Han Tao

Han Tao from CICC asked for clarification on the slight year-over-year decline in gross margin to 65%, specifically whether it's mix-driven, temporary, or structural due to AI ramp-up costs, and the expected margin trend for 2026. She also questioned the outlook for operating income and operating margin in 2026, following GAAP profitability in 2025, and the main drivers for further margin expansion.

Answer

Jingbo Wang, CFO, explained that the gross margin decrease was primarily due to Conversational AI-related products, which are in early pilot stages with sub-scale infrastructure, leading to low margins that drag down the overall figure. He expects improvement as usage and revenue ramp up, forecasting flat gross margins compared to Q4 2025. For operating income, he anticipates significant improvement in 2026, driven by revenue growth and improved operating leverage, with a goal to achieve GAAP operating profit in Q4 2026, even after accounting for share-based compensation and amortization.

Han Tao from CICC Capital Operation Co. Ltd. asked for an explanation of the slight year-over-year decline in gross margin to 65%, questioning whether it was mix-driven, temporary, or structural due to AI ramp-up costs, and how to project margin trends into 2026. She also inquired about the outlook for operating income and operating margin in 2026, and the main drivers for further margin expansion after achieving GAAP profitability in 2025.

Answer

Jingbo Wang, CFO of Agora, explained that the gross margin decline was primarily due to the lower margin profile of conversational AI-related products, which are currently at sub-scale levels and often in pilot stages without charges. He expects improvement as usage and revenue ramp up, forecasting flat gross margins compared to Q4 2025 for 2026. For operating income, he anticipates significant improvement in 2026, aiming for GAAP operating profit in Q4 2026, driven by revenue growth and improved operating leverage, even after accounting for share-based compensation and headquarters project amortization.