OSLO Norway's Opera Software now expects to pay $35 million less than anticipated for Skyfire, a video and data compression technology firm bought in February 2013, as sales underperformed the unit's own expectations, the company said on Tuesday.
Opera's shares traded 4.1 percent lower at 1050 GMT.
"As we got through the end of 2013, we realized that the earn-out targets set by the Skyfire management team were not realistic, and as a result, in the fourth quarter of 2013, we reduced the estimated earn-out payments to Skyfire by $35 million. We continue to feel good about the Skyfire technology, its business and its prospects going forward," Opera Chief Financial Officer Erik Harrell said.
The original deal set a price tag of up to $155 million for Skyfire, with an upfront pay of $50 million and the rest to be paid over three years.
Skyfire helps telecoms operators and broadband providers compress data through cloud computing technologies and thereby save money by allowing them to invest less in physical infrastructure.
"Many in the market had expected the operator business to grow faster than it actually has," Arctic Securities analyst Markus Bjerke said. "Opera must also have thought so since they're now changing the previously announced payment."
He said the share price fall was linked to the Skyfire announcement.
"The share has performed strongly on Skyfire expectations so it's not entirely surprising that it's falling on a disappointment there," Bjerke added.
Chief Executive Lars Boilesen said he was pleased with signing two Skyfire deals during 2013 and that prospects for the unit were good.
"If there is a disconnect between analysts' expectations and what we actually deliver, then that's something we have to work on," he told Reuters.
"There are many (potential customers) that are testing the product. It's a complex and time consuming process that we believe will lead to several deals in 2014," he said. "The video compression is now becoming part of all our products, and that's the main reason why we bought them."
Opera maintained it is on track to meet its long-held 2015 sales target of $500 million and core earnings of $150 million. Analysts in a Reuters poll on average expected next year's revenues to hit $487 million.
The analysts expected 2015 earnings before interest, tax, depreciation and amortization (EBITDA) of $159 million.
Opera's forecasts for 2014 were also broadly in line with analyst expectations.
Fourth-quarter 2013 revenues totaled $89.6 million, beating the predictions from all eight analysts in the Reuters poll, which had an average expectation of $86.1 million.
Adjusted EBITDA for the period was exactly in line with forecasts, at $24 million, while operating profit (EBIT) was marginally lower.
(Reporting by Joachim Dagenborg, editing by Terje Solsvik)