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Agora $API: So Who are the Big New Audio Live Cast Customers?
An article by • Published Jun 15, 2021

There are admittedly a number of moving parts and overhangs in the Agora ($API) story, including, among others:

Exposure to China EdTech with looming regulations - the education vertical was 35% of Q1 revenue; management noted they took the Education vertical growth assumptions down modestly in response to China's tighter regulations; it is unclear how much of the 35% is China K-12 revenue however.
Pressure on Gross Margins - network build out generally in advance of volumes and entering higher cost infrastructure areas is the stated reason for recent gross margin weakness; management suggested gross margins would stabilize but concerns will linger until they do.
Headline growth (discussed below)
Valuation concerns for all growth stories


But the big news from the 1Q21 earnings call was subtle mentions of several large new audio live cast customers outside of China, seemingly in the US

Reading between the lines would suggest future growth for Agora has improved in recent months despite the stock's 60% drawdown - minutes and usage take time to build but they have exposure to additional live audio customers, some of them potentially whales
Significant usage growth from audio live cast
Several large customers in the audio live cast vertical
Inquires from leading internet companies on the audio live cast use case

Management comments from the 1Q call (click to read inside the transcript)
We also saw significant usage growth from use cases, such as interactive lecture hall and audio live cast during the quarter.
So for the U.S. and rest of the world markets, actually, we see a more diverse set of use cases. We have seen very strong growth in many use cases that don't have a strong presence or strong usage volume in China, things like watch party. We have a customer called (inaudible) We have which is very of China. Customers like is a customer and a partner. And we have in case. We have several of our customers in this space. All these use cases are very -- and of course, also the recent audio live cast use case. We have several large customers in that vertical already.
And we also got a lot of inquiries from several leading Internet companies on the audio live cast use case.
So who are the "leading internet companies" that have discussed audio live cast in recent months?
Among others:
Clubhouse (known Agora customer)
Facebook ($FB)
Linkedin ($MSFT)
Reddit
Discord (has its own webRTC solution)
Telegram
Spotify ($SPOT)
iHeart ($IHRT)

Any one of these would be a huge win for $API; multiple wins would be eye opening given the existing user bases the company's usage model would be exposed to.
Let's dig further. Spotify bought Locker Room - a Clubhouse lookalike focused on sports - for a reported $50 million. It's clear based on the size of team and backgrounds at Locker Room that they had no back end team and were using a 3rd party for audio. Locker Room feels a lot like Clubhouse and a user has mentioned that the audio sounds very similar. There is a high probability Locker Room uses Agora which would have given them a toehold in Spotify's live casting efforts.
In its press release on the Locker Room deal, $SPOT said:
“Creators and fans have been asking for live formats on Spotify, and we’re excited that soon, we’ll make them available to hundreds of millions of listeners and millions of creators on our platform,”
In the coming months, Spotify will evolve and expand Locker Room into an enhanced live audio experience for a wider range of creators and fans. Through this new live experience, Spotify will offer a range of sports, music, and cultural programming, as well as a host of interactive features that enable creators to connect with audiences in real time. We’ll give professional athletes, writers, musicians, songwriters, podcasters, and other global voices opportunities to host real-time discussions, debates, ask me anything (AMA) sessions, and more. 
The $SPOT CEO also thinks live audio is the next Stories, and that every major platform will have live audio capabilities.
So, I do look at [live audio] as a compelling feature set, and I think creators will engage in the places where they have the best sort of creator-to-fan affinity for the type of interactions that they’re looking for. And I think this is very similar to say how Stories played out historically

Occam's Razor

So why does Clubhouse use Agora or why are "leading internet companies" signing up as customers for their audio live cast product? Why do many US dating sites use Agora for live video dating or this Kleiner Perkins startup use Agora to build the Ritz of virtual events sites (with the largest asset manager in the world as an early customer, likely Blackrock)? Why would a US-based live video notary company (atcash.com) use a Chinese company for the back end?
Non-China revenue is pushing 30% of sales. Two things seem self-evident and are the most logical conclusions of all of this. Firstly, customer most likely use Agora because the network and SDKs are better than other available options. Secondly, the more data points available of legitimate, non-China revenue streams and customers, the easier it is to reduce (not diminish) the common 'it's China thus a fraud' concerns. Leading internet companies aren't kicking the tires and signing up as customers on a whim.
Think of Agora as a high-speed private network built on top of the public internet, where only video and audio travel (for now). $API management noted that usage on their network was over 50 billion minutes of voice and video per month in 1Q21, up from 40 billion minutes per month in 1Q20 and +150% from December 2019. There are nearly 8 billion people in the world. Theoretically to get to those volumes, every person in the world would need to spend over 6 minutes on Agora's network each month. We know it's not the case that all 8 billion use, but at those numbers it is surely the case that billions of people use Agora's software each month via its SDRTN (software defined real-time network) rather than use the public internet. There is close to 0% chance Agora is hitting 50 billion minutes per month on its network with a collection of tiny startup apps like Clubhouse. No doubt they have some very large and leading internet customers today.


Interesting Financial & Other Stuff

Management kept the $178 to $182 million FY21 guide despite beating 1Q
Headline 1Q growth of 13% is masked by the 166% growth in 1Q20 revenue as COVID hit China and education use cases skyrocket. That revenue largely went away.
The FY21 guide implies 2H21 will be growing > 50% y/y
If you believe in Agora's adjusted 1Q20 revenue, which backs out the impact of COVID, 1Q21 grew at 80%
Sequential q/q revenue growth was 21%, the highest in three years outside of Q120; a rare circumstance where q/q growth was higher than y/y
21x this year at $185 million revenue and 14x next year at $275 million
Registered devs are 306K, +81% y/y
Customers are 2,324, +131% y/y
GAAP R&D had one-time acquisition-related charges, but they expect to continue to invest at 40% of sales for the line item
Agora has significant liquidity, at over $800 million
Management discussed using M&A to round out the product and vision
Approximately 11K apps per month are signing up on Agora; at peak COVID that was 20-30K
Management noted non-China revenue was 27-28% in 1Q21 vs 'under 30%' in 4Q20. The math suggests only about a $2 million bump in the dollar amount q/q if one were to try to triangulate to Clubhouse's impact, fairly consistent with the under $8 million revenue impact for '21 calculated here

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