Opera Sings Blues, Posting 3Q Losses Triple Last Year's

Despite increased revenue, Opera Software, maker of the No. 3 Web browser, has posted a third-quarter loss triple that of the same period a year ago, something the Oslo-based company said was partly due to a significant increase in operating expenses as well as the weak dollar.

Shares of the company's stock fell 6.5 percent in the wake of the news.

In its posting yesterday, Opera reported a seven-fold increase in revenues from its popular Web browser in its third quarter. Browser sales reached US$1.7 million for the quarter.

The Norwegian company credited wireless operators' adoption of the mobile version of its browser with helping to boost browser revenue.

Opera reported a net profit of $9.62 million in the first nine months of this year compared to a net loss of $592,000 during the same period last year.

However, the third quarter saw bleeding. Third-quarter losses came in at $267,000. Operating expenses swelled by nearly 42 percent in the third quarter.

Where Has All the Money Gone?

Opera has leveraged its increased sales volume to expand the company. Company officials said operating expenses, like adding new employees and spending more on marketing efforts, are partly to blame for the quarterly loss.

Opera reported 182 employees in the third quarter, up from 158 at the end of the second quarter. Company officials said operating expenditures are expected to slow in the fourth quarter, but projected another loss would be likely. Opera plans to hire another 18 employees by the end of the year.

The company is ramping up for several new projects, including a new venture with IBM's (NYSE: IBM) Embedded ViaVoice technology that would let users execute commands by talking to their computers.

"There is enormous market potential in several different projects," chief financial officer Christian Jebsen said in a presentation for analysts and reporters. "We are suffering from the dollar. Most of the cost increase came from employing more people."

Indeed, Opera is blaming a weak greenback for some of its cost woes. About half the company's revenues are in U.S. dollars and half in euros. Costs, on the other hand, are counted in the Norwegian crown.

Marketing Key to Turnaround

Jupiter Research analyst Joe Wilcox told the E-Commerce Times that Opera is making a smart move by spending more money on marketing efforts.

He said there is still some fear and uncertainty about the security level of Microsoft's (Nasdaq: MSFT) Internet Explorer, and that spells opportunity for alternative browsers.

"Mozilla has done a pretty good job taking advantage of security fears with its promotion of Firefox, and that's an area where Opera could do better," Wilcox said.

"If people are concerned about IE and looking to switch, you want to be right in their face. You want them to be looking at your products first."

Mention of Mozilla raises another question: Could all the hype about Firefox hurt Opera's chances in the next quarter and beyond? Wilcox said that is a possibility and one averted, in part, by marketing.

"Opera is not free. Firefox is free. But people will pay for Opera if they see value," Wilcox said. "Opera has to demonstrate that Opera is worth paying for and then also to communicate that value potential to buyers. And that's all about marketing."