Agora (API)

Investment Analysis Clubs Saul’s Investing Discussions
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Agora is a China-based PaaS company in the real-time audio / video field. It has an office in Silicon Valley as well. It provides simple-to-use APIs to software developers (similar to Twilio) to integrate audio / video functionality into applications. It charges customer based on usages. The list of pricing plans can be found here - https://www.agora.io/en/pricing/.

Agora recently acquired Easemob, a company providing messaging APIs. Press release: https://investor.agora.io/news-releases/news-release-details…

Agora went to IPO last year but the share price did not move much until recently. There’s an interesting article on SA which attributes Agora’s recent rally to the huge success of a new audio-only social APP - Clubhouse. Article link here: https://seekingalpha.com/article/4403413-agora-clubhouse-is-…

Here’re what I’m really impressive about Agora:

  • Dollar-based Net Expansion Rate was 187.9% in Q3!!! This is the best I’ve ever seen. Their quarterly revenue run rate is only 30-40M though.
  • The boom of Clubhouse is really a tailwind to Agora. Clubhouse’s user base just grew to 6M now while it was only a few hundreds of thousands in December last year. Clubhouse will soon grow to be one of the largest customers of Agora. With the current level of revenue run rate of Agora, I’d expect a huge acceleration of revenue growth ahead of Agora, just contributed by Clubhouse.
  • It was very impressive that the Clubhouse APP was reportedly created on Agora within only a week!!! What a good advertisement to Agora’s API.
  • Agora’s total active customers are rapidly growing. The number of active customers was 1,486 at end of June 2020, while it was 1,815 at end of Sep 2020, an 22% sequential increase!!!
  • Last but not least, here’s my personal thought. Today, a lot of mobile users’ time spent are shifting to video / audio APPs. Agora is in the good position to ride the tailwind of the video / audio industry.

Financial highlights of 2020Q3 earning:
Revenue was $30.8 million, an increase of 80.8% from $17.1 million in Q3 2019.
Active Customers was 1,815, an increase of 95.4% from 929 as of September 30, 2019.
Constant Currency Dollar-Based Net Expansion Rate was 187.9% for the trailing 12-month period ended September 30, 2020.
Non-GAAP net loss was $0.4 million, compared to the non-GAAP net loss of $0.3 million in the third quarter of 2019.
FCF was negative $5.1 million, compared to negative $1.3 million in Q3 2019.
Gross profit was $19.3 million, an increase of 63.1% from $11.8 million in Q3 2019.
Gross margin was 62.5% in the third quarter of 2020, a decrease of 6.7% from 69.2% in Q3 2019, primarily due to international expansion to regions with higher infrastructure costs.

I think Agora is a great company with rapid growth in a promising industry. The only concern I have is that Agora is a China-based company. I don’t have a position but am considering to take one.

Would love to hear about everyone’s thoughts.

Luffy

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One of the few (currently) bad decisions I’ve made this past year or two was to sell my small position in API mid-Jan after holding it for a small sideways gain for months. It was a relatively small position at 1-2% of my portfolio. In less than a month later, it has gone up 100+%. I liked the company, but I just didn’t trust China (or Chinese companies) anymore. I similarly sold a small position in TSM - don’t trust China with Taiwan. Not sure these were good moves, but I don’t worry about it anymore. Plus, I had good companies to invest in that I was more comfortable with.

People on this board tend to concentrate more. Would anyone here want to put 10%+ of their portfolio in a small promising Chinese company? I think I’d rather avoid the risk. Too many good companies out there as alternatives.

Mike

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I have a small position in API which has done quite nicely. I like the company and they may end up doing great things, but having been burned by corruption in China and dismayed at the apparent lack of consequences for perpetrating accounting fraud in a publicly traded company there, I am also unwilling to open anything more than a small <1% position in any company there or to let my total exposure to any company there grow to where a complete loss would be anything more than an annoyance. I do have shares in a few other companies there, but these are also small positions that have grown…mostly. I will let the winners run, but I won’t add to any of them (unlike companies discussed here including NET, DDOG, CRWD and TTD among others).

Regards,

Dorset

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I have a small position I bought in the summer after reading Richard Chu’s substack article here:
https://richardchu97.substack.com/p/agora-democratizing-real…
I also don’t really trust Chinese companies yet but Agora looked interesting.
It seems the spark that lit the fire was Elon interviewing Robinhood’s CEO on clubhouse combined with the news that Clubhouse was build in a week using $API, quite impressive.
As you mentioned, the net retention rate is crazy, as is the sequential customer growth.

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“the net retention rate is crazy, as is the sequential customer growth”…

But that requires a leap of faith in the accounting practices Chinese firms have demonstrated to “misuse” on occasion. Unfortunately most Chinese companies’ track records are just not very good. Good luck with your positions. As for me, no thanks.

breezyday

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