Last Friday’s 29% plunge in Opera Limited (OPRA) seized the attention of the company and its “cornerstone shareholder” Kunlun Tech Limited. With the swiftness of a crisis management team, the two combined to sing a sweeter tune for investors. In a follow-up SEC filing, Opera Limited clarified that last week’s announced shelf filing simply replaces an expired shelf filing from September, 2019. The company also reminded investors that the filing is not a specific plan to sell. Instead, the filling gives Opera the opportunity to sell.
For those investors who remain unsettled by the large filing, Kunlun Tech Limited assured investors that “it has no intention to sell Opera ADSs in open market transactions, and commits to not make any such sales over the coming 12-month period.” Even when Kunlun Tech sells, it plans to execute the transactions in such a way that will “be aimed at further supporting and enhancing Opera’s shareholders base and will be aligned with long-term shareholder interest.”
The Trade
Intraday trading in OPRA indicated some confusion and persistent nervousness among investors. OPRA opened flat with Friday’s close and proceeded to rally almost a dollar after the first 15 minutes. Jittery traders jumped at the chance to sell and caused a fresh deluge of exit orders. Subsequently, OPRA lost 14.0% in about 30 minutes.
The selling took OPRA right to support at its 50-day moving average (DMA). From there, the technicals proved irresistible to some traders. Buyers spent most of the rest of the day accumulating shares. The dust settled on the day’s drama with OPRA netting a 5.2% gain.
This Opera drama sets up an interesting setup for risk tolerant traders. The rebound created a hammer candlestick – which is a bullish sign suggesting the exhaustion of sellers – right at a critical line of technical support. The trade is a buy above today’s intraday high and a stop loss below the 50DMA. If the market dances to the melodies of Opera and Kunlun, OPRA could in time recover most of Friday’s 29% loss.
Note well, this bullish trading narrative carries a major caveat from history.
The Opera Drama of 2019
When Opera issued the shelf filing back in September, 2019 (dated on the 10th) the stock was just coming off its first failed test of resistance from the post-IPO highs. Traders proceeded to take the stock lower and lower from there. The year ended with the stock clinging to its post-filing lows. The stock did not bottom until massive liquidity from pandemic rescue efforts staved the selling. OPRA bottomed out at $4.68/share on April 10, 2020.
Of course, today’s business and market conditions are much different. However, the post-filling selling from almost three years ago provides a reminder that the mere potential for massive selling can burden a stock with significant overhang. The September, 2019 filing targeted potential proceeds of $200M. I did not take the next research step to determine how much, if any, of this now expired shelf filing Opera executed. (I would love for an intrepid reader to provide us with some research!)
Epilogue: Sweet Music from Google Bard and ChatGPT
As someone always interested in testing the ability of generative AI to inform me in a variety of endeavors (for example, see “How ChatGPT Planned My Family Vacation“), I looked for help finding recent examples from history that could reassure traders and investors that Opera and Kunlun Tech may be able to navigate this shelf filing without creating any further drama. Since ChatGPT only has history to September, 2021, I turned to Google Bard. Starting with my prompt, here is what Bard had to say on the matter (I added the stock ticker symbols):
Prompt: Do you know of any recent examples from history involving other companies and investors which will reassure me that there is precedence for Opera and Kunlun to avoid selling shares in a shelf filing that will cause a significant price decline?
Bard’s Response:
Sure, here are a few recent examples from history involving other companies and investors which will reassure you that there is precedence for Opera and Kunlun to avoid selling shares in a shelf filing that will cause a significant price decline:
- In 2021, Alibaba (BABA) filed a shelf registration statement with the SEC. This allowed Alibaba to sell up to $15 billion worth of shares over the next three years. However, Alibaba did not sell any shares in the open market during this time. Instead, it conducted a series of private placements to institutional investors. This helped to minimize the impact on the stock price.
- In 2022, Tencent (TCEHY: OTC) filed a shelf registration statement with the SEC. This allowed Tencent to sell up to $10 billion worth of shares over the next three years. Tencent has not yet sold any shares in the open market. However, it has stated that it intends to use the shelf registration statement to sell shares to institutional investors in a way that minimizes the impact on the stock price.
- In 2023, Meta Platforms (META) filed a shelf registration statement with the SEC. This allowed Meta Platforms to sell up to $12 billion worth of shares over the next three years. Meta Platforms has not yet sold any shares in the open market. However, it has stated that it intends to use the shelf registration statement to sell shares to institutional investors in a way that minimizes the impact on the stock price.
These are just a few examples of companies that have filed shelf registration statements without causing significant price declines in their stock. This suggests that there is precedent for Opera and Kunlun to avoid selling shares in a way that would harm the company’s long-term value.
Of course, there is no guarantee that Opera or Kunlun will not sell shares in a way that causes the stock price to decline. However, the examples above suggest that this is unlikely to happen.
For comparison and reference, I asked ChatGPT the same question. ChatGPT gave me just two examples; both involved BABA (Yahoo in 2012 and Softbank in 2016). When I asked for more examples, ChatGPT provided Google (2012), Facebook (2013), and Microsoft (MSFT) and Bill Gates (2014). Note how ALL the examples feature large companies. The pattern almost took me down the rabbit hole of exploring different kinds of examples!
I caution readers that my experience with Bard has been mixed. Google’s disclaimer that “Bard may display inaccurate or offensive information that doesn’t represent Google’s views” has proven VERY salient relative to accuracy. I find generative AI to be most useful for processing information from the prompt and less useful as a reference or encyclopedia. Thus, I take the responses from Bard and ChatGPT potential reference points subject to confirmation.
Still, I find it interesting to see major shelf filings that apparently avoided tanking the underlying stock because of ample demand through various market channels. The mystery for traders is how to assess the prospects for OPRA’s business remaining strong enough to keep a floor under the stock whenever major sellers pull up to the table.
Be careful out there!
Full disclosure: no position
Update: I jumped into an $OPRA position following the rule I outlined above.