Agora (NASDAQ:API) Surprises With Q2 Sales But Cash Burn Increases

Kayode Omotosho /
2022/08/16 3:53 am EDT
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Communications infrastructure platform Agora (NASDAQ:API) beat analyst expectations in Q2 FY2022 quarter, with revenue down 3.19% year on year to $40.9 million. Guidance for the full year was in line with analyst estimates with revenues guided to $177 million at the midpoint. Agora made a GAAP loss of $30.6 million, down on its loss of $15.3 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) Q2 FY2022 Highlights:

  • Revenue: $40.9 million vs analyst estimates of $40.1 million (1.95% beat)
  • EPS (GAAP): -$0.27
  • The company reconfirmed revenue guidance for the full year, at $177 million at the midpoint
  • Free cash flow was negative $24.2 million, compared to negative free cash flow of $17 million in previous quarter
  • Net Revenue Retention Rate: 95%, in line with previous quarter
  • Customers: 2,877, up from 2,706 in previous quarter
  • Gross Margin (GAAP): 64.9%, up from 61% same quarter last year

"We delivered strong operational results this quarter as our top line returned to a quarter-over-quarter growth trajectory," said Tony Zhao, founder, chairman and CEO of Agora.

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.

Sales Growth

As you can see below, Agora's revenue growth has been mediocre over the last year, decreasing from quarterly revenue of $42.3 million, to $40.9 million.

Agora Total Revenue

Ahead of the earnings results the analysts covering the company were estimating sales to grow 19.2% 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.

Customer Growth

You can see below that Agora reported 2,877 customers at the end of the quarter, an increase of 171 on last quarter. That is a fair bit better customer growth than last quarter and quite a bit above the typical customer growth we have seen lately, demonstrating that the business itself has good sales momentum. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is working very well.

Agora Customers

Key Takeaways from Agora's Q2 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 $548 million and more than $641.1 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We were very impressed by Agora’s very strong acceleration in customer growth this quarter. And we were also glad to see the improvement in gross margin. On the other hand, it was less good to see that the cash burn has increased year on year. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. But the market was likely expecting more and the company is down 2% on the results and currently trades at $4.65 per share.

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.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.