When Clubhouse has been trending up in the Internet world, its real-time-communication tech supporter Agora has undergone a sudden overvaluation.
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Acquiring Easemob facilitates Agora with 'Twilio' power: the acquired firm is a Chinese echo to Twilio but not listed.
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Cloud leaders are constructing Software-as-a-Service (SaaS) ecosystems, which can create more synergies with the overall market.
Events that might cause short-term fluctuations: Audio meetup app Clubhouse's upswing, Kuaishou's IPO and private placement (announced on Feb 1).
Real-time communication (RTC) supporter Agora (API) reached an all-time high on the first day of February, the day Elon Musk made an appearance on Clubhouse to speak live. Investors' passion for the latter audio streaming app moved onto RTC concept stocks and the sudden heat introduced by Clubhouse pushed Agora's stock price up by around 50% in one day. The rise of the stock was abrupt – but the rise of the company is not.
Meanwhile, overshadowed by the Clubhouse influence, Agora announced its acquisition plan of Easemob on January 27. The acquisition is expected to close within the first quarter of 2021. Easemob is an IM cloud and customer service cloud service provider in China. The acquisition target will remain independent as an organization but the deal will surely extend Agora's communication API business map. A fusion of 'IM+RTC' RTC aims to enhance the interaction experience and rich mutual product matrix.
Agora defined itself as a BaaS (Backend-as-a-Service) to provide RTC SDK to developers. Sitting in the middle of PaaS and SaaS, Agora provides developers with voice and video tools to help them deliver satisfying products or services without starting from scratch. The founder of Agora, Zhao Bin, was the former CTO at JOYY (YY) who created one of the largest live streaming platforms Huya (HUYA). With Zhao Bin's decades of experience in the RTC field, Agora is being positioned as a 'developer for developers' company.
The company was listed last summer at an IPO price of USD 20 per ADS and the price surged to USD 50.50 on day one. And the stock performance tumbled around USD 40 throughout the rest of 2020. The overall stock performance of Agora is kangaroo-ish, but the recent climbing started from mid-January is cheering for its shareholders. The low of the month was USD 37.14 on January 15 and the high was USD 56.49 on the same month's last trading day. On February 1, the price created a historical high of USD 79.12.
The investment mania, especially after Elon Musk's Clubhouse announcement, started from the beginning of the new year. The spiked stock price revealed the market's confidence in the RTC-boosted communication scenes as well as the virtual work norm, which has been expedited by the spread of coronavirus.
Disclosed in the 3Q2020 financial report, the constant dollar-based net expansion rate was 187.9% (ttm ends at 9/30/2020). Compared with the constant dollar-based net expansion of 127% (ttm ends at 12/31/2019), the retention rate is more or less influenced by the pandemic – remote working and related lifestyle trends pushed clients to spend more time on RTC products.
When the disease was contained in China, Agora's growth momentum slowed down and we saw a QoQ decrease from 2Q to 3Q in 2020. Meanwhile, the CAC has been increasing, which lowers the marginal earning. CAC was around USD 50k in 1Q2019 and the figure suddenly shrunk to USD 17k in 2Q2020. As the Chinese economy recovers, CAC increases as well.
Factors that influence CAC may include increased real-life interactions, peer competitions and so on. Internet giants like Tencent, Alibaba and ByteDance expanded their enterprise service businesses with a focus on SaaS ecosystem constructions and infrastructural developments.
Unlike the United States where the SaaS market is much larger than IaaS and PaaS, IaaS is the largest contributor to China's cloud market. In 2019, China's public cloud market size was CNY 68.9 billion, and over 65.6% of it was from IaaS. Ideally, SaaS should be the biggest contributor in a mature cloud market, as the end market is significantly diversified and demands vary. Along with the Chinese cloud development, a diversified and prosperous SaaS market will become the growth momentum of the cloud market. IaaS and PaaS companies can benefit from the expedited development of the SaaS industry.
The company stated in its prospectus that its business does not observe significant seasonality but its first-quarter performance may be influenced by the decreased use of RTC services during the Chinese New Year break. However, the third quarter may have a better performance given the increased online activity due to fewer school days.
Agora and the cloud service companies' performances in 2020 are outstanding in general. The recent surge in Agora's stock price reflected investors' confidence in the company's development. However, COVID-19 is a one-time event to industries and Clubhouse's boom definitely brought a positive but temporary side-effect on cloud service stocks. When things are back on track, core competencies are the cornerstone to support the company's long-term growth.
It is undeniable that the cloud is the future as it brings efficiency to work and convenience to life, but recent surges were off-the-ground. Agora is an excellent company to watch, but now is not the best time to long - side effects inflated the stock price and overran the true growth of the company. Be fearful when others are greedy.