On July 28, the “Gelonghui 2022 Summer Hong Kong Stock Investment Forum” was held online. Executives from many high-quality listed companies participated. Through this roadshow event, they had in-depth exchanges with investors. The author was also lucky enough to watch the entire roadshow and sort out some thoughts and ideas for the benefit of readers.
This article focuses on Aurora (NASDAQ: JG), China's leading customer interaction and marketing technology service provider.
Compared to leading ToC companies, some investors may be a little unfamiliar with Aurora, but in reality, its value chain is closely related to people's lives and work, and is an enabler for the entire industry. I learned at the meeting that Aurora's cumulative app installs have reached 1.82 million, the cumulative number of SDK installs has reached 60.4 billion, and monthly active devices have reached 1.45 billion. It can almost be said that it is “universal” coverage.
Furthermore, there are several reasons why I pay close attention to auroras:
First, the business mentality of the entire industry is facing a shift, and related needs are emerging at the same time.
With the Internet traffic dividend peaking and changes in consumer attitudes, market competition continues to intensify, and various industries have seen some new changes and trends. However, there is no shortage of commonalities in the underlying logic. For example, the market consensus reached in terms of management thinking: a shift from previous product-centered to user-centered.
In this context, how to establish effective communication with users, find opportunities to break the game, and seize the balance between business growth and user experience has become an important issue facing all enterprises today, or just what they need.
The demand for customer engagement and marketing service providers in the same value chain is definitely growing, then. Moreover, small and medium-sized enterprises are the main and most important component of market players, and they need to use the power of relevant service providers to connect users more efficiently.
Second, going overseas has become a must-answer question for more companies, and it is also one of Aurora's important strategies this year.
Also, as the industry undergoes new changes and trends, going overseas to find new growth points has become a must-have choice for more companies. However, as we all know, the pain points of going overseas are not small. Every overseas company faces problems such as localized operation, and requires “communication tools” with an international perspective, that is, customer interaction and the empowerment of marketing service providers.
Recently, Aurora officially announced that going overseas is one of its key strategies for 2022. It officially launched the Aurora Messaging Cloud Outbound Solution for overseas companies and overseas markets: integrating products such as Aurora Push, Aurora SMS, Aurora Mail, UMS, etc., focusing on integrating overseas user access channels and improving operational efficiency.
It's also worth mentioning that Aurora teamed up with HUAWEI CLOUD on this track. This is a breakthrough layout since Aurora began in-depth strategic cooperation with HUAWEI CLOUD in 2021, and it also laid a better business foundation.
Third, not long ago,Unity software(NYSE: U)Heavy acquisition of IronSource(NYSE: IS), the ad aggregation monetization platform has attracted the attention of the industry, and Aurora has launched related products.
Ironsource is a leading commercialization platform. After the deal is completed, the new company will provide developers with a wider range of products and services, including the Unity game engine, editors, Unity Ads, as well as ironSource's ad aggregation platform and hyper-casual mobile game distribution business (Supersonic).
Furthermore, the valuation of ironSource in this transaction reached 4.4 billion US dollars, and on the day the news broke, at the close of trading on July 13, ironSource's market value was only 3.3 billion US dollars, which was a large premium.
To a certain extent, it can be seen that SAAS giants are paying more attention to the monetization process, with the aim of establishing an end-to-end, integrated service platform; in other words, it once again confirms the fierce competition for mobile internet and the growing demand for SAAS service providers.
Aurora continues to focus on product and technology innovation, and will launch an ad aggregation monetization platform in the 2nd quarter of 2022.
According to reports, this product supports one-stop access to SDKs for mainstream advertising platforms such as Pangolin, Ulianghui, and Kuaishou. It can also quickly access more than 70 other high-revenue DSP platforms, as well as allow multiple ad networks to fully bid to help developers obtain higher app revenue; supports hierarchical traffic operation, and is compatible with various changing scenarios. Currently, the platform's business model is mature and has been verified by the market.
It can also be seen that Aurora will play another key game in the monetization process, and the potential for subsequent business and valuation improvements is worth looking forward to.
Fourth, Aurora's business model is close”Unity software(NYSE: U) +Twilio (NYSE: TWLO)”, and it's 100% SAAS, and gross margin continues to be high.
Guided by a “developer-centered” strategy, Aurora has successively launched services such as message delivery, instant messaging, and traffic monetization (Aurora Alliance). At the same time, it has built a data processing platform through artificial intelligence technology to help industry customers improve operational efficiency and achieve quantitative decisions. Currently, Aurora's business segments include developer subscription services (paid subscriptions) under developer services; value-added services for developers (shared revenue), industry application services, and financial risk control services.
From the perspective of profit models, etc., it is quite similar to Unity Software. The Unity Software business is also divided into 3 segments, namely development plans (paid subscriptions), operation plans (shared revenue), and strategic cooperation (fixed costs).
It is quite similar to Twilio from the perspective of business scenarios, etc. Twilio is a PaaS platform that focuses on communication services. It packages the lowest level of communication functions into an API interface, and flexibly embeds communication functions such as SMS and voice into web pages or standalone applications.
It is also worth mentioning that Aurora's strategic transformation has been fully completed. The pure SAAS business has a high growth rate, high gross profit, high customer stickiness, and growth has improved markedly.
Looking at gross margin, from the first quarter to the fourth quarter of 2021, Aurora's gross margin was always above 70%; the first quarter of 2022 coincided with the “low season” of the Internet industry in the first quarter. Coupled with the poor general environment amplifying the off-season effect, this indicator remained at a high level, reaching 69%.
Fifth, Aurora may be more attractive in terms of valuation than its peers
Next, whether targeting Unity Software, Twilio, or IronSource, domestic comparable companies such as Sound Network, Tianrunyun, etc., Aurora may be underestimated by the market.
Under the PS valuation method, based on the market value of August 2, Aurora's valuation multiplier was only about 2.0 times.
At the same time, under the market capitalization/gross profit multiplier valuation method applied by mature stable SaaS companies, Aurora's valuation multiplier was only 2.7 times, while comparable domestic companies Sound Network and Tianrunyun were 5.7 times and 9.4 times respectively.
In other words, Aurora is on the SAAS high-quality circuit and has laid out key links. The business and profit models are clear, and judging from the valuation situation, it is lower than that of peers. With the overall recovery of the SAAS track, the true value of Aurora has yet to be discovered and the valuation repaired, which is worth focusing on.