Remote Work And Digital Adoption Will Unlock New Markets

Key Takeaways

• Generative AI and developer-first strategies position Agora to rapidly expand in new markets, driving recurring revenue streams and industry-leading adoption.
  
• Margin expansion is likely to exceed expectations due to reduced expenses and growth in high-value AI services, strengthening long-term earnings.
  
• Market commoditization, regulatory hurdles, and geopolitical risks threaten Agora's margins, revenue stability, and global growth, while ongoing high costs challenge its path to profitability.

Catalysts

Through its subsidiaries, engages in the operation of a real-time engagement platform-as-a-service in the United States, the People’s Republic of China, and internationally.

• Analyst consensus sees the generative AI revolution as a revenue growth driver, but the scale and velocity of adoption for Agora's Conversational AI products may be massively underestimated, since their proven industry-leading performance and developer traction position the company to create entire new markets in education, IoT, and digital commerce, with the potential to rapidly multiply core revenues.
  
• While consensus expects operational efficiency to support net margins, Agora's continued margin expansion could be far greater due to substantial reductions in expenses, sustained gross margins near 70 percent, and the impact of higher-margin AI value-add services elevating long-term earnings growth.
  
• The accelerating global shift to remote collaboration and digital interaction, especially among enterprises embedding voice, video, and AI-powered communications, is catalyzing a structurally higher baseline for user demand, implying persistent, compounding revenue streams from a growing customer base.
  
• Agora's developer-first strategy and explosive adoption of its open-source platform (TEN), now supported by major cloud providers like AWS and Oracle, foretell a winner-take-most scenario in real-time Conversational AI agents, which will drive rapid customer acquisition, higher retention, and expanding wallet share.
  
• Penetration of live video, interactive shopping, and entertainment use cases in new international and emerging markets-where competition is now stabilizing and pricing has firmed-could unlock double-digit revenue growth, bolstered by Agora's strong balance sheet and over $380 million in cash enabling strategic investments to accelerate such expansion.

Agora Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Agora compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Agora's revenue will grow by 9.8% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -24.6% today to 23.8% in 3 years time.
• The bullish analysts expect earnings to reach $42.1 million (and earnings per share of $0.45) by about August 2028, up from $-32.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 21.4x on those 2028 earnings, up from -10.4x today. This future PE is lower than the current PE for the US Software industry at 36.0x.
• Analysts expect the number of shares outstanding to grow by 1.67% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.96%, as per the Simply Wall St company report.

Agora Future Earnings Per Share Growth

Risks

• Intensifying industry consolidation and competition from large tech incumbents and cloud providers could erode Agora's addressable market, as major companies internalize communications and AI technology, leading to slower long-term revenue growth.
  
• The proliferation of open-source alternatives and low-cost competitors may commoditize real-time engagement APIs, risking persistent pricing pressure and ARPU compression, which would negatively impact both revenues and gross margins.
  
• Evolving data privacy regulations in key markets, such as GDPR and CCPA, will likely increase compliance costs and limit Agora's addressable market internationally, raising operational expenses and potentially squeezing net margins.
  
• Rising geopolitical tensions and technology nationalism, especially between China and the West, could restrict Agora's ability to capture global SaaS opportunities and cause revenue concentration risks, heightening revenue volatility and slowing international expansion.
  
• Ongoing high R&D and infrastructure costs needed to remain competitive in AI-driven communications, combined with gradual adoption curves and uncertain timing for mass-market fit across use cases, threaten to prolong negative operating leverage and delay sustained profitability or earnings growth.

Valuation

• The assumed bullish price target for Agora is $7.1, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Agora's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $7.1, and the most bearish reporting a price target of just $5.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $176.9 million, earnings will come to $42.1 million, and it would be trading on a PE ratio of 21.4x, assuming you use a discount rate of 9.0%.
• Given the current share price of $3.67, the bullish analyst price target of $7.1 is 48.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.