Agora, the platform powering social media’s rising star Clubhouse, comes under fire after security breach - The Average Joe


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    Agora, the platform powering social media’s rising star Clubhouse, comes under fire after security breach

    Kevin Roche — Analyst

    February 25, 2021

    Monday’s can be bad but for Agora, the company that powers the popular social-app Clubhouse, bad is an understatement…

    Here’s how Agora’s Monday went:

    • Report of a security breach in Clubhouse sent Agora’s stock down 20%
    • A couple hours later, Agora forecasted slower than expected growth for 2021 that sent its stock down another 12%

    Clubhouse became a $1b company within a year, thanks to…

    Agora — the software provider behind two massively popular social apps:

    • Clubhouse — the audio-based social media app made popular with its invite-only access and celebrity appearances
    • Yalla ($YALA) — the Middle East/African version of Clubhouse.

    Founded in 2014 and having gone public on the US stock market in June 2020, the Chinese-based company provides the building blocks to add audio, video and live-streaming features into apps.

    With Clubhouse blowing up over the last few months, investors have been looking for ways to capitalize on the hype of the private company. Their solution? Investing in Agora.

    The Good, The Bad, and The Security Breach

    Since the beginning of 2021, Agora’s share price has more than doubled… That is until Bloomberg reported news of a security breach in Clubhouse on Feb. 21, where a user had streamed audio from multiple Clubhouse rooms into a third-party website.

    In the past 2 years, the US government had expressed several security concerns with Chinese companies — even attempting to ban TikTok in 2020. If Agora becomes a bigger security concern in the eyes of the US government, Agora’s stock price could take a bigger hit.

    On the same day, Agora reported its 2020 earnings:

    • Sales of $133.6m, up 107% from 2019
    • Net loss of $3.1m, compared to a loss of $6.2m in 2019
    • 2095 active customers, up 101% from the end of 2019

    But the concern amongst investors was Agora’s forecast of $178-188m for its 2021 sales — an estimated growth of 36% compared to the 107% it reported for 2020.

    For investors… Don’t take security breaches lightly

    Here’s what investors should be concerned about.

    • A loss of reputation from its security breach — which could impact Agora’s ability to attract new customers
    • Slowing sales growth — which fell from 127% in the second quarter of 2020 to 74% in the recent quarter

    Despite falling 25%, Agora is still up 44% since its IPO. To justify its valuation, Agora will need to show its investors that security won’t be a concern and figure out a way to reaccelerate its growth.

    Learn more: See how Agora compares against the dominant voice and cloud software services provider — Twilio.

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