Agora has been launched into the spotlight due to its use by the popular drop-in audio app, Clubhouse.
Clubhouse, a new, invitation-only, drop-in audio social network, is now valued at ten times what it was worth in December 2020, highlighting the newly created demand for reliable, real-time, vivid voice communication, which is what Agora Inc (NASDAQ: API) specializes in. Agora, which went public in June 2020, powers Clubhouse, offering APIs (application programming interfaces) to provide real-time voice and video communication with just a few lines of code.
The bull case for Agora
Agora's growth potential is huge as the demand for real-time voice and video communication continues to grow. The global web real-time communication market size has been forecasted to grow at a Compound Annual Growth Rate (CAGR) of 41.7% from 2020 to 2027, reaching a value of almost $46 billion by 2027, with Asia expected to see a CAGR of 43.4%, leaving huge room for expansion for Agora. Clubhouse isn't Agora's only claim to fame. The platform also powers Bilibi, a $53 billion Chinese video-sharing app, and other clients such as Loom, WordPress, and Unity. The company has been rapidly growing in recent years, with total revenue for Q3 2020 coming in at $30.8 million, an 80.8% increase on Q3 2019. Agora has been concentrating on growth in Asia and South America, where the demand for real-time communications has been growing but supply hasn't yet materialized, as we've seen in the U.S. and Europe.
Agora runs a freemium plan with 10,000 free minutes of communication, giving every prospective client a chance to test the product on a smaller scale before converting them to a paying client as well as allows smaller businesses to build their communications platform with Agora. These businesses can subsequently become paying clients if their business happens to scale. When we combine this with Agora's premium, ultra-reliable, and easy to develop product, it makes for easier customer acquisition. Agora's active customers grew by an impressive 95.4% to 1,815 from September 2019 to September 2020.
The bear case for Agora
Agora has invested heavily in its infrastructure and is a loss-making company as a result. Net loss for Q3 2020 was $2.9 million, compared to $1.1 million in Q3 2019. Free cash flow in Q3 2020 was negative $5.1 million, down from negative $1.3 million in Q3 2019. There has been no report from Agora stating when it expects to breakeven.
Agora has dual headquarters, Santa Clara and Shangai, so the company is subject to Chinese law that requires companies to hand over information on request and gather data on behalf of Beijing if deemed in the interests of national security. Agora is at the heart of the growing hostility towards China's tech providers, which we have seen recently with TikTok and Huawei. Considering the company's role in video and voice communications, it's unknown as to what might arise in the future of the company in regards to this.
Agora has a heavy reliance on its top ten clients, with 38% of its 2019 revenue coming from just these alone. There may be a lesson here when we look at how Fastly's stock plunged when TikTok's owner, ByteDance, pulled most of its traffic from Fastly's network. This is hopefully something Agora will change as it gains more traction within the market.
So, should I buy Agora Inc stock?
Agora is a great company, and despite the bear case above, I'm confident it will continue to grow for years to come. Whether now is a good time to buy or not is a different question -- its stock price has almost tripled in the last month.
Quickfire round
Is Agora free?
Agora provides new customers with 10,000 free minutes each month, meaning businesses don't pay until they start to scale.
Who are Agora's competitors?
Agora's top competitors include Vidyo, Voxeet, and Cisco Webex.
Do I need to be a developer to use Agora?
Businesses starting to use Agora will need just one developer to set up the APIs, meaning that it is much less labor-intensive than setting up a similar platform from scratch.
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