Agora shares downgraded on soft growth outlook

On Tuesday, Agora Inc. (NASDAQ: API) received a downgrade from BofA Securities, moving from a Buy to a Neutral rating, accompanied by a price target adjustment to $4.00 from the previous $2.63. The revision follows Agora's second-quarter 2024 results and the company's third-quarter revenue guidance, which did not meet expectations.

Agora's future growth prospects appear to be uncertain due to a soft demand outlook, and the firm's path to profitability is expected to be gradual. Challenges include subdued revenue growth and limited opportunities for reducing operating expenses.

Despite these concerns, the analyst suggests that a significant further decline in Agora's stock price may be unlikely, citing the company's net cash position of $3.7 per American Depository Share (ADS) for the fiscal year 2024 as a potential stabilizing factor.

Management has provided third-quarter 2024 revenue guidance in the range of $31.5 to $33.5 million, representing a year-over-year decrease of 4-10%. This forecast comes on the heels of the company's decision to discontinue certain product lines, including its Content Delivery Network (CDN) business, which also had a lower gross profit margin.

In light of the termination of the CDN business and a muted growth forecast, BofA Securities has reduced its revenue projections for Agora for the fiscal years 2024 to 2026 by 9-19%.

The price objective has been recalculated based on a 12-month forward Price/Sales (P/S) multiple of 2x, down from 3x. This valuation reflects a 50% discount compared to the average of Agora's China-based Software as a Service (SaaS) peers, attributed to the less optimistic growth expectations.

In other recent news, Agora, Inc. has seen steady growth despite a challenging market environment. The company's first-quarter financial results for 2024 show a modest revenue increase, with revenues rising to $15.8 million, marking a 3% increase quarter-over-quarter.

The company also introduced new technologies such as Adaptive Video Optimization and a new live sports broadcasting solution.

In terms of customers, Agora reported a 16% growth in their active customer base from the previous year, reaching over 1,700 active customers. However, the company's subsidiary, Shengwang, saw a 16% decline in revenue year-over-year.

Looking forward, Agora projects Q2 revenue to be between $34 million and $36 million and plans to focus on technology enhancement, market share growth, and profitability for 2024. Despite the challenges, Agora is navigating the complex market environment with a strategic focus on innovation and market expansion. These are the recent developments at Agora, Inc.

InvestingPro Insights

As Agora Inc. navigates a period of uncertainty, the latest data from InvestingPro shows a mixed financial landscape. With a market capitalization of $210.51 million, the company's valuation reflects the challenges it faces. The negative P/E ratio of -4.73, adjusted to -4.24 for the last twelve months as of Q1 2024, signals that investors are wary about the company's earnings potential. Moreover, the negative PEG ratio of -0.16 during the same period suggests that the expected growth rates may not justify the current earnings multiples.

On the positive side, Agora's gross profit margin stands at a healthy 62.88%, indicating that while revenue growth has been negative at -12.88% over the last twelve months, the company maintains a strong capacity to retain earnings from sales. This financial health is further supported by a robust gross profit of $86.85 million.

Investors considering Agora's stock will note that the company's shares are trading at 67.26% of their 52-week high, with a previous close at $2.34. The recent price movements have been volatile, with a 1-week total return of 1.3%, but a more significant 1-year price total return of -17.31%. These figures highlight the stock's recent performance trends, which may be of interest to potential investors.

For those seeking further insights and analysis, InvestingPro offers additional tips that delve deeper into Agora's financials and prospects. Currently, there are 12 additional InvestingPro Tips available, which can provide investors with a more comprehensive understanding of the company's position and potential strategies moving forward.

InvestingPro's fair value estimate stands at $3.4, marginally above the analyst target of $3.00, indicating that there may be some room for upside based on current market assessments.

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