Wall Street has been taken for a ride over the past two weeks. Under the troubled auspices of Robinhood, the free trading app, and the rise of so-called “meme stocks” such as Gamestop and AMC Theatres, masses of retail investors are rallying against what they perceive to be the big-time wolves of the finance world.
But even amid this storm — Tesla’s eccentric founder, Elon Musk, found time to grill Robinhood’s founder Vlad Tenev live on the up-and-coming audio-chat social networking app, Clubhouse.
For Clubhouse user Kunihiko Naito, 37, the app is a veritable source of information. “Influencers exchange opinions candidly, and I can hear what executives, MBA students, and top-tier consultants are doing and how they start their own businesses,” he says. “Clubhouse is a good alternative to the radio. [Although most conversations I tap in on are in Japanese], we can even hear real English conversations to practice English too.” He is not alone in his admiration – the young, invite-only app has over 2 million weekly active users now.
What is little known, however, is that behind Clubhouse lies another powerhouse – NASDAQ-listed Agora (NASDAQ: API), which furnishes Clubhouse with its Real-Time Engagement Platform-as-a-Service (RTE-PaaS) offering. Headquartered in Shanghai, the company went public in June 2020, and its shares have soared over 30% over the first two days of February, bolstered by Clubhouse’s sudden popularity and news of the platform’s fresh financing round of USD 250 million.
The tech behind Clubhouse
And Agora’s story is much bigger than Clubhouse, with its tech-savviness pre-dating the COVID-19 era. The company has been biding its time since its founding in 2013 by Zhao Bin, JoYY Inc.’s ex-CTO and a founding engineer of Cisco Webex.
Agora provides business developers with customizable application programming interfaces (APIs) that can embed real-time video and voice functionalities into their applications without the need to develop the technology or build the underlying infrastructure themselves.
While COVID-19 has accelerated its success, with revenues in the first quarter of 2020 growing 166% year-on-year (YoY), the company already counted several powerhouses amongst its clientele – including Xiaomi, New Oriental, VIPKID, TAL, ByteDance, and Momo. The firm was also built with backing from reputable investors including GGV Capital, Morningside Capital, and Coatue Management.
The company’s technology falls in line with China’s recent push to develop higher-quality products instead of simply relying on price competition to win big. Demand for low-latency, multi-modal real-time interaction is growing, as use cases have expanded beyond basic tools such as WeChat calls and phone calls, and users have higher expectations on transmission delays and quality.
Agora’s technologies have particular appeal in verticals with low risk-tolerance for package loss or transmission delays, such as telehealth, edtech, and gaming. True to its name, Agora enables multiple users to participate in activities concurrently, without sacrificing quality.
Building on momentum
And the company is not resting on its laurels. On January 28, 2021, it announced that plans to acquire Easemob, a leading Beijing-based instant messaging (IM) and customer service cloud provider. Following the acquisition, the parties will draw on their respective fields of expertise to jointly develop a Real-Time Communication + IM product portfolio and develop what Easemob CEO founder Ma Xiaoyu described as “the market’s most complete real-time interactive API combination through a video + audio + IM solution.”
Also in January, the company released its Online Learning Engagement Platform, another PaaS product aimed at helping education institutions and developers launch their own proprietary interactive teaching platforms. Allegedly, this can be done in as little time as 15 minutes while cutting development time by 90%. And in line with its desire to make enemies of none (except maybe Twilio) and compound its growth, Agora introduced Agora Partner Gallery in 2019, which offers its customers direct access to a network of partners who provide add-on solutions and services (of course, fully compatible with the Agora real-time voice and video software development kit) and accelerate customers’ go-to-market time.
But despite Agora’s high valuation, its fast growth strains its cashflow, with free cash flow for the third quarter of 2020 at negative USD 5.1 million (compared to USD 1.3 million for the same period in 2019). The company has yet to turn a profit, with net losses more than doubling in the September quarter of 2020 despite an 80.8% increase in total revenues during the period.
Its expenditures don’t seem likely to abate soon. The company is sparing no resource to hold onto its edge: research and development expenses increased 178.3% YoY March 2019 and 2020, holding at above 30% of its total revenues despite the firm’s escalating sales.
This is not a bad thing, because innovation is the lifeblood of the worthiest tech companies, which usually spend between 10% and 25% of their revenues on research and development. With fresh financing from the likes of Blackrock, and seasoned investors backing its previous funding rounds, it has both the funds and expertise to outline a clear path ahead. As a tech company with a clear business-to-business (B2B) positioning and customized, commercial, and tech-savvy solutions, Agora is riding on a good wind.
Clubhouse is just the beginning.
