On Thursday, BofA Securities analysts upgraded Agora Inc. (NASDAQ:API) stock from Neutral to Buy, setting a new price target of $6.00, an increase from the previous target of $3.10.
The upgrade reflects the analysts' optimism about the company's future, citing several key factors that could drive Agora's growth and profitability in the fiscal year 2025.
The analysts pointed to an expected recovery in demand that could lead to positive revenue growth in FY25E.
They said "we see better RTE demand in customer services, education, IoT and companion scenarios, boosted by GenAI once the cost of OpenAI™s Realtime API becomes more commercially affordable for wider usage, riding on the partnership between Agora and OpenAI."
Additionally, they noted Agora's current undemanding valuation, as the stock is trading close to its net cash level, which is estimated at $3.9 per American Depositary Share (ADS) for FY25E.
The BofA team sees increased demand for real-time engagement (RTE) in sectors such as customer services, education, the Internet of Things (IoT), and companion scenarios.
They believe this demand will be further boosted by GenAI, particularly as the cost of OpenAI's Realtime API becomes more commercially affordable, allowing for wider usage. This optimism is underpinned by Agora's partnership with OpenAI.
In anticipation of the growing IoT business, the analysts have raised their revenue estimates for FY24-26E by 2-3%. They have also adjusted their valuation methodology, raising their price objective to $6.00 based on 4 times the 12-month forward estimated Price/Sales ratio.
This is an increase from the previous 2 times ratio, which they justified by the company's improving fundamentals and the potential to reach breakeven in FY25E.
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