s accessibility and usability by modifying or imposing use restrictions on existing hardware and software on which the Opera application operates or upon which it depends.

 

As a result, our competitors may acquire and engage users at the expense of our user growth or engagement, which may seriously harm our business.

 

We believe that our ability to compete effectively depends on many factors, many of which are beyond our control, including:

 

 

the usefulness, novelty, performance and reliability of our products compared to our competitors;

 

 

the size and demographics of our MAUs;

 

 

the timing and market acceptance of our products, including developments and enhancements of our competitors’ products;

 

 

our ability to monetize our products;

 

 

the effectiveness of our marketing and distribution teams;

 

 

our ability to establish and maintain partners’ interest in using Opera;

 

 

 

the frequency, relative prominence and type of advertisements displayed on our applications or by our competitors;

 

 

the effectiveness of our customer service and support efforts;

 

 

the effectiveness of our marketing activities;

 

 

changes as a result of legislation, regulatory authorities or litigation, including settlements and consent decrees, some of which may have a disproportionate effect on us;

 

 

acquisitions or consolidation within our industry;

 

 

our ability to attract, retain and motivate talented employees, particularly engineers and sales personnel;

 

 

our ability to cost-effectively manage and scale our rapidly growing operations; and

 

 

our reputation and brand strength relative to our competitors.

 

If we cannot effectively compete, our user engagement may decrease, which could make us less attractive to users, advertisers and partners and seriously harm our business.

 

We may fail to keep up with rapid changes in technologies and mobile devices.

 

The PC and mobile internet industry is characterized by rapid technological changes. Our future success will depend on our ability to respond to rapidly changing technologies, adapt our services to evolving industry standards and improve the performance and reliability of our products and services. Our failure to adapt to such changes could harm our business. In addition, changes in mobile devices resulting from technological development may also adversely affect our business. If we are slow to develop new products and services for the latest mobile devices, or if the products and services we develop are not widely accepted and used by mobile device users, we may not be able to capture a significant share of this increasingly important market. In addition, the widespread adoption of new internet, mobile, networking or telecommunications technologies or other technological changes could require substantial expenditures to modify or adapt our products, services or infrastructure. If we fail to keep up with rapid technological changes to remain competitive, our future success may be adversely affected.

 

We may not succeed in managing or expanding our business across the expansive and diverse markets that we operate in.

 

Our business has become increasingly complex as we have expanded the markets in which we operate, the variety of products and services we offer and the overall scale of our operations. We have expanded and expect to continue to expand our headcount, office facilities and infrastructure. As our operations continue to expand, our technology infrastructure systems and corporate functions will need to be scaled to support our operations, and if they fail to do so, it could negatively affect our business, financial condition and results of operations.

 

The markets where we operate are diverse and fragmented, with varying levels of economic and infrastructure development and distinct legal and regulatory systems, and do not operate seamlessly across borders as a single or common market. Managing our growing businesses across these emerging markets requires considerable management attention and resources. Entering into new markets also involves various legal and regulatory risks and require us to obtain various licenses and permits. We cannot assure you that we will be able to maintain, renew or obtain such licenses or permits on commercially reasonable terms or at all. We may incur additional compliance cost and may be subject to regulatory action or be ordered to cease our operation in certain markets should we fail to maintain, renew or obtain any material license or permit. Should we choose to expand into additional markets, these complexities and challenges could further increase. Because each market presents its own unique challenges, the scalability of our business is dependent on our ability to tailor our content and services to this diversity.

 

Our growing multi-market operations also require certain additional costs, including costs relating to staffing, logistics, intellectual property protection, tariffs and other trade barriers. Moreover, we may become subject to risks associated with:

 

 

recruiting and retaining talented and capable management and employees in various markets;

 

 

 

challenges caused by distance, language and cultural differences;

 

 

providing content and services that appeal to the tastes and preferences of users in multiple markets;

 

 

implementing our businesses in a manner that complies with local laws and practices, which may differ significantly from market to market;

 

 

maintaining adequate internal and accounting control across various markets, each with its own accounting principles that must be reconciled to IFRS upon consolidation;

 

 

currency exchange rate fluctuations;

 

 

protectionist laws and business practices;

 

 

complex local tax regimes;

 

 

potential political, economic and social instability;

 

 

potential local government initiatives to restrict access to our products and services; and

 

 

higher costs associated with doing business in multiple markets.

 

Any of the foregoing could negatively affect our business, financial condition and results of operations.

 

We had net losses in 2016 and we may not maintain profitability in the future.

 

We had net losses of US$7.7 million for the period from July 26, 2016 to December 31, 2016 or net losses of US$12.7 million on a pro forma consolidated basis, in 2016, primarily due to acquisitions and increases in expenses in developing new products and marketing efforts in certain markets. In 2017 and 2018, we had net income of US$6.1 million and US$35.2 million, respectively. In the six months ended June 30, 2019, we had net income of US$7.8 million. Notwithstanding we expect our operating expenses to increase in the future as we expand our operations. Furthermore, as a public company, we will incur additional legal, accounting and other expenses that we did not incur as a private company. If our revenue does not grow at a greater rate than our expenses, we will not be able to maintain profitability. We may incur significant losses in the future for many reasons, including without limitation the other risks and uncertainties described in this prospectus. Additionally, we may encounter unforeseen expenses, operating delays, or other unknown factors that may result in losses in future periods.

 

Our actual financial results may differ materially from our guidance for the third quarter and full year of 2019.

 

On August 22, 2019, we announced our unaudited results for the second quarter of 2019 and provided selected guidance for the third quarter and the full year of 2019. The results for our first and second quarters of 2019 may not be indicative of our actual results for the full year of 2019 or future quarterly periods. Our guidance for the third quarter and the full year of 2019 were based on a number of assumptions and are inherently subject to significant uncertainties and contingencies, including the risk factors described or incorporated by reference in this prospectus supplement and the accompanying prospectus. Such guidance constitutes forward-looking statements that may not materialize, and our actual results may vary significantly from such guidance. You should not regard such guidance as a representation by us, any underwriter, or any other person that we will actually achieve the results indicated therein.

 

A small number of business partners contribute a significant portion of our revenues.

 

A small number of business partners contribute a significant portion of our revenues. Our largest business partner, Google, contributed approximately 32.3% of our revenue in the six months ended June 30, 2019. In 2018, Google contributed 39.4% of our revenue. Although we continue to diversify our partner base, we anticipate that a limited number of partners will continue to contribute a significant portion of our revenues for the near future. Consequently, any of the following events may materially and adversely impact our business, results of operations and growth prospects:

 

 

reduction, delay or cancellation of services by our large search partners;

 

 

 

failure by one or more of our large search partners to pay for our services; or

 

 

loss of one or more of our significant search customers and any failure to identify and acquire additional or replacement partners.

 

In addition, during the six months ended June 30, 2019, 62.8% of our revenues were generated from monetization partners domiciled in three geographic markets, with 36.0%, 14.0%, and 12.7% from Ireland, Indonesia and Kenya, respectively. During 2018, our monetization partners domiciled in Ireland contributed 44.6%, while Indonesia and Kenya contributed less than 5%. Further, we are yet to generate meaningful profit from our Indonesian operations. This geographic concentration is not necessarily an indication of where user activity occurs as our end users are located across the world, but the result of the geographic concentration of domicile among our primary monetization partners, we are especially exposed to risks related to the economic conditions, regional specific legislation and tax law of these countries.

 

We rely on our users’ searches on Opera browsers for a substantial portion of our revenues.

 

We share in the revenue generated by the search partners when our users conduct searches initiated within the URL bar or search boxes embedded in our PC and mobile browsers. Revenue generated from search partners amounted to 54.4% of our revenue (or 50.9% of our revenue of US$107.3 million on a pro forma consolidated basis) in 2016, 52.9% of our revenue in 2017, 46.6% of our revenue in 2018 and 37.6% of our revenue in the six months ended June 30, 2019. The revenue sharing and fee arrangement with these search partners are subject to change. If our search partners reduce or discontinue their advertising spending with us, we fail to attract new search or advertising partners or the fees we receive for the traffic we refer to our search partners significantly decrease, our business, financial condition and results of operations could be materially and adversely affected.

 

Our existing business and our expansion strategy depend on certain key collaborative arrangements, and we may be unable to maintain or develop these relationships.

 

Our existing business, and our strategy for developing our business, involve maintaining and developing various types of collaborations with third parties, which provide us with access to additional user traffic, search services, products and technology. For example, our collaborations with Google and Yandex allow us to provide our users with best-in-class search services. We also work with leading device manufacturers and chipset vendors to ensure cost-efficient and reliable distribution of our products and services. Moreover, as part of our focus on expanding our AI capabilities, we formed strong relationships with high profile media and independent content providers to obtain comprehensive news and other content that we can make available to users on our platform. We consider these collaborations to be important to our ability to deliver attractive services, products and content offerings to our users, in order to maintain and expand our user and advertiser bases, and we believe that it will continue to be important for us to develop similar partnerships in the future. Our inability to maintain and grow such relationships could have an adverse impact on our existing business and our growth prospects.

 

We also have existing, and hope to develop additional, relationships with mobile device manufacturers for pre-installation of our browsers and standalone news app. If we are unable to maintain and expand such relationships, the quality and reach of delivery of our services will be adversely affected, and it may also be difficult for us to maintain and expand our user base and enhance awareness of our brand. In addition, our competitors may establish the same relationships that we have, which could diminish any advantage we might otherwise gain from these relationships.

 

We may fail to maintain and expand our collaborations with third party operators of internet properties.

 

We place promotional links to some of our search engine providers on our browsers, thereby providing easy access to premier search services for our users and increasing our search revenues. Moreover, we rely on third party operators of internet properties for auxiliary services. For example, we use Google BigQuery to store and analyze most of our system data including number of active users, clicks-per-user, impressions, comments, likes, visits, etc. Google BigQuery allows us to affordably and seamlessly scale our data warehouse capacity, which is key as we derive insights from our massive user base to enhance our AI-powered content discovery platform. If these third parties decide to stop collaborating with us, our revenues and growth and operations may be adversely affected.

 

 

Privacy concerns relating to our services and the use of user information could negatively impact our user base or user engagement, or subject us to governmental regulation and other legal obligations.

 

We collect certain user profile, user location and other data from our users in order to better understand our users and their needs and to support our AI-powered content discovery and recommendation platform and big data analytical capabilities for more targeted services such as personalized news, videos and other online content recommendations. We also collect certain data from users of our fintech products for credit scoring and money transfer purposes. Concerns about the collection, use, disclosure or security of personal information and data or other privacy-related matters, even if unfounded, could damage our reputation, cause us to lose users and subject us to regulatory investigations, all of which may adversely affect our business. While we strive to comply with applicable data protection laws and regulations, as well as our privacy policies pursuant to our terms of use and other obligations we may have with respect to privacy and data protection, any failure or perceived failure to comply with these laws, regulations or policies may result, and in some cases have resulted, in inquiries and other proceedings or actions against us by government agencies or others, as well as negative publicity and damage to our reputation and brands, each of which could cause us to lose users and have an adverse effect on our business and operating results.

 

The confidential information we collect, store and process may make us an attractive target and potentially vulnerable to cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions. Any actual or perceived systems failure or compromise of our security that results in the unauthorized access to or release of the data of our users because of third-party action, employee error, malfeasance or otherwise, or if design flaws in our technology infrastructure are exposed and exploited, could significantly reduce our users’ willingness to use our services, as well as harm our reputation and brands. We expect to continue expending significant resources to protect against security breaches. The risk that these types of events could seriously harm our business is likely to increase as we expand the number of services we offer and increase the size of our user base.

 

Because we store, process and use data, some of which contains personal information, we are subject to complex and evolving laws and regulations across multiple jurisdictions regarding privacy, data protection and other matters.

 

We are subject to a variety of laws and regulations in the European Union and other markets that involve matters central to our business, including user privacy, rights of publicity, data protection, content, intellectual property, distribution, electronic contracts and other communications, competition, protection of minors, consumer protection, taxation and online-payment services. These laws can be particularly restrictive in certain countries, and constantly evolve and remain subject to significant change. In addition, the application and interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate. Because we store, process and use data, some of which contains personal information, we are subject to complex and evolving laws and regulations regarding privacy, data protection and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in investigations, claims, changes to our business practices, increased cost of operations and declines in user growth, retention or engagement, any of which could seriously harm our business.

 

In the European Union, for example, the General Data Protection Regulation, or the GDPR (replacing the 1995 Data Protection Directive), went into effect on May 25, 2018. The GDPR applies to processing of the personal data of users in the European Union/EEA, as well as by businesses established in the European Union/EEA. We serve our European users from our business establishment in Norway and consequently all our processing of the personal data of such users is subject to the GDPR. Non-compliance may seriously harm our business and may result in significant penalties. Also the E-Privacy Regulation (replacing the 2002 E-Privacy Directive) which is currently being processed by the legislative bodies of the European Union, is likely to affect our business. There is uncertainty relating to the potential impact of the E-Privacy Regulation and how its requirements will relate to the requirements of the GDPR.

 

 

Our business depends on a strong brand and reputation, and we may not be able to maintain and enhance our brand or reputation or there may be negative publicity against us.

 

We believe that our “Opera” brand and our reputation have contributed significantly to the success of our business. We also believe that maintaining and enhancing the “Opera” brand and our reputation are critical to increasing the number of our users and customers. As our market becomes increasingly competitive, our success in maintaining and enhancing our brand and reputation will depend largely on our ability to remain as a leading provider of AI-powered news feed, browser and other products and services, which may become more expensive and challenging.

 

We consistently conduct marketing and brand promotion efforts and over the years have increased related spending. In addition, we work closely with key mobile device manufacturer partners to pre-install Opera products and co-market our products and services. However, we cannot assure you that our marketing and brand promotion activities in the future will achieve the expected brand promotion effect to acquire users in a cost-effective way. If we fail to maintain and further promote the “Opera” brand or our reputation, or if we incur excessive expenses in this effort, our business and results of operations may be materially and adversely affected.

 

Our ongoing investment in new businesses and new products, services and technologies is inherently risky and could disrupt our ongoing businesses.

 

We have invested and expect to continue to invest in new businesses, products, services and technologies. For example, in November 2018 we invested in StarMaker, a fast-growing technology-driven social media company focused on music and entertainment, with a user base in emerging markets such as India, Indonesia and the Middle East. Likewise, in December 2018, we acquired the “OKash” fintech business, a microcredit product we believe is a new user-driven business opportunity, that will benefit from our existing reach and scale in emerging markets. Such endeavors may involve significant risks and uncertainties, including insufficient revenues from such investments to offset any new liabilities assumed and expenses associated with these new investments, inadequate return of capital on our investments, distraction of management from current operations and unidentified issues not discovered in our due diligence of such strategies and offerings that could cause us to fail to realize the anticipated benefits of such investments and incur unanticipated liabilities. Because these new ventures are inherently risky, no assurance can be given that such strategies and offerings will be successful and will not adversely affect our reputation, financial condition and operating results.

 

In November 2018, we invested US$30 million to acquire a 19.4% equity interest in StarMaker, a social media company focused on music and entertainment. According to certain online media reports, holders of a cryptocurrency claim that StarMaker is obligated to repurchase their coins, and have filed complaints with government authorities to compel StarMaker to do so. StarMaker has confirmed to us that these allegations are based on inaccurate facts, are unfounded and meritless. Nevertheless, should any investigation or lawsuit be undertaken against StarMaker, or the perception of inappropriate business conduct by key members of StarMaker’s management team could potentially damage the reputation of StarMaker, its management and us, regardless of the merits. Defending against such future allegation or claim could be both costly and time-consuming and may divert the efforts and resources of the management of StarMaker. If any lawsuit against StarMaker is successful, our investment in StarMaker could be materially and adversely affected.

 

In addition, we invest cash not required in the short term in marketable securities in accordance with our investment policy. Our investments are subject to volatilities in the financial markets. We cannot guarantee that our investment portfolio will be safe or liquid or generate expected returns. Any failure to make these investments effectively could limit cash available for our business operation and expansion, result in financial losses and have a material adverse effect on our business, financial position, results of operation, and prospects.

 

Our fintech business may not be successful.

 

In December 2018, we acquired a fintech business that had launched in Kenya. We have since grown this business in Kenya and launched in Nigeria and India. This app-based microfinance service offers instant microcredit to approved borrowers under “OKash” and other local brands. In the six months ended June 30, 2019, revenue from our microfinance business was US$16.6 million, representing 14.9% of our total revenue. The operation of our fintech business involves significant risks and uncertainties and may not achieve expected results.

 

 

We bear the credit risk of our borrowers. As we carry out our plans to expand our microfinance business and offer new loan products to an expanding borrower base, we may not be able to effectively manage the credit risks associated with the fintech business. We rely on our risk assessment technology in assessing the creditworthiness of our borrowers and the risks associated with loans. If our risk assessment technology is flawed or ineffective, or if we otherwise fail or are perceived to fail in managing the default risks of loans we extend, the delinquency rate of these loans may increase in a manner that surpasses the benefits we derive, putting a significant portion of the funds that we lend at risk, which may adversely affect our financial position and results of operations. Furthermore, we are subject to the risk of fraudulent activity associated with borrowers and parties handling borrower information. Credit and other information that we receive from the borrower and third parties about borrowers may be inaccurate or may not accurately reflect the borrower's creditworthiness, which may compromise the accuracy of our risk assessment. In addition, our business is subject to credit cycles associated with the volatility of the general economy in the markets in which operate our fintech business, which are generally developing markets. If economic conditions deteriorate, we may face an increased risk of default or delinquency of borrowers, which will result in lower returns or even losses. The success of our microfinance business also depends on our ability to collect payments, and we cannot assure you that we will be able to collect repayments on the loans as expected.

 

We also may not be able to expand our fintech business effectively. In order to maintain and increase the amount of loans we extend to borrowers, we must continue to offer competitive products and broaden our prospective borrower base, which may be affected by several factors, including our brand recognition and reputation, the financing fee rate charged, credit terms offered and our efficiency in engaging prospective borrowers. If we fail to promote our loan products and brand in an effective and cost-efficient way, our business and results of operations may be harmed. As we expand our fintech business to new countries, we may have to incur increasing expenses to establish our brand, attract new borrowers and comply with local laws and regulations. We may face local and international competitors as we expand, and if we do not compete effectively, our operating results could be materially and adversely affected. In addition, we currently utilize our own capital to fund loans, which limits our ability to scale our microfinance business. We may require external funding to fund and expand our microfinance business, which may not be available on terms that will allow us to extend loans to customers at a competitive rate, are acceptable to us, or at all. We also rely on various third parties to provide services for our microfinance business including payment processing. If we fail to secure collaboration with reputable third-party service providers, our business may be adversely affected.

 

The online microfinance markets in the countries we operate in are new and may not evolve as expected. The regulatory regimes in these countries with respect to the online microfinance industry is relatively new and evolving, and the interpretation and enforcement regimes are subject to significant uncertainties. If our microfinance business is deemed to violate any laws and regulations, our business, financial condition and results of operations would be materially and adversely affected.

 

We have limited experience in most aspects of the operations of our microfinance business, which makes it difficult to evaluate our future prospects. Failure to manage or grow our fintech business may have material adverse effect on our overall financial position and results of operations.

 

We operate a platform that includes third parties over whose actions we have no control.

 

Our AI-powered content discovery platform integrates the services of third-party search engines and content providers. We cannot control the actions of these third parties and if they do not perform their functions to our satisfaction or the satisfaction of our users, it may damage the reputation of our platform. Our browsers integrate online search capabilities from leading international and regional search companies. We cannot be certain that our search partners will provide our users with the search results that they are looking for. Our browsers also contain short-cuts to third party e-commerce, travel and other businesses, and we cannot be certain that the products and services that these third-parties provide will all be legitimate, of a sufficiently high quality or that they will accurately represent the products and services in their postings. Further, while we have agreements with each of these parties, any legal protections we might have in our agreements could be insufficient to compensate us for our losses and may not be able to repair the damage to our reputation.

 

We rely upon third-party channels and partners in distributing products and services.

 

We rely upon a number of third-party channels to provide products and services to our users. For example, we primarily rely on third party application distribution channels, such as the Apple App Store and the Google Play Store, to allow users to download our applications and games. In addition, we work closely with key mobile manufacturers to pre-install Opera products on their mobile phones. We also rely upon data center providers to store important and valuable data. If any of these third-party channel providers delivers unsatisfactory services, engages in fraudulent action, or is unable or refuses to continue to provide its services to us and our users for any reason, it may materially and adversely affect our business, financial condition and results of operations.

 

 

We may fail to attract, motivate and retain the key members of our management team or other experienced and capable employees.

 

Our future success is significantly dependent upon the continued service of our executives and other key employees. If we lose the services of any member of management or any key personnel, we may not be able to locate a suitable or qualified replacement, and we may incur additional expenses to recruit and train a replacement, which could severely disrupt our business and growth.

 

To maintain and grow our business, we will need to identify, hire, develop, motivate and retain highly skilled employees. Identifying, recruiting, training, integrating and retaining qualified individuals requires significant time, expense and attention. In addition, from time to time, there may be changes in our management team that may be disruptive to our business. We may also be subject to local hiring restrictions in certain markets, particularly in connection with the hiring of foreign employees, which may affect the flexibility of our management team. If our management team, including any new hires that we make, fail to work together effectively and execute our plans and strategies, or if we are not able to recruit and retain employees effectively, our ability to achieve our strategic objectives will be adversely affected and our business and growth prospects will be harmed.

 

Competition for highly skilled personnel is intense, particularly in the markets where our business operations are located. We may need to invest significant amounts of cash and equity to attract and retain new employees, and we may not be able to realize returns on these investments.

 

We may fail to maintain or improve our technology infrastructure.

 

We are constantly upgrading our technology to provide improved performance, increased scale and better integration among our platforms. Adopting new technologies, upgrading our internet ecosystem infrastructure, maintaining and improving our technology infrastructure require significant investments of time and resources, including adding new hardware, updating software and recruiting and training new engineering personnel. Adverse consequences for the failure to do so may include unanticipated system disruptions, security breaches, computer virus attacks, slower response times, decreased user satisfaction and delays in reporting accurate operating and financial information. In addition, many of the software and interfaces we use are internally developed and proprietary technology. If we experience problems with the functionality and effectiveness of our software or platforms or are unable to maintain and constantly improve our technology infrastructure to handle our business needs and ensure a consistent and acceptable level of service for our users, our business, financial condition, results of operation and prospects, as well as our reputation, could be materially and adversely affected.

 

Mobile malware, viruses, hacking and phishing attacks, spamming and improper or illegal use of Opera could seriously harm our business and reputation.

 

Mobile malware, viruses, hacking and phishing attacks have become more prevalent in our industry, have occurred on our systems in the past and may occur on our systems in the future. Because of our prominence, we believe that we are an attractive target for these sorts of attacks. Although it is difficult to determine what, if any, harm may directly result from an interruption or attack, any failure to maintain performance, reliability, security and availability of our products and technical infrastructure to the satisfaction of our users may seriously harm our reputation and our ability to retain existing users and attract new users. If these activities increase on our platform, our reputation, user growth and engagement, and operational cost structure could be seriously harmed.

 

We may not be able to prevent others from unauthorized use of our intellectual property or brands.

 

We regard our patents, copyrights, trademarks, trade secrets, and other intellectual property as critical to our business. Unauthorized use of our intellectual property by third parties may adversely affect our business and reputation. We rely on a combination of intellectual property laws and contractual arrangements to protect our proprietary rights. It is often difficult to register, maintain and enforce intellectual property rights in the markets where we operate. For example, statutory laws and regulations are subject to judicial interpretation and enforcement and may not be applied consistently due to the lack of clear guidance on statutory interpretation in Africa, Southeast Asia, China, Russia and India. In addition, contractual agreements may be breached by counterparties and there may not be adequate remedies available to us for any such breach. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights. Policing any unauthorized use of our intellectual property is difficult and costly and the steps we have taken may be inadequate to prevent the misappropriation of our intellectual property. In the event that we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and a diversion of our managerial and financial resources. We can provide no assurance that we will prevail in such litigation. In addition, our trade secrets may be leaked or otherwise become available to, or be independently discovered by, our competitors.

 

 

Some of our applications contain open source software, which may pose increased risk to our proprietary software.

 

We use open source software in some of our applications, including our Opera browsers, which incorporate Chromium browser technology, and will use open source software in the future. In addition, we regularly contribute source code to open source software projects and release internal software projects under open source licenses and anticipate doing so in the future. The terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to sell or distribute our applications. Additionally, we may from time to time face threats or claims from third parties claiming ownership of, or demanding release of, the alleged open source software or derivative works we developed using such software, which could include our proprietary source code, or otherwise seeking to enforce the terms of the applicable open source license. These threats or claims could result in litigation and could require us to make our source code freely available, purchase a costly license or cease offering the implicated applications unless and until we can re-engineer them to avoid infringement. Such a re-engineering process could require significant additional research and development resources, and we may not be able to complete it successfully. In addition to risks related to license requirements, our use of certain open source software may lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of the software. Additionally, because any software source code we contribute to open source projects is publicly available, our ability to protect our intellectual property rights with respect to such software source code may be limited or lost entirely, and we are unable to prevent our competitors or others from using such contributed software source code. Any of these risks could be difficult to eliminate or manage and, if not addressed, could adversely affect our business, financial condition and results of operations.

 

We rely upon the internet infrastructure, data center providers and telecommunications networks in the markets where we operate.

 

Our business depends on the performance and reliability of the internet infrastructure and contracted data center providers in the markets where we operate. We may not have access to alternative networks or data servers in the event of disruptions or failures of, or other problems with, the relevant internet infrastructure. In addition, the internet infrastructure, especially in the emerging markets where we operate, may not support the demands associated with continued growth in internet usage.

 

We use third party data center providers for the storing of data related to our business. We do not control the operation of these facilities and rely on contracted agreements to employ their use. The owners of the data center facilities have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If we are unable to renew these agreements on commercially reasonable terms, or if one of our data center providers is acquired by another party, we may be required to transfer our servers and other infrastructure to new data center facilities, and we may incur significant costs and possible lengthy service interruptions in connection with doing so. Any changes in third party service levels at our data centers or any errors, defects, disruptions or other performance problems with our browsers or other services could adversely affect our reputation and adversely affect the online browsing experience. If navigation through our browsers is slower than our users expect, users may use our services less, if at all. Interruptions in our services might reduce our revenue, subject us to potential liability or adversely affect our ability to attract advertisers.

 

We also rely on major telecommunications operators in the markets where we operate to provide us with data communications capacity primarily through local telecommunications lines and data centers to host our servers. We and our users may not have access to alternative services in the event of disruptions or failures of, or other problems with, the fixed telecommunications networks of these telecommunications operators, or if such operators otherwise fail to provide such services. Any unscheduled service interruption could disrupt our operations, damage our reputation and result in a decrease in our revenue. Furthermore, we have no control over the costs of the services provided by the telecommunications operators to us and our users. If the prices that we pay for telecommunications and internet services rise significantly, our gross margins could be significantly reduced. In addition, if internet access fees or other charges to internet users increase, our user traffic may decrease, which in turn may cause our revenue to decline.

 

 

Our business depends on continued and unimpeded access to the internet by us and our users. Internet access providers may be able to restrict, block, degrade or charge for access to certain of our products and services, which could lead to additional expenses and the loss of users and advertisers.

 

Our products and services depend on the ability of our users to access the internet. Currently, this access is provided by companies that have significant market power in the broadband and internet access marketplace, including incumbent telephone companies, cable companies, mobile communications companies and government-owned service providers. Some of these providers have taken, or have stated that they may take measures, including legal actions, that could degrade, disrupt or increase the cost of user access to certain of our products by restricting or prohibiting the use of their infrastructure to support or facilitate our offerings, or by charging increased fees to us or our users to provide our offerings.

 

In addition, in some markets, our products and services may be subject to government-initiated restrictions or blockages. Such interference could result in a loss of existing users and advertisers, and increased costs, and could impair our ability to attract new users and advertisers, thereby harming our revenues and growth.

  

We plan to continue expanding our operations globally to markets where we have limited operating experience, which may subject us to increased business, economic and regulatory risks.

 

We plan to continue expanding our business operations globally and translating our products into other languages. Opera is currently available in more than 40 languages, and we have offices in seven countries. We plan to enter new markets where we have limited or no experience in marketing, selling and deploying our products and services. If we fail to deploy or manage our operations in international markets successfully, our business may suffer. In the future, as our international operations increase, or more of our expenses are denominated in currencies other than the U.S. dollar or Euros, our operating results may become more sensitive to fluctuations in the exchange rates of the currencies in which we do business. In addition, we are subject to a variety of risks inherent in doing business internationally, including:

 

 

political, social and economic instability;

 

 

risks related to the legal and regulatory environment in foreign jurisdictions, including with respect to privacy, localization and content laws as well as unexpected changes in laws, regulatory requirements and enforcement due to the wide discretion given local lawmakers and regulators regarding the enactment, interpretation and implementation of local regulations;

 

 

potential damage to our brand and reputation due to compliance with local laws, including potential censorship and requirements to provide user information to local authorities;

 

 

fluctuations in currency exchange rates;

 

 

higher levels of credit risk and payment fraud;

 

 

complying with multiple tax jurisdictions;

 

 

enhanced difficulties of integrating any foreign acquisitions;

 

 

complying with a variety of foreign laws, including certain employment laws requiring national collective bargaining agreements that set minimum salaries, benefits, working conditions and termination requirements;

 

 

reduced protection for intellectual property rights in some countries;

 

 

 

difficulties in staffing and managing global operations and the increased travel, infrastructure and compliance costs associated with multiple international locations;

 

 

regulations that might add difficulties in repatriating cash earned outside our core markets and otherwise preventing us from freely moving cash;

 

 

import and export restrictions and changes in trade regulation;

 

 

complying with statutory equity requirements;

 

 

complying with the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar laws in other jurisdictions; and

 

 

complying with export controls and economic sanctions administered by the relevant local authorities, including in the United States and European Union, in our international business.

 

If we are unable to expand internationally and manage the complexity of our global operations successfully, our business could be seriously harmed.

  

We may not achieve the intended tax efficiencies of our corporate structure and intercompany arrangements, which could increase our worldwide effective tax rate.

 

Our corporate structure and intercompany arrangements, including the manner in which we conduct our intercompany and related party transactions, are intended to provide us with worldwide tax efficiencies. The application of tax laws of various jurisdictions to our business activities is subject to interpretation and also depends on our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. The tax authorities of jurisdictions where we operate may challenge our methodologies for intercompany and related party arrangements, including transfer pricing, or determine that the manner in which we operate does not achieve the intended tax consequences, which could increase our worldwide effective tax rate and adversely affect our financial position and results of operations.

 

A certain degree of judgment is required in evaluating our tax positions and determining our provision for income taxes. In the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. For example, our effective tax rate could be adversely affected by lower than anticipated earnings in markets where we have lower statutory rates and higher than anticipated earnings in markets where we have higher statutory rates, by changes in foreign currency exchange rates or by changes in the relevant tax, accounting and other laws, regulations, principles and interpretations. Any of these factors could materially and adversely affect our financial position and results of operations.

 

Industry data, projections and estimates contained in this prospectus are inherently uncertain and subject to interpretation. Accordingly, you should not place undue reliance on such information.

 

Certain facts, forecasts and other statistics relating to the industries in which we compete contained in this prospectus have been derived from various public data sources and third party industry reports. In deriving the market size of the aforementioned industries and regions, these industry consultants may have adopted different assumptions and estimates, such as the number of internet users. While we generally believe such reports are reliable, we have not independently verified the accuracy or completeness of such information. Such reports may not be prepared on a comparable basis or may not be consistent with other sources.

 

Industry data, projections and estimates are subject to inherent uncertainty as they necessarily require certain assumptions and judgments. Our industry data and market share data should be interpreted in light of the defined geographic markets and defined industries we operate in. Any discrepancy in the interpretation thereof could lead to different industry data, measurements, projections and estimates and result in errors and inaccuracies.

 

Our user metrics and other estimates are subject to inherent challenges in measuring our operations.

 

We regularly review metrics, including our MAUs, to evaluate growth trends, measure our performance and make strategic decisions. These metrics are calculated using internal company data and have not been validated by an independent third party. While these numbers are based on what we believe to be reasonable estimates for the applicable period of measurement, there are inherent challenges in measuring how our platforms are used across large populations throughout the regions that we operate in. For example, we believe that we cannot distinguish individual users who use multiple applications. Our user metrics are also affected by technology on certain mobile devices that automatically runs in the background of our applications when another phone function is used, and this activity can cause our system to miscount the user metrics associated with such applications.

 

 

Errors or inaccuracies in our metrics or data could result in incorrect business decisions and inefficiencies. For instance, if a significant understatement or overstatement of active users were to occur, we may expend resources to implement unnecessary business measures or fail to take required actions to remedy an unfavorable trend. Moreover, during the process of upgrading our platform in the past, we have lost certain historical metrics, such as the number of search queries, that we rely on to manage our operations. If partners or investors do not perceive our user, geographic or other operating metrics as accurately representing our user base, or if we discover material inaccuracies in our user, geographic or other operating metrics, our reputation may be seriously harmed.

  

Material weaknesses in our internal control over financial reporting have been identified, and if we fail to implement and maintain effective internal control over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud.

 

In our 2018 Annual Report, we were not required to provide a report of management on our internal control over financial reporting and our independent registered public accounting firm was not required to conduct an audit of our internal control over financial reporting due to a transition period established by rules of the SEC, for newly public companies. Our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. However, in connection with the audit of the consolidated statements of financial position of Opera Limited and its subsidiaries as of December 31, 2017 and 2016 (Successor), and the related consolidated statements of operations, total comprehensive income (loss), changes in equity, and cash flows for the year ended December 31, 2017 (Successor) and for the period from July 26, 2016 to December 31, 2016 (Successor), and for the period from January 1, 2016 to November 3, 2016 (Predecessor), and the related notes (collectively, the “consolidated financial statements”), we and our independent registered public accounting firm identified two material weaknesses in our internal control over financial reporting, as defined in the standards established by the Public Company Accounting Oversight Board of the United States, or PCAOB, and other control deficiencies. The two identified material weaknesses arose from our (a) lack of a sufficient number of qualified resources with IFRS, external financial reporting and internal controls expertise and (b) lack of formalized policies and procedures to ensure that significant and unusual transactions and other transactions are sufficiently analyzed and assessed against the requirements of IFRS, including the preparation and review of contemporaneous documentation.

 

Following the identification of the material weaknesses and control deficiencies, we have taken measures aimed at remedying these weaknesses and continue to implement our remediation plan. In 2018 and 2019 we have hired staff with IFRS, external financial reporting and internal controls expertise who work on establishing formalized policies and procedures to ensure that transactions are sufficiently analyzed and assessed against the requirements of IFRS, and that contemporaneous documentation is prepared and reviewed. Moreover, we have engaged external consultants to assist us in improving our internal control framework, including risk assessment, design of controls and control activities. We are evaluating the longer term resource needs of our various financial functions. These remediation measures may be time consuming, costly and might place significant demands on our financial and operational resources. Although we have made enhancements to our control procedures in this area, we still have a material weakness pertaining to the lack of formalized policies, procedures and resources to design and implement relevant controls, including risk assessment, control activities and monitoring, to ensure that transactions are sufficiently analyzed and assessed against the requirements of IFRS, including preparation and review of contemporaneous documentation.

 

We cannot assure you that we will be able to continue to implement an effective system of internal control, or that we will not identify material weaknesses or significant deficiencies in the future. We are a public company in the United States subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, requires that we include a report of management on our internal control over financial reporting in our annual report on Form 20-F beginning with our annual report for the fiscal year ended December 31, 2019. In addition, if we cease to be an “emerging growth company” as such term is defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, our reporting obligations as a public company may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.

 

 

During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404, we may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our ADSs. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.

  

We may be required to recognize impairment charges.

 

Our goodwill and intangible assets totaled US$421.6 million and US$113.5 million, respectively, as of June 30, 2019. We didn’t recognize any impairment charges with respect to these long-lived assets in 2017, 2018 or the six months ended June 30, 2019. We also had US$27.4 million of furniture, fixtures and equipment as of June 30, 2019. In accordance with applicable accounting standards, goodwill and intangible assets that are not amortized are subject to assessment for impairment by applying a fair value or value in use based test annually, and when certain circumstances warrant. In addition to this indication of impairment, goodwill, intangible assets and furniture, fixtures and equipment are subject to assessment for impairment if there are other indicators of impairment, including:

 

 

losses of key customers;

 

 

unfavorable changes in technology or competition;

 

 

unfavorable changes in user base or user tastes

 

Based upon future economic and financial market conditions, the operating performance of our reporting units and other factors, including those listed above, future impairment charges could be incurred. It is possible that such impairment, if required, could be material. Any future impairment charges that we are required to record could have a material adverse impact on our results of operations.

 

We may need additional capital but may not be able to obtain it on favorable terms or at all.

 

While we believe we have sufficient capital to fund our current growth plans, we may require additional capital in order to fund future plans for the additional growth and development of our businesses and any additional investments or acquisitions we may decide to pursue. If our cash resources are insufficient to satisfy our cash requirements, we may seek to issue additional equity or debt securities or obtain new or expanded credit facilities. Our ability to obtain external financing in the future is subject to a variety of uncertainties, including our future financial condition, results of operations, cash flows, share price performance, liquidity of international capital and lending markets and governmental regulations in the markets that we operate in. In addition, incurring indebtedness would subject us to increased debt service obligations and could result in operating and financing covenants that would restrict our operations. There can be no assurance that financing will be available in a timely manner or in amounts or on terms acceptable to us, or at all. Any failure to raise needed funds on terms favorable to us, or at all, could severely restrict our liquidity as well as have a material adverse effect on our business, financial condition and results of operations. Moreover, any issuance of equity or equity-linked securities could result in significant dilution to our existing shareholders.

 

 

We have limited business insurance coverage.

 

Consistent with customary industry practice in the markets that we operate in, our business insurance is limited. Any uninsured damage to our platforms, technology infrastructures or disruption of our business operations could require us to incur substantial costs and divert our resources, which could have an adverse effect on our business, financial condition and results of operations.

 

We are subject to risks related to litigation, including intellectual property claims and regulatory disputes.

 

We may be, and in some instances have been, subject to claims, lawsuits (including class actions and individual lawsuits), government investigations and other proceedings relating to intellectual property, consumer protection, privacy, labor and employment, import and export practices, competition, securities, tax, marketing and communications practices, commercial disputes and other matters. The number and significance of our legal disputes and inquiries have increased as we have grown larger, as our business has expanded in scope and geographic reach and as our services have increased in complexity.

 

As a consequence of a demerger in 2015, one of our subsidiaries, Opera Software AS, may have joint and several obligations towards any liabilities arising from the demerger. See “Item 4. Information of the Company—A. History and Development of the Company” of our annual report Form 20-F for the fiscal year ended December 31, 2018 filed with the SEC on April 17, 2019, or the 2018 Annual Report. Under Norwegian law, our liability is capped to the real value of the assets transferred to Opera Software AS as part of the demerger. We do not believe that we are subject to any liabilities or obligations resulting from the demerger, however, to the extent that such demerger liabilities or obligations exist, creditors may seek to recover from us, claiming that we are liable to satisfy such obligations. While we believe the outcome of such proceedings will depend on the claim brought forth, litigation is inherently costly and uncertain and could have an adverse effect on our operations.

 

Moreover, as a public company we have an elevated public profile, which may result in increased litigation and public awareness of such litigation. There is substantial uncertainty regarding the scope and application of many of the laws and regulations to which we are subject, which increases the risk that we will be subject to claims alleging violations of those laws and regulations. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in investigations, claims, changes to our business practices, increased cost of operations and declines in user growth, retention or engagement, any of which could seriously harm our business. In the future, we may also be accused of having, or be found to have, infringed or violated third party intellectual property rights.

 

Regardless of the outcome, legal proceedings can have a material and adverse impact on us due to their costs, diversion of our resources and other factors. We may decide to settle legal disputes on terms that are unfavorable to us. Furthermore, if any litigation to which we are a party is resolved adversely, we may be subject to an unfavorable judgment that we may not choose to appeal or that may not be reversed upon appeal. We may have to seek a license to continue practices found to be in violation of a third party’s rights. If we are required, or choose to enter into, royalty or licensing arrangements, such arrangements may not be available on reasonable terms, or at all, and may significantly increase our operating costs and expenses. As a result, we may also be required to develop or procure alternative non-infringing technology or discontinue the use of technology, and doing so could require significant effort and expense, or may not be feasible. In addition, the terms of any settlement or judgment in connection with any legal claims, lawsuits or proceedings may require us to cease some or all of our operations or pay substantial amounts to the other party and could materially and adversely affect our business, financial condition and results of operations.

 

We are currently subject to, and in the future may from time to time face, intellectual property infringement claims, which could be time consuming and costly to defend, and may require us to pay significant damages or cease offering any of our products or key features of our products.

 

We cannot be certain that the products, services and intellectual property used in the ordinary course of our business do not or will not infringe valid patents, copyrights or other intellectual property rights held by third parties. We currently are, and may in the future be, subject to claims or legal proceedings relating to the intellectual property of others in the ordinary course of our business and may in the future be required to pay damages or to agree to restrict our activities. In particular, if we are found to have violated the intellectual property rights of others, we may be enjoined from using such intellectual property, may be ordered to pay damages and may incur licensing fees or be forced to develop alternatives. We may incur substantial expense in defending against third party infringement claims, regardless of their merit. Successful infringement claims against us may result in substantial monetary liability or may materially disrupt the conduct of our business by restricting or prohibiting our use of the intellectual property in question.

 

 

We do not have exclusive rights to certain technology, trademarks and designs that are crucial to our business.

 

We have applied for various patents relating to our business. While we have succeeded in obtaining some patents, some of our patent applications are still under examination by the various regulatory authorities in the markets that we operate in. Approvals of our patent applications are subject to determinations by the relevant local authorities that there are no prior rights in the applicable territory. In addition, we have also applied for initial registrations and/or changes in registrations relating to transfers of our Opera logos and other of our key trademarks to establish and protect our exclusive rights to these trademarks. While we have succeeded in registering the trademarks for most of these marks in our major markets under certain classes, the applications for initial registration, and/or changes in registrations relating to transfers, of some marks and/or of some of trademarks under other classes are still under examination by the relevant local authorities. Approvals of our initial trademark registration applications, and/or of changes in registrations relating to such transfers, are subject to determinations by the relevant local authorities that there are no prior rights in the applicable territories. We cannot assure you that these patent and trademark applications will be approved. Any rejection of these applications could adversely affect our rights to the affected technology, marks and designs. In addition, even if these applications are approved, we cannot assure you that any issued patents or registered trademarks will be sufficient in scope to provide adequate protection of our rights.

 

Our business may be adversely affected by third party software applications or practices that interfere with our receipt of information from, or provision of information to, our users, which may impair the user experience on our platform.

 

Our business may be adversely affected by third party software applications, which may be unintentional or malicious, that make changes to our users’ PCs or mobile devices and interfere with our products and services. These software applications may change the user experience on our platform by hijacking queries, altering or replacing the search results provided by our search engine partners to our users or otherwise interfering with our ability to connect with our users. Such interference can occur without disclosure to or consent from users, and users may associate any resulting negative experience with our products and services. Such software applications are often designed to be difficult to remove, block or disable. Further, software loaded on or added to mobile devices on which our search or other applications, such as Opera News, are pre-installed may be incompatible with or interfere with or prevent the operation of such applications, which might deter the owners of such devices from using our services. If we are unable to successfully prevent or limit any such applications or systems that interfere with our products and services, our ability to deliver a high-quality browsing experience and recommend relevant content to our users may be adversely affected.

 

Interruption or failure of our information technology and communications systems may result in reduced user traffic and harm to our reputation and business.

 

Interruption or failure of any of our information technology and communications systems or those of the operators of third party internet properties that we collaborate with could impede or prevent our ability to provide our services. In addition, our operations are vulnerable to natural disasters and other events. Our disaster recovery plan for our servers cannot fully ensure safety in the event of damage from fire, floods, typhoons, earthquakes, power loss, telecommunications failures, hacking and similar events. If any of the foregoing occurs, we may experience a partial or complete system shutdown. Furthermore, our servers, which are hosted at third party internet data centers, are also vulnerable to break-ins, sabotage and vandalism. Some of our systems are not fully redundant, and our disaster recovery planning does not account for all possible scenarios. The occurrence of a natural disaster or a closure of an internet data center by a third party provider without adequate notice could result in lengthy service interruptions.

 

Any system failure or inadequacy that causes interruptions in the availability of our services, or increases the response time of our services, could have an adverse impact on our user experience and satisfaction, our attractiveness to users and advertisers and future user traffic and advertising on our platform.

 

 

To improve performance and to prevent disruption of our services, we may have to make substantial investments to deploy additional servers or one or more copies of our internet platforms to mirror our online resources.

 

Our results of operations are subject to seasonal fluctuations due to a number of factors.

 

We are subject to seasonality and other fluctuations in our business. Revenues from our e-commerce and travel partners are typically affected by seasonality due to various holidays that may result in higher than usual e-commerce transactions and travel-related activities, and similar seasonal trends may affect revenues from our search partners. Thus, our operating results in one or more future quarters or years may fluctuate substantially or fall below the expectations of securities analysts and investors. In such event, the trading price of our ADSs may fluctuate significantly.

 

Our corporate actions are substantially controlled by our chairman and chief executive officer, Mr. Yahui Zhou, who has the ability to control or exert significant influence over important corporate matters that require approval of shareholders, which may deprive you of an opportunity to receive a premium for your ADSs and materially reduce the value of your investment.

 

As of the date of this prospectus, Mr. Yahui Zhou, our chairman of the board and chief executive officer, beneficially owned 65.1% of the ordinary shares issued and outstanding and voting power. As a result, Mr. Yahui Zhou had the ability to control or exert significant influence over important corporate matters and investors may be prevented from affecting important corporate matters involving our company that require approval of shareholders, including:

 

 

the composition of our board of directors and, through it, any determinations with respect to our operations, business direction and policies, including the appointment and removal of officers;

 

 

any determinations with respect to mergers or other business combinations;

 

 

our disposition of substantially all of our assets; and

 

 

any change in control.

 

 

These actions may be taken even if they are opposed by our other shareholders, including the holders of the ADSs. Furthermore, this concentration of ownership may also discourage, delay or prevent a change in control of our company, which could have the dual effect of depriving our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and reducing the price of the ADSs. As a result of the foregoing, the value of your investment could be materially reduced.

 

We may be the subject of anti-competitive, harassing or other detrimental conduct that could harm our reputation and cause us to lose users and customers.

 

In the future, we may be the target of anti-competitive, harassing, or other detrimental conduct by third parties. Allegations, directly or indirectly against us or any of our executive officers, may be posted in internet chatrooms or on blogs or websites by anyone, whether or not related to us, on an anonymous basis. The availability of information on social media platforms and devices is virtually immediate, as is its impact. Social media platforms and devices immediately publish the content their subscribers and participants post, often without filters or checks on the accuracy of the content posted. Information posted may be inaccurate and adverse to us, and it may harm our business, prospects or financial performance. The harm may be immediate without affording us an opportunity for redress or correction. In addition, such conduct may include complaints, anonymous or otherwise, to regulatory agencies. We may be subject to regulatory or internal investigations as a result of such third party conduct and may be required to expend significant time and incur substantial costs to address such third party conduct, and there is no assurance that we will be able to conclusively refute each of the allegations within a reasonable period of time, or at all. Additionally, our reputation could be harmed as a result of the public dissemination of anonymous allegations or malicious statements about our business, which in turn may cause us to lose users and customers and adversely affect the price of our ADSs.

 

 

If we fail to detect click-through fraud, we could lose the confidence of our advertisers and our revenues could decline.

 

Our business is exposed to the risk of click-through fraud on our partners’ advertisements. Click-through fraud occurs when a person clicks advertisements for a reason other than to view the underlying content of advertisements. If our advertising partners fail to detect significant fraudulent clicks or otherwise are unable to prevent significant fraudulent activity, the affected search advertisers may experience a reduced return on their investment in advertising on our platform and lose confidence in the integrity of our search partners’ pay-for-click service systems. If this happens, our revenues from our monetization partners may decline.

 

We currently report our financial results under IFRS, which differs in certain significant respects from U.S. GAAP.

 

We report our financial statements under IFRS. There have been and there may in the future certain significant differences between IFRS and U.S. generally accepted accounting principles, or U.S. GAAP, including but not limited to differences related to revenue recognition, share-based compensation expense, income tax, impairment of long-lived assets and earnings per share. As a result, our financial information and reported earnings for historical or future periods could be significantly different if they were prepared in accordance with U.S. GAAP. As a result, you may not be able to meaningfully compare our financial statements under IFRS with those companies that prepare financial statements under U.S. GAAP.

 

We face risks related to natural disasters, health epidemics or terrorist attacks.

 

Our business could be adversely affected by natural disasters, such as earthquakes, floods, landslides, tsunamis, outbreaks of health epidemics such as an outbreak of avian influenza, severe acute respiratory syndrome, Zika virus or Ebola virus, as well as terrorist attacks, other acts of violence or war or social instability. If any of these occurs, we may be required to temporarily or permanently close and our business operations may be suspended or terminated.

 

Fluctuations in foreign currency exchange rates will affect our financial results, which we report in U.S. Dollars.

 

We operate in multiple jurisdictions, which exposes us to the effects of fluctuations in currency exchange rates. We earn revenue denominated in U.S. Dollars, Euros, Russian Rubles, Norwegian Krone, Indonesian Rupiah, Japanese Yen, Singapore Dollars, Kenyan Shillings, South African Rand and Nigerian Naira, among other currencies. We generally incur expenses for employee compensation and other expenses in the local currencies in the jurisdictions in which we operate. Fluctuations in the exchange rates between the various currencies that we use could result in expenses being higher and revenue being lower than would be the case if exchange rates were stable. We cannot assure you that movements in foreign currency exchange rates will not have a material adverse effect on our results of operations in future periods. We do not generally enter into hedging contracts to limit our exposure to fluctuations in the value of the currencies that our businesses use. Furthermore, the substantial majority of our revenue is denominated in emerging markets currencies. Because fluctuations in the value of emerging markets currencies are not necessarily correlated, there can be no assurance that our results of operations will not be adversely affected by such volatility.

 

Risks Related to Our ADSs

 

The trading price of the ADSs is likely to be volatile, which could result in substantial losses to investors.

 

The trading price of the ADSs can be volatile and fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, like the performance and fluctuation of the market prices of other technology companies that have listed their securities in the United States. A number of technology companies have listed or may be in the process of listing their securities on U.S. stock markets. The securities of some of these companies have experienced significant volatility, including price declines in connection with their initial public offerings. The trading performances of those companies’ securities after their offerings may affect the attitudes of investors toward technology companies listed in the United States in general and consequently may impact the trading performance of our ADSs, regardless of our actual operating performance.

 

 

In addition to market and industry factors, the price and trading volume for the ADSs may be highly volatile for factors specific to our own operations, including the following:

 

 

variations in our quarterly or annual revenue, earnings and cash flow;

 

 

announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors;

 

 

announcements of new products, services and expansions by us or our competitors;

 

 

changes in financial estimates by securities analysts;

 

 

detrimental adverse publicity about us, our platforms or our industries;

 

 

additions or departures of key personnel;

 

 

release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities; and

 

 

potential litigation or regulatory investigations.

 

Any of these factors may result in large and sudden changes in the volume and price at which the ADSs will trade.

 

In the past, shareholders of public companies have often brought securities class action suits against those companies following periods of instability in the market price of their securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations and require us to incur significant expenses to defend the suit, which could harm our results of operations. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.

 

If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding the ADSs, the market price for the ADSs and trading volume could decline.

 

The trading market for the ADSs will be influenced by research or reports that industry or securities analysts publish about our business. If one or more analysts who cover us downgrade the ADSs, the market price for the ADSs would likely decline. If one or more of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the market price or trading volume for the ADSs to decline.

 

We currently do not expect to pay dividends in the foreseeable future and you must rely on price appreciation of the ADSs for return on your investment.

 

We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in the ADSs as a source for any future dividend income.

 

Our board of directors has complete discretion as to whether to distribute dividends subject to our memorandum and articles of association and certain restrictions under Cayman Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiary, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in the ADSs will likely depend entirely upon any future price appreciation of the ADSs. There is no guarantee that the ADSs will appreciate in value or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in the ADSs and you may even lose your entire investment in the ADSs.

 

 

Mr. Yahui Zhou, our chairman of the board and chief executive officer, has substantial influence over our company and his interests may not be aligned with the interests of our other shareholders.

 

As of the date of this prospectus, Mr. Zhou beneficially owns 65.1% of the total voting power of our total issued and outstanding ordinary shares. As a result, Mr. Zhou has substantial influence over our business, including significant corporate actions such as mergers, consolidations, sales of all or substantially all of our assets, election of directors and other significant corporate actions.

 

Mr. Zhou may take actions that are not aligned with the interests of our other shareholders and may render new investors unable to influence significant corporate decisions. We have in the past, and likely will continue to enter into related party transactions involving entities directly or indirectly controlled by Mr. Zhou. See “Item 7. Major Shareholders and Related Party Transactions — B. Related Party Transactions” of our 2018 Annual Report for details. Such related party transactions may benefit Mr. Zhou personally. Furthermore, Mr. Zhou’s substantial influence over our company and such concentration of ownership may discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of the ADSs. These actions may be taken even if they are opposed by our other shareholders. In addition, the significant concentration of share ownership may adversely affect the trading price of the ADSs due to investors’ perception that conflicts of interest may exist or arise. For more information regarding our principal shareholders and their affiliated entities, see “Item 6. Directors, Senior Management and Employees—E. Share Ownership” of our 2018 Annual Report.

 

As a “controlled company” under the rules of the Nasdaq, we may be exempt from certain corporate governance requirements that could adversely affect our public shareholders.

 

Since Mr. Yahui Zhou, our chairman of the board and chief executive officer, is the beneficial owner of a majority of the voting power of our issued and outstanding share capital following the completion of the initial public offering, we are qualified as a “controlled company” under the rules of the Nasdaq. Under these rules a company of which more than 50% of the voting power is held by an individual, group or another company is a controlled company and may elect not to comply with certain corporate governance requirements, including the requirement that a majority of our directors be independent, as defined in the Nasdaq rules, and the requirement that our compensation and corporate governance and nominating committees consist entirely of independent directors. We reply on certain corporate governance exemptions as described in Item 16G (Corporate Governance) of our 2018 Annual Report. So long as we remain a controlled company relying on any of such exemptions and during any transition period following the time when we are no longer a controlled company, you would not have the same protections afforded to shareholders of companies that are subject to all of the Nasdaq corporate governance requirements.

 

If a United States person is treated as owning at least 10% of our ADSs or shares, such person may be subject to adverse United States federal income tax consequences.

 

If a United States person is treated as owning (directly, indirectly or constructively) at least 10% of the value or voting power of our ADSs or shares, such person may be treated as a “United States shareholder” with respect to each “controlled foreign corporation,” or CFC, in our group. Because our group includes one or more United States subsidiaries, we could be treated as a CFC and certain of our non-United States subsidiaries could be treated as CFCs (regardless of whether or not we are treated as a CFC). A United States shareholder of a CFC may be required to annually report and include in its United States taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income” and investments in United States property by CFCs, whether or not we make any distributions. An individual that is a United States shareholder with respect to a CFC generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a United States corporation. A failure to comply with these reporting obligations may subject a United States shareholder to significant monetary penalties and may prevent starting of the statute of limitations with respect to such shareholder’s United States federal income tax return for the year for which reporting was due. We do not intend to monitor whether we are or any of our non-United States subsidiaries is treated as a CFC or whether any investor is treated as a United States shareholder with respect to us or any of our CFC subsidiaries or to furnish to any United States shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations. A United States investor should consult its own advisor regarding the potential application of these rules in its particular circumstances.

 

 

If we are a passive foreign investment company for United States federal income tax purposes for any taxable year, United States holders of ADSs or ordinary shares could be subject to adverse United States federal income tax consequences.

 

We will be a passive foreign investment company, or PFIC, for United States federal income tax purposes for any taxable year if either (i) at least 75% of our gross income for such year is passive income or (ii) at least 50% of the value of our assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce or are held for the production of passive income. A separate determination must be made after the close of each taxable year as to whether we are a PFIC for that year. Based on the current and anticipated value of our assets and composition of our income and assets, we do not expect to be a PFIC for United States federal income tax purposes for our current taxable year ending December 31, 2019, although there can be no assurances in this regard. Moreover, the application of the PFIC rules is subject to uncertainty in several respects, and we cannot assure you the United States Internal Revenue Service, or the IRS, will not take a contrary position.

 

Changes in the composition of our income or composition of our assets, including as a result of our investment in new businesses, products, services and technologies, may cause us to be or become a PFIC. The determination of whether we will be a PFIC for any taxable year may depend in part upon the value of our goodwill and other unbooked intangibles not reflected on our balance sheet (which may depend upon the market value of the ADSs or ordinary shares from time to time) and also may be affected by how, and how quickly, we spend our liquid assets and the cash raised in this offering. In estimating the value of our goodwill and other unbooked intangibles, we have taken into account our anticipated market capitalization following this offering. Among other matters, if our market capitalization is less than anticipated or subsequently declines, we may be or become a PFIC for the current or future taxable years because our liquid assets and cash (which are for this purpose considered assets that produce passive income) may then represent a greater percentage of our overall assets. Further, while we believe our classification methodology and valuation approach is reasonable, it is possible that the IRS may challenge our classification or valuation of our goodwill and other unbooked intangibles, which may result in our being or becoming a PFIC for the current or one or more future taxable years.

 

If we are a PFIC for any taxable year during which a United States person holds ADSs or ordinary shares, certain adverse United States federal income tax consequences could apply to such United States person. See “Taxation—United States Federal Income Tax Considerations—Passive Foreign Investment Company.”

 

Our memorandum and articles of association contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our ordinary shares and the ADSs.

 

Our memorandum and articles of association contain provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. For example, our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares, in the form of ADSs or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of the ADSs may fall and the voting and other rights of the holders of our ordinary shares and the ADSs may be materially and adversely affected.

 

You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.

 

We are an exempted company limited by shares incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, the Companies Law (2018 Revision) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary duties owed to us by our directors under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.

  

 

Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records or to obtain copies of lists of shareholders of these companies. Our directors have discretion under our memorandum and articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.

 

Certain corporate governance practices in the Cayman Islands, which is our home country, differ significantly from requirements for companies incorporated in other jurisdictions such as the United States. For example, we have elected to not have our compensation committee consist of entirely independent directors. We reply on certain corporate governance exemptions as described in Item 16G (Corporate Governance) of our 2018 Annual Report. However, if we choose to follow home country practice in the future, our shareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. domestic issuers.

 

As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.

 

Certain judgments obtained against us by our shareholders may not be enforceable.

 

We are a Cayman Islands company and the majority of our assets are located and the majority of our operations are conducted outside of the United States. In addition, a majority of our current directors and officers are nationals and residents of countries other than the United States. Substantially all of the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of Norway may render you unable to enforce a judgment against our assets or the assets of our directors and officers.

 

We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements.

 

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from requirements applicable to other public companies that are not emerging growth companies including, most significantly, not being required to comply with the auditor attestation requirements of Section 404 for so long as we are an emerging growth company. We will remain an emerging growth company until the earliest of (a) the last day of the fiscal year during which we have total annual gross revenue of at least US$1.07 billion; (b) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (c) the date on which we have, during the preceding three-year period, issued more than US$1.07 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act, which would occur if the market value of the ADSs that are held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided by the JOBS Act.

 

The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. However, we have elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted for public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

 

 

As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices for corporate governance matters that differ significantly from the Nasdaq corporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with the corporate governance listing standards.

 

As a Cayman Islands company listed on Nasdaq, we are subject to Nasdaq corporate governance listing standards which permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the Nasdaq corporate governance listing standards.

 

For instance, we are not required to: (i) have a majority of the board be independent; (ii) have a compensation committee or a nominations or corporate governance committee consisting entirely of independent directors; or (iii) have regularly scheduled executive sessions with only independent directors each year. We rely on certain corporate governance exemptions as described in Item 16G (Corporate Governance) of our 2018 Annual Report. To the extent we choose to follow home country practice in the future, our shareholders may be afforded less protection than they would otherwise enjoy under the Nasdaq corporate governance listing standards applicable to U.S. domestic issuers.

 

We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to United States domestic public companies.

 

Because we are a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:

 

 

the rules under the Exchange Act requiring the filing of quarterly reports on Form 10-Q or current reports on Form 8-K with the SEC;

 

 

the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;

 

 

the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and

 

 

the selective disclosure rules by issuers of material nonpublic information under Regulation FD.

 

We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to continue to publish our results on a quarterly basis through press releases, distributed pursuant to the rules and regulations of the Nasdaq. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC is less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information, which would be made available to you, were you investing in a U.S. domestic issuer.

 

The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to vote with respect to the ordinary shares.

 

As a holder of ADSs, you will only be able to exercise the voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will try to vote the underlying ordinary shares in accordance with these instructions. You will not be able to directly exercise your right to vote with respect to the underlying shares unless you withdraw the shares. Under our amended and restated memorandum and articles of association, the minimum notice period required for convening a general meeting is seven days. When a general meeting is convened, you may not receive sufficient advance notice to withdraw the shares underlying your ADSs to allow you to vote with respect to any specific matter. If we ask for your instructions, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to vote and you may have no legal remedy if the shares underlying your ADSs are not voted as you requested.

 

 

ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.

 

The deposit agreement governing the ADSs representing our ordinary shares provides that, to the fullest extent permitted by law, ADS holders waive the right to a jury trial for any claim they may have against us or the depositary arising out of or relating to our shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws.

 

If we or the depositary were to oppose a jury trial based on this waiver, the court would have to determine whether the waiver was enforceable based on the facts and circumstances of the case in accordance with applicable state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement, or by a federal or state court in the City of New York, which has non-exclusive jurisdiction over matters arising under the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this would be the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before investing in the ADSs.

  

If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us or the depositary. If a lawsuit is brought against us or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have, including outcomes that could be less favorable to the plaintiff(s) in any such action.

 

Nevertheless, if this jury trial waiver is not permitted by applicable law, an action could proceed under the terms of the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or the ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder.

 

You may not receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make them available to you.

 

The depositary has agreed to pay to you the cash dividends or other distributions it or the custodian receives on the ordinary shares or other deposited securities underlying your ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of the ADSs.

 

 

You may experience dilution of your holdings due to inability to participate in rights offerings.

 

We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third parties, and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.

 

The requirements of being a public company may strain our resources and divert our management’s attention.

 

Upon completion of our initial public offering, we have become a public company and we are subject to the reporting requirements of the Exchange Act, the U.S. Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, the Dodd-Frank Act and the listing standards of Nasdaq as applicable to a foreign private issuer, which are different in some material respects from those required for a U.S. public company. We expect that the requirements of these rules and regulations will increase our legal, accounting and financial compliance costs, make some activities more difficult, time consuming and costly, and place significant strain on our personnel, systems and resources. See “—Risks Related to Our Business and Industry—Material weaknesses in our internal control over financial reporting have been identified, and if we fail to implement and maintain effective internal control over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud.” As a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors, shareholders or third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business and operating results.

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 

 

This prospectus supplement, the accompanying prospectus, and the information incorporated by reference herein may contain forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts are forward-looking statements. These forward-looking statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Sections of this prospectus supplement and the accompanying prospectus (including statements incorporated by reference herein) entitled “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” among others, discuss factors which could adversely impact our business and financial performance.

 

In some cases, you can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements about:

 

 

our goals and strategies;

 

 

our expected development and launch, and market acceptance, of our products and services;

 

 

our future business development, financial condition and results of operations;

 

 

the expected growth in, and market size of, the global internet industry;

 

 

expected changes in our revenue, costs or expenditures;

 

 

our expectations regarding demand for and market acceptance of our brand, platforms and services;

 

 

our expectations regarding growth in our user base and level of engagement;

 

 

our ability to attract, retain and monetize users;

 

 

our ability to continue to develop new technologies and/or upgrade our existing technologies;

 

 

our expectation regarding the use of proceeds from this offering;

 

 

growth of and trends of competition in our industry;

 

 

government policies and regulations relating to our industry; and

 

 

general economic and business conditions in the markets we have businesses.

 

The forward-looking statements made in this prospectus supplement or the accompanying prospectus, or the information incorporated by reference herein relate only to events or information as of the date on which the statements are made in such document. Except as required by U.S. federal securities law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this prospectus supplement and the accompanying prospectus, and the information incorporated by reference herein, along with any exhibits thereto, completely and with the understanding that our actual future results may be materially different from what we expect. Other sections of this prospectus supplement, the accompanying prospectus and the documents incorporated by reference herein include additional factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.

 

 

This prospectus supplement and the accompanying prospectus, and the information incorporated by reference herein may also contain estimates, projections and statistical data that we obtained from industry publications and reports generated by government or third-party providers of market intelligence. Although we have not independently verified the data, we believe that the publications and reports are reliable. However, the statistical data and estimates in these publications and reports are based on a number of assumptions and if any one or more of the assumptions underlying the market data are later found to be incorrect, actual results may differ from the projections based on these assumptions. In addition, due to the rapidly evolving nature of the online content consumption and e-commerce industries, projections or estimates about our business and financial prospects involve significant risks and uncertainties.

 

 

USE OF PROCEEDS 

 

Our net proceeds from this offering are expected to be approximately US$87.2 million, or approximately US$100.3 million if the underwriters exercise their option to purchase additional ADSs in full, based on the public offering price per ADS of US$13.19, the reported last sale price for the ADSs on September 13, 2019 on the Nasdaq Stock Market, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us.

 

We expect to use the net proceeds from this offering primarily for the general corporate purposes.

 

The amounts and timing of any expenditures will vary depending on the amount of cash generated by our operations, and the rate of growth, if any, of our business, and our plans and business conditions. The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. Our management will have significant flexibility in applying discretion to apply the net proceeds of the offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus.

 

Pending use of the net proceeds, we intend to hold our net proceeds in demand deposits or invest them in interest-bearing government securities.

 

 

DIVIDEND POLICY 

 

We do not have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future after this offering. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

 

Our board of directors has discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Under Cayman Islands law, a Cayman Islands company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. If we pay any dividends on our ordinary shares, we will pay those dividends which are payable in respect of the ordinary shares underlying the ADSs to the depositary, as the registered holder of such ordinary shares, and the depositary then will pay such amounts to the ADS holders who will receive payment to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See “Description of American Depositary Shares.” Cash dividends on our ordinary shares, if any, will be paid in U.S. Dollars.

 

We are a holding company incorporated in the Cayman Islands. For our cash requirements, including any payment of dividends to our shareholders, we rely upon payments from our operating entities. We rely on a combination of dividend payments from our subsidiaries in markets we operate such as Norway. Regulations in Norway where we utilize dividend payments may restrict the ability of our subsidiaries to pay dividends to us.

 

See “Business—Norwegian Regulation—Regulations on Dividend Distributions,” and “Risk Factors—Risks Related to the ADSs and This Offering—We currently do not expect to pay dividends in the foreseeable future and you must rely on price appreciation of the ADSs for return on your investment.”

 

 

CAPITALIZATION 

 

The following table sets forth our capitalization as of June 30, 2019:

 

 

on an actual basis; and

 

 

our issuance and sale of 14,000,000 ordinary shares in the form of ADSs in this offering at the assumed public offering price of US$13.19 per ADS, the reported last sale price for the ADSs on September 13, 2019 on the Nasdaq Stock Market, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, assuming the underwriters do not exercise their option to purchase additional ADSs.

 

You should read this table together with our consolidated financial statements and the related notes included in our annual report on Form 20-F for the year ended December 31, 2018, as well as the management's discussion and analysis thereon, incorporated by reference into this prospectus supplement.

 

 

As of June 30, 2019

 

Actual

 

Pro Forma(1)

 

(in US$ thousands)

Long-term borrowings

     

Interest bearing loans

641   641

Total long -term borrowings (including current portion)

641   641

Equity

     

Ordinary shares (US$0.0001 par value; 500,000,000 shares authorized, 220,576,326 shares issued and outstanding on an actual basis and 234,576,326 shares issued and outstanding on a pro forma basis)

22   23

Contributed equity/Additional paid-in capital(1)

732,932   820,084

Retained earnings

46,538   46,538

Other component of equity

172   172

Total equity(1)

779,642   866,817

Total capitalization

780,283   867,458

 


 

(1)

Total capitalization means long-term borrowings plus total equity.

 

The discussion and table above exclude exercise of any outstanding restricted share units pursuant to our share incentive plans after June 30, 2019. See “Management—Share Incentive Plans” for details of these awards.

 

 

Dilution

 

If you invest in the ADSs, your interest will be diluted to the extent of the difference between the assumed public offering price US$13.19 per ADS and our net tangible book value US$2.22 per ADS after this offering. Dilution results from the fact that the assumed public offering price per ordinary share is substantially in excess of the book value per ordinary share attributable to the existing shareholders for our presently outstanding shares.

 

Our net tangible book value as of June 30, 2019 was approximately US$244.6 million, or US$1.11 per ordinary share and US$2.22 per ADS. Dilution is determined by subtracting as adjusted net tangible book value per ordinary share, after giving effect to the additional proceeds we will receive from this offering, from the assumed public offering price per ordinary share.

 

Without taking into account any other changes in such net tangible book value after June 30, 2019, other than to give effect to the issuance and sale of 7,000,000 ADSs in this offering at an assumed public offering price of US$13.19 per ADS, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us and assuming the underwriters’ option to purchase 1,050,000 additional ADSs is not exercised, calculated based on the assumed offering price of US$13.19 per ADS, our as adjusted net tangible book value as of June 30, 2019 would have been US$1.41 per outstanding ordinary share, including ordinary shares underlying our outstanding ADSs, or US$2.83 per ADS. This represents an immediate increase in net tangible book value of US$0.31 per ordinary share, or US$0.61 per ADS, to existing shareholders and an immediate dilution in net tangible book value of US$5.18 per ordinary share, or US$10.36 per ADS, to investors purchasing ADSs in this offering. The as adjusted information discussed above is illustrative only. The following table illustrates such dilution:

 

 

Per Ordinary Share

 

Per ADS

Assumed public offering price

6.60   13.19

Net tangible book value as of June 30, 2019

1.11   2.22

As adjusted net tangible book value after giving effect to this offering as of June 30, 2019

1.41   2.83

Increase in net tangible book value attributable to this offering

0.31   0.61

Amount of dilution in net tangible book value to new investors in the offering

5.18   10.36

 

 

The following table summarizes, on an as adjusted basis as of June 30, 2019, the differences between the existing shareholders as of June 30, 2019 and the new investors with respect to the number of ordinary shares (in the form of ADSs or ordinary shares) purchased from us in this offering, the total consideration paid and the average price per ordinary share paid and per ADS at the assumed public offering price of US$13.19 per ADS before deducting underwriting discounts and commissions and estimated offering expenses payable by us. The total number of ordinary shares does not include ordinary shares underlying the ADSs issuable upon the exercise of the option to purchase additional ADSs which we granted to the underwriters.

 

   

Ordinary shares

purchased

   

Total consideration

   

Average

price per

ordinary

   

Average

price per

 
   

Number

   

Percent

   

Amount

   

Percent

    share     ADS  
   

(in US$ thousands, except for percentages)

 

Existing shareholders

    220,576,326       94.0 %     US$0       0 %     US$0       US$0  

New investors

    14,000,000       6.0 %     US$92,330,000       100 %     US$6.60       US$13.19  

Total

    234,576,326       100.0 %     US$92,330,000       100.0 %     US$6.60       US$13.19  

 

 

TAXATION 

 

The following summary of Cayman Islands, Norway and U.S. federal income tax consequences of an investment in the ADSs or ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this prospectus, all of which are subject to change. This summary does not deal with all possible tax consequences relating to an investment in the ADSs or ordinary shares, such as the tax consequences under state, local and other tax laws, or tax laws of jurisdictions other than the Cayman Islands, Norway, and the United States. To the extent that the discussion relates to matters of Cayman Islands tax law, it represents the opinion of Maples and Calder (Hong Kong) LLP, our counsel as to Cayman Islands law. To the extent that the discussion relates to matters of Norwegian tax law, it represents the opinion of Wikborg Rein Advokatfirma AS, our counsel as to Norway law.

 

Cayman Islands Tax Considerations

 

As advised by Maples and Calder (Hong Kong) LLP, our counsel with regards to Cayman Island tax matters, the Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or brought within, the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties which are applicable to any payments made by or to our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.

 

Payments of dividends and capital in respect of our ordinary shares or the ADSs will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of our ordinary shares or the ADSs, as the case may be, nor will gains derived from the disposal of our ordinary shares or the ADSs be subject to Cayman Islands income or corporation tax. The Cayman Islands currently have no income, corporation or capital gains tax and no estate duty, inheritance tax or gift tax.

 

No stamp duty is payable in respect of the issue of our ordinary shares or the ADSs or on an instrument of transfer in respect of our ordinary shares or the ADSs.

 

Norway Tax Considerations

 

Below is a summary of the primary tax issue in Norway for Norwegian corporate holders of the ADSs, based on the opinion of Wikborg Rein Advokatfirma AS, our counsel with regards to Norwegian tax matters.

 

The ADS is a financial instrument with shares in Opera Limited, an exempted company incorporated under the laws of the Cayman Islands with limited liability, as the underlying object. For Norwegian tax purposes, the ADSs will not be covered by the participation exemption since the underlying object is an entity in a low tax jurisdiction outside the EU/EEA. For limited liability companies (and certain similar entities) resident in Norway for tax purposes, dividends from the ADSs will be considered as taxable income. Gains on realization (including sales) of the ADSs will also be considered as taxable income for limited liability companies (and certain similar entities) resident in Norway for tax purposes. The tax rate for 2019 for limited liability companies (and certain similar entities) is currently 22%.

 

United States Federal Income Tax Considerations

 

United States Federal Income Tax Considerations

 

The following discussion describes the material United States federal income tax consequences to a United States Holder (as defined below), under current law, of an investment in our ADSs pursuant to this offering. This discussion is based on the federal income tax laws of the United States as of the date of this prospectus supplement, including the United States Internal Revenue Code of 1986, as amended, or the Code, existing and proposed Treasury Regulations promulgated thereunder, judicial authority, published administrative positions of the United States Internal Revenue Service, or the IRS, and other applicable authorities, all as of the date of this prospectus supplement. All of the foregoing authorities are subject to change, which change could apply retroactively and could significantly affect the tax consequences described below. We have not sought any ruling from the IRS with respect to the statements made and the conclusions reached in the following discussion and there can be no assurance that the IRS or a court will agree with our statements and conclusions.

 

 

This discussion applies only to a United States Holder (as defined below) that holds ADSs or ordinary shares as capital assets for United States federal income tax purposes (generally, property held for investment). The discussion neither addresses the tax consequences to any particular investor nor describes all of the tax consequences applicable to persons in special tax situations, such as:

 

 

banks and certain other financial institutions;

 

 

insurance companies;

 

 

regulated investment companies;

 

 

real estate investment trusts;

 

 

brokers or dealers in stocks and securities, or currencies;

 

 

persons who use or are required to use a mark-to-market method of accounting;

 

 

certain former citizens or residents of the United States subject to Section 877 of the Code;

 

 

entities subject to the United States anti-inversion rules;

 

 

tax-exempt organizations and entities;

 

 

persons subject to the alternative minimum tax provisions of the Code;

 

 

persons whose functional currency is other than the United States dollar;

 

 

persons holding ADSs or ordinary shares as part of a straddle, hedging, conversion or integrated transaction;

 

 

persons that actually or constructively own ADSs or ordinary shares representing 10% or more of our voting power or value;

 

 

persons who acquired ADSs or ordinary shares pursuant to the exercise of an employee equity grant or otherwise as compensation;

 

 

partnerships or other pass-through entities, or persons holding ADSs or ordinary shares through such entities;

 

 

persons required to accelerate the recognition of any item of gross income with respect to our ADSs or ordinary shares as a result of such income being recognized on an applicable financial statement; or

 

 

persons that held, directly, indirectly or by attribution, ADSs or ordinary shares or other ownership interests in us prior to this offering.

 

This discussion, moreover, does not address the United States federal estate, gift, Medicare, and alternative minimum tax considerations, or any state, local and non-United States tax considerations, relating to the ownership and disposition of our ADSs or ordinary shares.

 

Except as specifically described below, this discussion does not address any tax consequences or reporting obligations that may be applicable to persons holding ADSs or ordinary shares through a bank, financial institution or other entity, or a branch thereof, located, organized or resident outside the United States.

 

 

If a partnership (including an entity or arrangement treated as a partnership for United States federal income tax purposes) holds the ADSs or ordinary shares, the tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. A partnership or partner in a partnership holding ADSs or ordinary shares should consult its own tax advisors regarding the tax consequences of investing in and holding the ADSs or ordinary shares.

 

THE FOLLOWING DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING AND ADVICE. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE UNITED STATES FEDERAL ESTATE OR GIFT TAX LAWS OR THE LAWS OF ANY STATE, LOCAL OR NON-UNITED STATES TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.

 

For purposes of the discussion below, a “United States Holder” is a beneficial owner of the ADSs or ordinary shares that is, for United States federal income tax purposes:

 

 

an individual who is a citizen or resident of the United States;

 

 

a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

 

 

an estate, the income of which is subject to United States federal income taxation regardless of its source; or

 

 

a trust, if (i) a court within the United States is able to exercise primary jurisdiction over its administration and one or more United States persons have the authority to control all of its substantial decisions or (ii) in the case of a trust that was treated as a domestic trust under the law in effect before 1997, a valid election is in place under applicable Treasury Regulations to treat such trust as a domestic trust.

 

The discussion below assumes that the representations contained in the deposit agreement and any related agreement are true and that the obligations in such agreements will be complied with in accordance with their terms.

 

ADSs

 

If you own our ADSs, then you should be treated as the owner of the underlying ordinary shares represented by those ADSs for United States federal income tax purposes. Accordingly, deposits or withdrawals of ordinary shares for ADSs should not be subject to United States federal income tax.

 

The United States Treasury Department and the IRS have expressed concerns that United States holders of American depositary shares may be claiming foreign tax credits in situations where an intermediary in the chain of ownership between the holder of an American depositary share and the issuer of the security underlying the American depositary share has taken actions that are inconsistent with the ownership of the underlying security by the person claiming the credit. Such actions (for example, a pre-release of an American depositary share by a depositary) also may be inconsistent with the claiming of the reduced rate of tax applicable to certain dividends received by non-corporate United States holders of American depositary shares, including individual United States holders. Accordingly, the availability of foreign tax credits or the reduced tax rate for dividends received by non-corporate United States Holders, each discussed below, could be affected by actions taken by intermediaries in the chain of ownership between the holder of an ADS and our company.

 

Dividends and Other Distributions on the ADSs or Our Ordinary Shares

 

Subject to the passive foreign investment company rules discussed below, the gross amount of any distribution that we make to you with respect to the ADSs or ordinary shares (including any amounts withheld to reflect withholding taxes) will be taxable as a dividend, to the extent paid out of our current or accumulated earnings and profits, as determined under United States federal income tax principles. Such income (including any withheld taxes) will be includable in your gross income on the day actually or constructively received by you, if you own the ordinary shares, or by the depositary, if you own ADSs.

 

 

Because we do not intend to determine our earnings and profits on the basis of United States federal income tax principles, any distribution paid generally will be reported as a “dividend” for United States federal income tax purposes. Such dividends will not be eligible for the dividends- received deduction allowed to qualifying corporations under the Code.

 

Dividends received by a non-corporate United States Holder may qualify for the lower rates of tax applicable to “qualified dividend income,” if the dividends are paid by a “qualified foreign corporation” and other conditions discussed below are met. A non-United States corporation is treated as a qualified foreign corporation (i) with respect to dividends paid by that corporation on shares (or American depositary shares backed by such shares) that are readily tradable on an established securities market in the United States or (ii) if such non-United States corporation is eligible for the benefits of a qualifying income tax treaty with the United States that includes an exchange of information program. We do not expect to be eligible for the benefits of such an income tax treaty. However, a non-United States corporation will not be treated as a qualified foreign corporation if it is a passive foreign investment company in the taxable year in which the dividend is paid or the preceding taxable year.

 

Under a published IRS Notice, common or ordinary shares, or American depositary shares representing such shares, are considered to be readily tradable on an established securities market in the United States if they are listed on the Nasdaq Global Select Market, as our ADSs (but not our ordinary shares) are expected to be. Based on existing guidance, it is unclear whether the ordinary shares will be considered to be readily tradable on an established securities market in the United States, because only the ADSs, and not the underlying ordinary shares, will be listed on a securities market in the United States. We believe, but we cannot assure you, that dividends we pay on the ordinary shares that are represented by ADSs, but not on the ordinary shares that are not so represented, will, subject to applicable limitations, be eligible for the reduced rates of taxation.

 

Even if dividends would be treated as paid by a qualified foreign corporation, a non-corporate United States Holder will not be eligible for reduced rates of taxation if it does not hold our ADSs or ordinary shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date or if the United States Holder elects to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code. In addition, the rate reduction will not apply to dividends of a qualified foreign corporation if the non-corporate United States Holder receiving the dividend is obligated to make related payments with respect to positions in substantially similar or related property.

 

You should consult your own tax advisors regarding the availability of the lower tax rates applicable to qualified dividend income for any dividends that we pay with respect to the ADSs or ordinary shares, as well as the effect of any change in applicable law after the date of this prospectus supplement.

 

Any non-United States withholding taxes imposed on dividends paid to you with respect to the ADSs or ordinary shares generally will be treated as foreign taxes eligible for credit against your United States federal income tax liability, subject to the various limitations and disallowance rules that apply to foreign tax credits generally. For purposes of calculating the foreign tax credit limitation, dividends paid to you with respect to the ADSs or ordinary shares will be treated as income from sources outside the United States and generally will constitute passive category income. The rules relating to the determination of the foreign tax credit are complex, and you should consult your tax advisors regarding the availability of a foreign tax credit in your particular circumstances.

 

Disposition of the ADSs or Our Ordinary Shares

 

You will recognize gain or loss on a sale or exchange of the ADSs or ordinary shares in an amount equal to the difference between the amount realized on the sale or exchange and your tax basis in the ADSs or ordinary shares. Subject to the discussion under “—Passive Foreign Investment Company” below, such gain or loss generally will be capital gain or loss. Capital gains of a non-corporate United States Holder, including an individual, that has held the ADSs or ordinary shares for more than one year currently are eligible for reduced tax rates. The deductibility of capital losses is subject to limitations.

 

Any gain or loss that you recognize on a disposition of the ADSs or ordinary shares generally will be treated as United States-source income or loss for foreign tax credit limitation purposes. You should consult your tax advisors regarding the proper treatment of gain or loss, as well as the availability of a foreign tax credit, in your particular circumstances.

 

 

Passive Foreign Investment Company

 

Based on the current and anticipated value of our assets and the composition of our income and assets, we do not expect to be treated as a passive foreign investment company, or PFIC, for United States federal income tax purposes for our current taxable year ending December 31, 2019, although there can be no assurances in this regard. The determination of PFIC status is based on an annual determination that cannot be made until the close of a taxable year, involves extensive factual investigation, including ascertaining the fair market value of all of our assets on a quarterly basis and the character of each item of income that we earn, and is subject to uncertainty in several respects. Accordingly, we cannot assure you that we will not be treated as a PFIC for our current taxable year ending December 31, 2019, or for any future taxable year or that the IRS will not take a contrary position.

 

We will be treated as a passive foreign investment company, or PFIC, for United States federal income tax purposes for any taxable year if, applying applicable look-through rules, either:

 

 

at least 75% of our gross income for such year is passive income; or

 

 

at least 50% of the value of our assets (determined based on a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income.

 

For this purpose, passive income generally includes dividends, interest, royalties and rents (other than certain royalties and rents derived in the active conduct of a trade or business and not derived from a related person). We will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% by value of the stock. Although the law in this regard is unclear, we treat our VIEs as being owned by us for United States federal income tax purposes, not only because we exercise effective control over the operation of such entities but also because we are entitled to substantially all of their economic benefits, and, as a result, we consolidate their results of operations in our consolidated IFRS financial statements. If it were determined, however, that we are not the owner of our VIEs for United States federal income tax purposes, the composition of our income and assets would change and we may be more likely to be treated as a PFIC.

 

Changes in the composition of our income or composition of our assets, including as a result of our investment in new businesses, products, services and technologies, may cause us to be or become a PFIC. The determination of whether we will be a PFIC for any taxable year may depend in part upon the value of our goodwill and other unbooked intangibles not reflected on our balance sheet (which may depend upon the market value of the ADSs or ordinary shares from time to time, which may be volatile) and also may be affected by how, and how quickly, we spend our liquid assets and the cash raised in this offering. In estimating the value of our goodwill and other unbooked intangibles, we have taken into account our anticipated market capitalization following this offering. Among other matters, if our market capitalization is less than anticipated or subsequently declines, we may be or become a PFIC for the current or future taxable years because our liquid assets and cash (which are for this purpose considered assets that produce passive income) may then represent a greater percentage of our overall assets. Further, while we believe our classification methodology and valuation approach is reasonable, it is possible that the IRS may challenge our classification or valuation of our goodwill and other unbooked intangibles, which may result in our being or becoming a PFIC for the current or one or more future taxable years.

 

If we are a PFIC for any taxable year during which you hold ADSs or ordinary shares, we will continue to be treated as a PFIC with respect to you for all succeeding years during which you hold ADSs or ordinary shares, unless we were to cease to be a PFIC and you make a “deemed sale” election with respect to the ADSs or ordinary shares. If such election is made, you will be deemed to have sold the ADSs or ordinary shares you hold at their fair market value and any gain from such deemed sale would be subject to the rules described in the following two paragraphs. After the deemed sale election, so long as we do not become a PFIC in a subsequent taxable year, the ADSs or ordinary shares with respect to which such election was made will not be treated as shares in a PFIC and, as a result, you will not be subject to the rules described below with respect to any “excess distribution” you receive from us or any gain from an actual sale or other disposition of the ADSs or ordinary shares. You are strongly urged to consult your tax advisors as to the possibility and consequences of making a deemed sale election if we are and then cease to be a PFIC and such an election becomes available to you.

 

 

If we are a PFIC for any taxable year during which you hold ADSs or ordinary shares, then, unless you make a “mark-to-market” election (as discussed below), you generally will be subject to special adverse tax rules with respect to any “excess distribution” that you receive from us and any gain that you recognize from a sale or other disposition, including a pledge, of the ADSs or ordinary shares. For this purpose, distributions that you receive in a taxable year that are greater than 125% of the average annual distributions that you received during the shorter of the three preceding taxable years or your holding period for the ADSs or ordinary shares will be treated as an excess distribution. Under these rules:

 

 

the excess distribution or recognized gain will be allocated ratably over your holding period for the ADSs or ordinary shares;

 

 

the amount of the excess distribution or recognized gain allocated to the taxable year of distribution or gain, and to any taxable years in your holding period prior to the first taxable year in which we were treated as a PFIC, will be treated as ordinary income; and

 

 

the amount of the excess distribution or recognized gain allocated to each other taxable year will be subject to the highest tax rate in effect for individuals or corporations, as applicable, for each such year and the resulting tax will be subject to the interest charge generally applicable to underpayments of tax.

 

If we are a PFIC for any taxable year during which you hold ADSs or ordinary shares and any of our non-United States subsidiaries or other corporate entities in which we own equity interests is also a PFIC, you would be treated as owning a proportionate amount (by value) of the shares of each such non-United States entity classified as a PFIC (each such entity, a lower tier PFIC) for purposes of the application of these rules. You should consult your own tax advisor regarding the application of the PFIC rules to any of our lower tier PFICs.

 

If we are a PFIC for any taxable year during which you hold ADSs or ordinary shares, then in lieu of being subject to the tax and interest-charge rules discussed above, you may make an election to include gain on our ADSs or ordinary shares as ordinary income under a mark-to-market method, provided that such ADSs or ordinary shares constitute “marketable stock.” Marketable stock is stock that is regularly traded on a qualified exchange or other market, as defined in applicable Treasury regulations. We expect that our ADSs, but not our ordinary shares, will be listed on the Nasdaq Global Select Market, which is a qualified exchange or other market for these purposes. Consequently, if the ADSs are listed on the Nasdaq Global Select Market and are regularly traded, and you are a holder of ADSs, we expect that the mark-to-market election would be available to you if we became a PFIC, but no assurances are given in this regard.

 

Because a mark-to-market election cannot be made for any lower-tier PFICs that we may own, if we were a PFIC for any taxable year, a United States Holder that makes the mark-to-market election may continue to be subject to the tax and interest charges under the general PFIC rules with respect to such United States Holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC for United States federal income tax purposes.

 

In certain circumstances, a shareholder in a PFIC may avoid the adverse tax and interest-charge regime described above by making a “qualified electing fund” election to include in income its share of the corporation’s income on a current basis. However, you may make a qualified electing fund election with respect to the ADSs or ordinary shares only if we agree to furnish you annually with a PFIC annual information statement as specified in the applicable Treasury regulations. We currently do not intend to prepare or provide the information that would enable you to make a qualified electing fund election.

 

A United States Holder that holds the ADSs or ordinary shares in any year in which we are a PFIC will be required to file an annual report containing such information as the United States Treasury Department may require. You should consult your own tax advisor regarding the application of the PFIC rules to your ownership and disposition of the ADSs or ordinary shares and the availability, application and consequences of the elections discussed above.

 

 

Information Reporting and Backup Withholding

 

Information reporting to the IRS and backup withholding generally will apply to dividends in respect of our ADSs or ordinary shares, and the proceeds from the sale or exchange of our ADSs or ordinary shares, that are paid to you within the United States (and in certain cases, outside the United States), unless you furnish a correct taxpayer identification number and make any other required certification, generally on IRS Form W-9 or you otherwise establish an exemption from information reporting and backup withholding. Backup withholding is not an additional tax. Amounts withheld as backup withholding generally are allowed as a credit against your United States federal income tax liability, and you may be entitled to obtain a refund of any excess amounts withheld under the backup withholding rules if you file an appropriate claim for refund with the IRS and furnish any required information in a timely manner. United States Holders should consult their tax advisors regarding the application of the information reporting and backup withholding rules.

 

Information with Respect to Foreign Financial Assets

 

United States Holders who are individuals (and certain entities closely held by individuals) generally will be required to report our name, address and such information relating to an interest in the ADSs or ordinary shares as is necessary to identify the class or issue of which the ADSs or ordinary shares are a part. These requirements are subject to exceptions, including an exception for ADSs or ordinary shares held in accounts maintained by certain financial institutions and an exception applicable if the aggregate value of all “specified foreign financial assets” (as defined in the Code) does not exceed US$50,000.

 

United States Holders should consult their tax advisors regarding the application of these information reporting rules.

 

 

UNDERWRITING 

 

Under the terms and subject to the conditions contained in an underwriting agreement dated                 , the underwriters named below, for whom Citigroup Global Markets Inc. and China International Capital Corporation Hong Kong Securities Limited are acting as representatives, have severally and not jointly agreed to purchase, and we have agreed to sell to them, severally, ADSs representing the indicated numbers of ordinary shares below.

 

Name of Underwriters 

Number of

ADSs

Citigroup Global Markets Inc.

 

China International Capital Corporation Hong Kong Securities Limited

 

Cowen and Company, LLC

 

B. Riley FBR, Inc.

 

Total

7,000,000

 

The underwriters and the representatives are collectively referred to as the “underwriters” and the “representatives,” respectively. The underwriters are offering the ADSs subject to their acceptance of the ADSs from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the ADSs offered by this prospectus supplement are subject to the approval of certain legal matters by their counsel and to certain other conditions, including the absence of any material adverse change in our business and the receipt of certain certificates, opinions and letters from us, our counsel and the independent registered public accounting firm. The underwriters are obligated, severally and not jointly, to take and pay for all of the ADSs offered by this prospectus supplement if any such ADSs are taken. The underwriters are not required, however, to take or pay for the ADSs covered by the underwriters’ over-allotment option to purchase additional ADSs described below. Any offers or sales of the ADSs in the United States will be conducted by registered broker-dealers in the United States. The underwriters reserve the right to withdraw, cancel or modify offers to the public and reject orders in whole or in part.

 

The underwriters initially propose to offer part of the ADSs directly to the public at the public offering price listed on the cover page of this prospectus supplement and part to certain dealers at a price that represents a concession not in excess of US$                      per ADS under the public offering price. After the initial offering of the ADSs, the offering price and other selling terms may from time to time be varied by the representatives.

 

Certain of the underwriters are expected to make offers and sales both inside and outside the United States through their respective selling agents. Any offers or sales in the United States will be conducted by broker-dealers registered with the SEC. China International Capital Corporation Hong Kong Securities Limited is not a broker-dealer registered with the SEC and, to the extent that its conduct may be deemed to involve participation in offers or sales of ADSs in the United States, those offers or sales will be made through one or more SEC-registered broker-dealers in compliance with applicable laws and regulations. We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus supplement, to purchase up to an aggregate of 1,050,000 additional ADSs at the public offering price listed on the cover page of this prospectus supplement less underwriting discounts and commissions. The underwriters may exercise this option for the purpose of covering over-allotments, if any, made in connection with the offering of the ADSs offered by this prospectus supplement. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional ADSs as the number listed next to the underwriter’s name in the preceding table bears to the total number of ADSs listed in the preceding table. If the underwriters’ option is exercised in full, the total price to the public would be US$                    , based on the public offering price of US$                per ADS, the total underwriters’ discounts and commissions would be US$                 and the total proceeds to us (before expenses) would be US$             .

 

 

The table below shows the underwriting discounts and commissions per ADS and total underwriting discounts and commissions that we will pay to the underwriters. The underwriting discounts and commissions are determined by negotiations among us and the underwriters and are a percentage of the offering price to the public. Among the factors considered in determining the discounts and commissions are the size of the offering, the nature of the security to be offered and the discounts and commissions charged in comparable transactions.

 

Underwriting Discounts and Commissions

No Exercise

Full Exercise

Per ADS

   

Total paid by us

   

 

 

The underwriters have informed us that they do not intend sales to discretionary accounts to exceed five percent of the total number of ADSs offered by them.

 

The total expenses of the offering payable by us, excluding underwriting discounts and commissions, will be approximately US$0.5 million. Expenses include the SEC and the Financial Industry Regulatory Authority, or FINRA, and printing, legal, accounting and miscellaneous expenses.

 

Our ADSs are listed on the NASDAQ Global Select Market under the symbol “OPRA.”

 

We have agreed that, without the prior written consent of the representatives, subject to certain exceptions, we and they will not, during the period ending 90 days after the date of this prospectus supplement: