Communications infrastructure platform Agora (NASDAQ:API) reported results in line with analyst expectations in Q1 FY2023 quarter, with revenue down 5.55% year on year to $36.4 million. However, guidance for the next quarter was less impressive, coming in at $35.5 million at the midpoint, being 7.71% below analyst estimates. Agora made a GAAP loss of $16.8 million, improving on its loss of $26.9 million, in the same quarter last year.
Is now the time to buy Agora? Access our full analysis of the earnings results here, it's free.
Agora (API) Q1 FY2023 Highlights:
- Revenue: $36.4 million vs analyst estimates of $36.2 million (small beat)
- Adjusted EBITDA: ($6.4) million vs. analyst estimates of ($11.3) million (beat)
- EPS: -$0.16 vs analyst expectations of -$0.14 (10.5% miss)
- Revenue guidance for Q2 2023 is $35.5 million at the midpoint, below analyst estimates of $38.5 million
- Free cash flow was negative $9.11 million, down from positive free cash flow of $1.94 million in previous quarter
- Gross Margin (GAAP): 62.7%, in line with same quarter last year
“Over the past few months, we have worked diligently to streamline our organizational structure and improve our operational efficiency. Going forward, we will operate two independent divisions under separate brands and led by separate leadership teams. The U.S. and international business will operate under the Agora brand, and the China business will operate under the Shengwang brand,” said Tony Zhao, founder, chairman and CEO of Agora, Inc.
Founded in 2014 by former engineers at WebEx and based in China, Agora (NASDAQ:API) provides a cloud platform that makes it easy for developers to integrate real-time audio and video functionalities in their apps.
The first shift towards voice communication over the internet (VOIP), rather than traditional phone networks, happened when the enterprises started replacing business phones with the cheaper VOIP technology. Today, the rise of the consumer internet has increased the need for two way audio and video functionality in applications, driving demand for software tools and platforms that enable this utility.
But this quarter Agora's revenue was down 5.55% year on year, which might be a disappointment to some shareholders.
Agora is guiding for revenue to decline next quarter 13.4% year on year to $35.5 million, a further deceleration on the 3.2% year-over-year decrease in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 2.45% over the next twelve months.
In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.
Key Takeaways from Agora's Q1 Results
Since it has still been burning cash over the last twelve months it is worth keeping an eye on Agora’s balance sheet, but we note that with a market capitalization of $292 million and more than $66.1 million in cash, the company has the capacity to continue to prioritise growth over profitability.
Revenue beat slightly, and adjusted EBITDA posted a more convincing beat. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results were mixed. That the company changed its reporting approach makes analysis of the quarter a bit more difficult. We removed our standard modules outlining customers and net revenue retention because they are no longer apples-to-apples comparable with historical figures. The company is up 1.05% on the results and currently trades at $2.9 per share.
We mentioned the reorganization above, but it is worth reiterating since it's important. With regards to the updated reporting, management said "Over the past few months, we have worked diligently to streamline our organizational structure and improve our operational efficiency. Going forward, we will operate two independent divisions under separate brands and led by separate leadership teams. The U.S. and international business will operate under the Agora brand, and the China business will operate under the Shengwang brand...We believe that this strategic reorganization will allow us to optimally focus our resources on the priorities of each business – driving growth for the Agora business and competing more effectively for the Shengwang business – while taking into consideration the unique economic and product needs of customers in each market. This new organizational structure will also enable us to become more agile as new opportunities emerge.”
Should you invest in Agora right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.
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The author has no position in any of the stocks mentioned.