Earnings call transcript: Agora Q2 2025 highlights revenue growth and AI innovation

Agora (market cap: $370.3M) reported its financial results for the second quarter of 2025, showcasing a revenue increase and significant advancements in AI technology. The company recorded a total revenue of $34.3 million, marking an 11% year-over-year growth. Agora’s net profit also saw a substantial increase, tripling from the previous quarter to reach $1.5 million. According to InvestingPro analysis, the stock appears undervalued at its current price of $3.98, with analysts setting price targets between $5 and $7.1. The company continues to expand its presence in the real-time communication and AI conversational technology markets, with promising developments in new AI products.

Key Takeaways

• Agora’s Q2 revenue grew by 11% year-over-year to $34.3 million.
• The company launched an advanced conversational AI engine with innovative features.
• Significant decrease in R&D expenses by 23% year-over-year.
• Share repurchase program worth $127.2 million, accounting for 3.5% of outstanding shares.
• Strong customer base growth, with a 121% increase in active customers.

Company Performance

Agora’s performance in Q2 2025 reflects its strategic focus on AI innovation and market expansion. The company’s revenue increase of 11% year-over-year is driven by its core revenues, which saw a 16.7% growth. InvestingPro data shows the company maintains a healthy gross margin of 65.81% and demonstrates lower market volatility with a beta of 0.62. For deeper insights into Agora’s financial health and growth potential, InvestingPro offers comprehensive analysis with 12+ additional key metrics and ProTips. Agora’s leadership in real-time communication and AI conversational technologies has enabled successful deployments in various sectors, including food delivery and companion toys.

Financial Highlights

• Total Revenue: $34.3 million (11% YoY growth)
• GAAP Net Profit: $1.5 million (3x previous quarter)
• Core Revenues: $18.2 million (16.7% YoY growth)
• Gross Margin: 66.8%
• R&D Expenses: $14 million (23% YoY decrease)
• Sales & Marketing Expenses: $6.5 million (4% YoY increase)
• G&A Expenses: $6 million (26.6% YoY decrease)

Outlook & Guidance

Agora projects its Q3 2025 revenue to be between $34 million and $36 million, representing a year-over-year growth of 7.6% to 13.9%. The company anticipates sequential net income growth throughout 2025 and aims for a long-term operating margin of 15% to 20%. InvestingPro subscribers can access the detailed Pro Research Report, part of our coverage of 1,400+ US stocks, providing comprehensive analysis of Agora’s growth trajectory and market position. Agora is committed to furthering its innovation in conversational AI and expanding its market reach.

Executive Commentary

Tony Wang, CEO of Agora, stated, "We are shaping the future of human AI interaction and engagement." He emphasized the company’s focus on making AI conversations as natural as human interactions. Junmo, a financial executive, expressed confidence in improving net margins in the coming quarters.

Risks and Challenges

• Competitive Pressure: The AI and real-time communication markets are highly competitive, posing a challenge to maintaining market leadership.
• Economic Uncertainty: Macroeconomic factors may impact customer spending and investment in new technologies.
• Regulatory Changes: Potential changes in data privacy regulations could affect Agora’s operations and product offerings.
• Technological Advancements: Rapid technological changes require continuous innovation to stay ahead.

Q&A

During the earnings call, analysts inquired about Agora’s AI application areas, including call centers, education, and companion toys. Management highlighted the potential for higher-margin conversational AI products and addressed gross margin trends, indicating optimism for future improvements.

Full transcript - Advanced Photonix Inc (API) Q2 2025:

Tony Wang, CEO, Founder, Agora: Okay. Thanks, operator. And welcome, everyone, to our earnings call. I’ll try I’ll first review our operating results from the past quarter. We’re proud to deliver our third consecutive quarter of GAAP profitability in Q2, with expanding margins driven by solid revenue growth and continued efficiency improvement.

Total revenue in Q2 reached $34,300,000 up 11% year over year, excluding revenues from certain end of sales, low margin products with healthy growth momentum from both the Agora and Shangwon side. Our GAAP net profit for the quarter was $1,500,000 more than triple the previous quarter, with a GAAP net margin of 4.3%. Considering seasonality and our strong business outlook, we are confident in our ability to continue improving GAAP profitability through the remainder of the year. At the end of Q2, we had close to 1,900 active customers for Agora and approximately 2,000 for Sheng Huang excluding Ismab, representing an increase of 121% respectively compared to one year ago. Now turning to our business, product and technology updates for the quarter.

Since the launch of our conversational AI engine product a few months ago, we have rapidly iterated based on our roadmap and customer feedback. At the World Artificial Intelligence Conference last month, we unveiled a major upgrade with three new features. First, we added an advanced attention locking feature, which allows an AI agent to focus on a specific user’s voice to stay on the topic. Even when there are other people talking in the background, this feature is important because without it, those background voices would be fed into the large language model, confusing the model and sometimes making the conversational making the conversation impossible to continue. Second, we added real time vision based intelligence to our conversational AI engine, enabling the AI to understand visual context along with spoken conversation.

For example, a user can ask about building or buildings or landmarks while traveling abroad or ask for help with a math problem written on a whiteboard. Finally, we introduced natural interactive avatars that can synchronize lifelike facial and body movements with speech, making conversations more engaging for applications in education, customer support and beyond. These new features are all aimed at one goal, making AI conversations as natural as human interactions. Now AI agent can log on to the user’s voice, understand what the user see, and respond with facial and body movements through avatars. We believe these advancements bring us closer to that goal.

We are also encouraged by the extremely warm reception from developers and the general audience at the World AI Conference. Over the past quarter, developers and customers across various industry continue to build AI applications using our conversational AI solution. Many of them have made solid progress, moving from proof of concept to real world deployment. For example, a major food delivery platform operating in South America, leverage our conversational AI engine to power an AI agent that automatically calls restaurant and local businesses. Currently, our solution supports thousands of agent calls per day, just a small fraction of the total potential volume.

As we continue to learn from real world usage, we expect to improve performance and expand into more use cases and higher volume for this customer. We also believe this success will help drive broader adoption of our conversational AI solution in the customer service industry. Another inspiring example is Fuzuzu, an adorable AI companion toy developed by our customer RoboPoint. Users received the first shipment in mid July and quickly shared their excitement on social media. Powered by our conversational AI engine, Fazuzu delivers natural and engaging conversations with users.

We have observed that a significant portion of sessions between users and Fuzuzu last for more than 50 rounds of interaction. Based on our internal assessment, Fuzuzu is a top performer among AI companion toys on the market in terms of stability, response quality and human like emotional expressions. Venturing into uncharted territory means solving complex problems every day. Our solution is still being optimized and requires ongoing improvement to provide the best performance in some corner cases. That said, we’ve never been more confident in the transformative potential of human AI conversation.

In addition, given the greater value and higher technical complexity of our conversational AI solution, we expect its pricing to be an order of magnitude higher than our standard RTC audio product, unlocking significant revenue potential ahead. Today, we also announced the resignation of Shang Zhong from his position as our Director, Chief Technology Officer and Chief Scientist due to personal reasons. I’ll personally take over his operational responsibilities to strengthen our technology leadership and drive conversational AI innovations. I would like to thank Sean for his dedicated service and contribution over the past seven years. Tony Wang, our founding member and currently Chief Revenue Officer of Agora division and Jingbo Wang, our Chief Financial Officer, have been appointed as Directors of the Board.

I’m pleased to welcome Tony and Jingbo to the Board. Their strategic vision and operational expertise will be invaluable to the Board as we continue to drive innovation and deliver long term value of our for our shareholders. Before I continue, I want to express my appreciation to our leadership team for driving transformation and to every member of the Agora and Shohuang teams for your dedication. I also want to thank our shareholders for your continued trust and support and for believing in our long term vision and the significant market opportunity ahead. Together, we are shaping the future of human AI interaction and engagement.

With that, let me turn things over to Junmo, who will review our financial results.

Junmo, Financial Executive, Agora: Thank you, Tony. Hello, everyone. Let me start by first reviewing financial results for the 2025, and then I will discuss outlook for the third quarter. Total revenues for the second quarter reached million. Excluding revenues from certain end of sale low margin products, revenues grew 11% year over year, representing our second consecutive quarter of double digit organic growth.

Our core revenues reached 18,200,000 in Q2, representing 16.7% year over year growth and a 2.2% quarter over quarter decline. The strong year over year growth reflects our successful market penetration and growing adoption, particularly in high growth verticals such as live shopping and entertainment. The marginal sequential decrease is mainly due to usage fluctuation of customers. Shenglong revenues reached RMB115.5 million in Q2. Excluding certain end of sale low margin products, Shenglong revenues grew 6.7% year over year and 9.5% sequentially, driven by continued business expansion and adoption in key verticals such as digital transformation and IoT.

Dollar based net retention rate is 97% for Agora and 87% for Shunghwa, marking the second consecutive quarter of improvement for both businesses. Gross margin for the second quarter was 66.8%. If we exclude gross profit from certain end of sale low margin products, gross margin of continuing business slightly decreased 1.2% year over year and sequentially. Moving on to expenses. R and D expenses were $14,000,000 in Q2, decreased 23% year over year.

R and D expenses represented 40.8% of total revenues in the quarter compared to 53% in Q2 last year. Sales and marketing expenses were $6,500,000 in Q2 increased 4% year over year. Sales and marketing expenses represented 19% of revenues in the quarter compared to 18.3% in Q2 last year. G and A expenses were $6,000,000 in Q2, decreased 26.6% year over year. G and A expenses represented 17.6% of total revenues in the quarter compared to 24% in Q2 last year.

Moving on to the bottom line, we delivered net income of $1,500,000 in Q2, more than triple the previous quarter, representing a 4.3% net income margin. This result represents a significant improvement from the 23% net loss margin in Q2 last year and marks our third consecutive quarter of GAAP profitability. Based on our current business momentum and visibility into the second half, we expect net income to grow sequentially throughout 2025. Now turning to cash flow. Operating cash flow was negative 400,000 in Q2 compared to negative $7,600,000 last year.

Moving on to balance sheet. We ended Q1 with $270,000,000 and $7,000,000 in cash, cash equivalents, bank deposits and the financial products issued by banks. Net cash flow in the quarter was mainly due to share repurchase of 10,900,000.0 In the second quarter, we repurchased 13,100,000.0 ordinary shares or 3,300,000.0 ADS, representing 3.5% of our entire outstanding shares at the beginning of the quarter. Since our board approved the share repurchase program in February 2025, we have repurchased $127,200,000 worth of shares through 06/30/2025. We are fully committed to creating shareholder value through this program while keeping the financial flexibility to invest in growth opportunities such as conversational AI.

Now turning to guidance. For the 2025, we currently expect total revenues to be between 34,000,000 and $36,000,000 compared to $31,600,000 in the third quarter last year, representing a year over year growth rate of 7.6% to 13.9%. This outlook reflects our current and preliminary views on the market and operational conditions which are subject to change. In closing, I want to take a moment to recognize the exceptional work of the acquired nation owned teams. Our double digit revenue growth and improving profits are direct result of your effort and focus.

To our shareholders, thank you for your trust and support. Together, we are building a lasting company at forefront of AI innovation. Thank you all for joining the call today. Let’s open it up for questions.

Conference Operator: Thank you. Our first question will come from the line of Dailey Le with BofA. Your line is open. Please go ahead.

Dailey Le, Analyst, BofA: Thanks, management, for taking my question. Firstly, congrats on the strong results and solid growth. And I have two questions. Number one is regarding the related business. You mentioned, like, for the downstream demand from the IoT and also the AI component companion toys.

Do we expect which application area will see the fast application and the potential revenue contribution to us in the going forward? Same question is about the gross gross profit margin in q two achieved of 4.8 percentage points year over year expansion. Well, quote on quarter, see some slightly drop. And is this a seasonality or any other reasons? How do you see the future trend for gross profit margin and net operating margin?

Thank you.

Tony Wang, CEO, Founder, Agora: Thank you for the question. So for AI use cases, in conversational AI applications, currently, three use cases have progresses to more advanced stage, namely call centers, education and companionship toys. For these use cases, we already see some customers have moved from proof of concept phase to real world production. Given the vast scale and the potential usage of those verticals, we expect the success then of those customers will drive further adoption.

Junmo, Financial Executive, Agora: Okay. So in terms of margins, so the gross margin of the current RTC or RTE business has been quite stable in the past year, fluctuating between 6668%. And I expect this to continue in the coming quarters. And the sequential and year over year decline of 1% in this quarter, more due to normal fluctuation. And as to the new products, the conversational AI products, I think it’s still too early to say about its gross margin.

We might have a lower margin initially due to ramp up and testing and prototyping cost. But once we reach a more steady state, I expect the gross margin of this product to be at least same as RTC, if not higher, because of the higher value and higher technical sophistication of this new product. So in terms of net margin, expect the expenses to be relatively stable. So as we ramp up on revenues, we do expect the net margin to improve in the coming quarters this year. In the longer term, as we guided before, we do think we should be able to achieve operating margin of between 1520%, but that’s for the medium to long term.

Dailey Le, Analyst, BofA: Thank you.

Conference Operator: Thank you. Our next question comes from the line of Chenin Lei Wang with CICC. Your line is open. Please go ahead. Good morning.

I’m from CICC, and thank you for taking my question. My question concerned the market reception of your newly launched, the advanced attention locking and the Avatar features. So could you please share the early adoption trend and also the client feedback on this innovation? Cheers.

Tony Wang, CEO, Founder, Agora: Okay. Thank you for the question. When we initially planned and designed those features, we have already taken real world applications and the customer needs into consideration. This actually come from some of the corner case we received from early adoption of our conversational AI engine. Advanced attention locking is an essential feature in a noisy environment, especially with other people talking in the background.

For example, our customers AI companion toy, Fuzuzu, will naturally be carried around by users. When users want to talk to Fuzuzu in a place like subway station or shopping mall, attention locking is crucial to ensure a seamless user experience. Interactive avatars, on the other hand, are must have to for users for use cases like education and customer service as they enable more life like engaging interactions. So those are all coming from demand of solving certain corner case or providing a better experience for certain use cases.

Conference Operator: Appreciate the color. Thanks.

Tony Wang, CEO, Founder, Agora: Thank

Conference Operator: you. And thank you. I am showing no further questions. This concludes today’s question and answer session. Thank you everybody for attending the company’s call today.

As a reminder, the recording is in the earnings release and will be available on the company’s website at investor.agora.io. And if there are any questions, feel free to email the company. Thank you. You may now disconnect. Everyone, have a great day.

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