The Next-Generation PaaS Giant Is The Agora Platform [$API]

Agora.IO [$API]

Briefly

  • The underwriters: Morgan Stanley, BofA Securities
  • Revenue $64M (Y/2019), Q1 2020 $36M
  • >40B Monthly Video and Voice Minutes in March 2020
  • >68% Gross Margin
  • Net Income (Loss) $(6.2)M/$3.0M in 2019 / Q1 2020
  • Agora had 1,176 active customers in March 2020
  • The platform powered more than 40 billion minutes of real-time engagement for end-users in more than 100 countries through more than 10,000 active apps
  • The company had US$151.7M in cash and cash equivalents as of March 31, 2020
  • ~180,000 applications registered on the platform

Mission statement

To make real-time engagement ubiquitous, allowing everyone to interact with anyone, anytime and anywhere.

Short Description

Agora.IO — is a high-growth provider that specializes in cloud services (Video, Voice, Recoding, and other things) through SDK and APIs. The company based in Santa Clara (California) was founded by serial entrepreneurs Tony Wang (Co-Founder), Tony Zhao (CEO/Co-Founder) in 2012. Since its founding, the company has been able to raise $170.4M from several funds (Shunwei Capital, Sig China, Coatue Management, Morningside, GGVC, IDGC and other investors) in the process of rounds.

I was lucky to invest in several CPaaS companies at different stages, from secondaries and early-stage period (Twilio $TWLO, Bandwidth $BAND) and even work on one of them VoxImplant, therefore, each company has a fundamental difference that I can identify thanks to 7 years of industry expertise. Of course, for many beginning investors, the difference between these companies will not be noticeable.

BTW, recently I asked Byron about the triggers that he used to understand the upside of Twilio, because if you look ten years ago it was not obvious. It’s hard to understand the potential of company if the market for this solution does not exist yet. He did something magical and made the history of CPaaS. This is one of many reasons why other startups should find a point of cooperation with the BVP.

Story available — here

About Agora

People increasingly use real-time video or voice to interact and engage with others online. Traditionally, such engagement happens as standalone experiences in dedicated communication applications. However, in more and more cases users are looking for contextual real-time video or voice engagement embedded in the application they are already using, rather than having to use another application for that functionality.

For example, students in an education application want to see their classmates and work on a group assignment together; players in a poker application want to see each other’s faces to pick up on visual tells; users in a dating application want to see their potential partners as they get to know one another; and buyers in a shopping application want to talk to sellers. The potential opportunities for such contextual real-time video or voice engagement are only limited by one’s imagination.

However, for many application developers, real-time video and voice engagement functionalities are too difficult and expensive to build. Real-time video or voice engagement requires reliable multi-way transmission of large amounts of data between users at millisecond latency. The public internet, however, is an open and best effort network with no assurance of service quality.

Network conditions vary across time of day, geographies and network operators, often causing significant data packet loss and high latency. Furthermore, hardware and software proliferation and fragmentation has exacerbated the challenge developers face in providing broadly compatible solutions.

Agora pioneered Real-Time Engagement Platform-as-a-Service, or RTE-PaaS, and the company is the global leader by market share in this rapidly growing industry. The platform provides developers simple-to-use, highly customizable and widely compatible application programming interfaces, or APIs, to embed real-time video and voice functionalities into their applications without the need to develop the technology or build the underlying infrastructure themselves.

The real-time data transmission is handled by our Software-Defined Real-Time Network, or SD-RTN, which is a virtual network overlay on top of the public internet running on more than 200 co-located data centers worldwide. Using sophisticated algorithms, the SD-RTN continually monitors and optimizes data transmission paths through the network to minimize latency and packet loss, enabling high-quality real-time engagement across millions of concurrent users.

Agora’s partners or major customers include:

  • Bunch
  • EastMeetEast
  • Hallo
  • Meet Me
  • Talkspace

Market Opportunity

The market opportunity is large and growing. The real-time engagement powered by our platform today represents a fraction of the global opportunity for real-time engagement. By comparison, the average adult in the United States and in China currently spends approximately 400 minutes and 230 minutes a day online, respectively, according to eMarketer. As video becomes an increasingly important part of the online experience, either as a medium for content consumption or a method of engagement, the opportunity for us is significant. If the entire global population were to spend just 10 minutes a day on in-application video or voice to engage with others online, this would represent approximately 2.4 trillion minutes of real-time engagement per month, which is more than 50 times the real-time engagement we powered in March 2020.

CPaaS market opportunity

According to International Data Corporation, or IDC, the worldwide CPaaS market is forecasted to grow from US$3.3 billion in 2018 to US$17.2 billion in 2023, at a compound annual growth rate, or CAGR, of 39.3%.

Within the CPaaS market, video is forecasted to grow from US$0.6 billion in 2018 to US$3.5 billion in 2023, at a CAGR of 43.6%. Voice is forecasted to grow from US$1.5 billion in 2018 to US$8.0 billion in 2023, at a CAGR of 40.8% and data (messaging) is forecasted to grow from US$1.0 billion in 2018 to US$4.5 billion in 2023, at a CAGR of 35.4%. RTE products address the fastest-growing, video portion of the CPaaS market, and voice and messaging stand to benefit from the adoption of RTE solutions as well.

Competitors

  • Tencent $TCEHY
  • Twilio $TWLO
  • Bandwidth $BAND
  • TokBox
  • Nexmo
  • VoxImplant
  • Sinch
  • Plivo
  • Open source projects (WebRTC based tools)
  • Network operators
  • + Small startups

Financial Records

Based on an in-depth analysis of the company’s financial performance for the past year and earlier periods, it looks very very well for the PaaS player.

Financial report by Agora
  • Increased gross profit but reduced gross margin
  • A swing to an operating loss
  • Strong growth in topline revenue
  • Slightly increased cash flow from operations
Agora customers numbers

The structure

Conclusion

Based on a fundamental market analysis for companies that are at different stages of growth — Agora will definitely attract the attention of investors, book subscription in my expectation will reach 5–8.5 times. Lower subscription rates compared to companies such as Datadog ($DDOG), Twilio ($TWLO) will be associated with the speculative attitude of many investors to Chinese companies. The company’s financials show a firm that is growing revenue quickly, generating moderate operating losses while producing a small amount of operating cash flow. Sales & Marketing expenses as a percentage of its total revenues have increased somewhat; its Sales & Marketing efficiency rate was 1.1x in the most recent period.

Notably, the firm’s dollar-based net expansion rate was an impressive 131% in constant currency in the most recent period. Any figure above 100% is considered good as it indicates existing customers are increasing their usage and the amount paid to the firm for its services.

Considering all aspects, as well as those that cannot be disclosed in this topic. I see the great potential of the company and I’m going to buy shares to build a long-term strategy for the portfolio of PaaS companies.

About the Author

Mr. Koch — a serial entrepreneur and late-stage investor specializing in secondary shares.

Previously: Twilio, Xiaomi, iQiyi, Tilray, Livongo, Bandwidth.

Currently: Robinhood, Grab, Toss, Coursera, Epic Games, Chime, and other companies.

The content was collected from various open sources and does not make any one-stop recommendation for the purchase of shares. All data was used for only informational purposes and does not contain insider information that may be malicious or refuted by the company and SEC.

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Serial entrepreneur, accredited investor, and hedge fund manager. Ex-General Partner of Koch Fundation

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Victor Koch

Victor Koch

Serial entrepreneur, accredited investor, and hedge fund manager. Ex-General Partner of Koch Fundation

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