Aurora Mobile Ltd (JG) Q3 2021 Earnings Call Transcript

Aurora Mobile Ltd (JG -0.34%)
Q3 2021 Earnings Call
Nov 23, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Aurora Mobile third quarter 2021 earnings conference call. [Operator instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Mr. Rene Vanguestaine.

Thank you. Please go ahead, sir.

Rene Vanguestaine -- Investor Relations

Thank you, Annie. Hello, everyone, and thank you for joining us today. Aurora's earnings release was distributed earlier today and is available on the IR website at ir.jiguang.cn. On the call today are Mr.

Weidong Luo, chairman and chief executive officer; Mr. Fei Chen, president; and Mr. Shan-Nen Bong, chief financial officer. Following their prepared remarks, all three will be available to answer your questions during the Q&A session that will follow.

Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and current market and operating conditions which are difficult to predict and may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties and/or factors are included in the company's filings with the US Securities and Exchange Commission.

The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law. With that, I will now turn the conference over to Mr. Luo. Please go ahead.

Weidong Luo -- Chairman and Chief Executive Officer

Thanks, Rene. Good morning and good evening to everyone on the call. Welcome to Aurora Mobile's third quarter 2021 earnings call. This is the third quarter where we have been operating under the pure SaaS business model since the beginning of 2021.

We continue to see great business growth in the SaaS business, and I will go straight into our quarterly results and share with you our business progress and key business metrics in the third quarter of 2021. Before I comment on our Q3 results, I would like to remind everyone that the quarterly earnings deck is available on our IR website for your reference. You may refer to the deck as we proceed with the call today. Let's begin our review with highlights of our key operating and financial performance for the third quarter of 2021.

As a reminder, we completely exited targeted marketing at the end of 2020, and our business is now 100% focused on subscription model, which include developer services and vertical applications. For an average-to-average comparison, numbers presented here exclude contribution from the legacy targeted marketing in the full year. In the first quarter, we have seen a steady and solid upward trend in our SaaS business, which is a result of our dedicated effort in building and growing them. Here is a summary of the solid results for Q3 2021.

The number of paying customers increased to 2,729 from 2,320 a year ago, up 18% year over year. Revenues were RMB 90.5 million, up 38% year over year. Group gross margin was 74.4%, which is more than 1.5 times compared with 47% from a year ago. Gross profit was RMB 67.4 million up 38% year over year, and adjusted EBITDA was negative RMB 16.1 million, a substantial improvement of 27% from a year ago, demonstrating our strong operating leverage.

Total deferred revenue was up RMB 100 million for six consecutive quarters, indicating strength in SaaS business growth. AR days continued to decrease to 39 days, indicating our disciplined credit granting and vast majority of quality customers paying on time. Revenues from our SaaS business set another quarterly record high with 48% growth in developer services and 18% in vertical applications on a year-over-year basis. Our gross margin has greatly improved from 47% a year ago to 74.4%, which was the result of our successful transition into the pure SaaS business model since the beginning of 2021.

The strong gross profit growth of our SaaS Business was mainly driven by revenue growth of 38% year over year. The backbone of our continued -- continuous revenue growth has been our relentless effort and prioritization of innovation in developer services product. We always strive to provide solutions that exceed our customers' needs and requirements for continuous developer feedback and iterations. In this quarter, we are proud to share recent updates with you and innovations across various product lines.

Our product development philosophy has always been to introduce rightly applicable products and to set up scalable and suitable for all industries. Then based on the needs and feedback from each specific industry vertical we move on to address and offer solutions and services that can meet specialty requirements of each user base in our target market. For example, how do we go deeper to raise customers' participation and fulfill their needs. Many of our development efforts in recent cultures have been focused on creating deeper customer engagement.

In Q3, we launched a free version of our core JPush product, featuring a brand-new upgrade to the HUB function whereby mobile app developers can easily integrate the seven major mobile phone manufacturers and operating systems push channels into the app, including but not limited to channels such as Huawei, Xiaomi, Oppo, Vivo and Meizu. For this hub function, we are able to have mobile app developers significantly increase the overall notification delivery rate by 80%, compared to those mobile apps who do not use this hub function, which sequentially improved that array of their apps. Mobile app developers no longer had to integrate each manufacturer and operating systems channel on their own. By using our hub function, they can easily integrate all of these seven major notification channels and manage all of the push message on our G1 platform in one go.

As of today, over 7,000 apps have already started using this new function. Over 35% of the new apps that use our JPush SDK have already integrated this function into their apps. This hub function marks a new milestone helping developer greatly improve their push results with very simple and efficient integration steps and cements our position as the leading push notification provider in China. As one of several newly introduced products in 2021, our VaaS product has generated much customer interest.

With the growing demand in the short video industry, we have noticed that some industry verticals can be evolved over the past few years and become even more dependent on the product range and scope of our VaaS service. During the quarter, one of the most renowned manufacturers in the smart home industry started testing our VaaS product on their smart home appliance intended for a wider rollout in the near future. As more and more screens display become integrated into the smart home appliance and devices, bringing out the right content on these screens has quickly become -- made a way of keeping users engaged and integrate better user experience. By providing short videos that are tailored, customized and geared toward different user groups and displayed on different appliances, our VaaS product continues to satisfy customers' requirements and increase user stickiness and user retention time.

We believe our VaaS product has a vast market potential and applications going forward. In addition, we have recently launched our on-demand video cloud and growing service under the VaaS product lines. This new service provider provides app developers an opportunity to quickly integrate their app with video function. Whilst they have implemented our on-demand video cloud feature into their apps, developers can enjoy the freedom and convenience to perform a streamline of actions, including upload, review and create, manage and play the videos on their own apps.

Each service fundamentally eliminates the tedious and laborious process for those developers who want to manage their own videos on their apps. Within the short release period in Q3, we have already seen great customer interest and receive the many inquiries about this product. We have observed that this on-demand video cloud space has added great value to app developers and is part of our product development strategy to go deeper and to satisfy customers' specialty requirements and needs. By doing so, we can develop closer ties with our customers and become their long-term trust partners.

Last but not least, another very exciting new step I want to share with you is that on November 17, our JVerification and other Customized Service officially launched on Huawei Cloud. The cooperation with Huawei Cloud demonstrates the industrywide credit and trust we command for our robust technical capability and services. Currently, developers can easily purchase and experience our JVerification Service by simply logging into a Huawei Cloud account. In addition to JVerification, developers can also gain access to Jiguang's customized service package of Huawei Cloud, which includes push notifications, instant messaging, traffic monetization, Jiguang Alliance, Jiguang VaaS and UMS and the other products that help developers operate, grow and monetize their applications.

We believe that this cooperation with Huawei Cloud can benefit us by reaching out to more potential fee-paying customers and will bring positive results in the near future. In fact, we have already signed a number of paying customers since these alliances started. Now, I will turn the call to Fei, who will discuss the Q3 performance in greater detail.

Fei Chen -- President

Thanks, Chris. Let me start the discussion on different revenue streams within the SaaS Businesses. In third quarter '21, revenues from developer services reached RMB 64.7 million, a robust 48% growth on a year-over-year basis. The year-on-year revenue growth was a result of strong growth of 32% in subscription services and a very impressive 84% growth in value-added services.

Subscription services revenues were RMB 39.8 million, an increase of 32% year over year, primarily driven by the new customer acquisition. Apart from new customer acquisition, our continuous efforts in cross-selling various non-push subscription products such as JVerification, JSMS, JAnalytics have increased our customer subscription uptick via multiple product lines. As a result, our revenue contribution of non-push notification products increased to 43% from 31% a year ago. Non-push notification products also achieved a higher ARPU of RMB 37,000, resulting in the overall ARPU for subscription services increasing by 13% to RMB 16,600 and compared with RMB 14,700 a year ago.

New and renewed contracts of notable customers in the quarter include NetEase News, China Southern Power Grid company, Starbucks, McDonald's, and so on. Value-added services within developer services, which includes revenues from JG Alliance services and the Advertisement SaaS achieved outstanding results where revenues grew significantly by 84% year on year to RMB 24.9 million from RMB 13.5 million in third quarter 2020. The demand for our JG Alliance products has proven to be continuously strong since its introduction to the market. We expect this strong demand trend to continue into the future.

On the supply side of JG Alliance during the quarter, we continued to grow this traffic pool as it is a vital part of our strategy to increase opportunities for monetization channels. The total number of apps within our network exceeded 390 apps compared to 344 in second quarter 2021, representing a 15% growth quarter over quarter. The total DAU within the network has stabilized at 180 million, same as the second quarter. As discussed in the last earnings call, there has been some delay in developers joining our Alliance network and integrating our SDK due to the regulatory requirements that became their top focus during the quarter.

However, we are seeing the ramp-up of this integration period during the fourth quarter, which lays a solid foundation on the supply side of the equation and it can, in turn, help us achieve a strong sequential revenue growth for the coming quarters. On the demand side, mini program developers and app retargeting related demand continue to play a pivotal role by contributing to the majority of our JG Alliance revenues in third quarter 2021. During the quarter, other agencies contributed more than 50% of JG Alliance revenue stream while the rest came from direct customers. Major customers of JG Alliance consisted of repeat customers and the market leaders across many industry verticals.

They include, but not limited to Weibo, Meituan, JD, Alipay, Taobao, Baidu, Vipshop, and TravelGo. Now, let's move on to vertical applications that cover financial risk management, market intelligence and iZone products. These revenues grew steadily by 18% year over year with the lion's share of the growth coming from the financial risk management business. In the financial risk management segment, revenues increased substantially by 35% year over year with the help of the 37% growth in ARPU.

This quarter, we had another remarkable quarter with the highest revenues since the beginning of COVID-19 in first quarter of 2020. The strong demand for our Financial Risk Management products has paved the way for us to acquire new customers and retain many existing customers each quarter. New and renewed customers include Songhai Insurance, [Inaudible] financial, 300 digitech. Our market intelligence product line recorded a slight 3% dip in revenue year over year due to the lackluster China ADI investment environment in third quarter 2021 as many investors pulled out such China ADI investment due to regulatory concerns.

Nevertheless, we expect the demand for this product line to recover in current quarter and the quarter going forward. During third quarter 2021, we have signed renewed contracts with many large customers include Himalaya, NetEase Media, Ali entertainment, etc. And lastly, our iZone business has delivered a modest 5% revenue growth year over year. With that, I'll pass the call over to Shan-Nen.

Shan-Nen Bong -- Chief Financial Officer

Thanks, Fei. And I'll go through some of the key expenses and balance sheet items. And let's talk about operating expenses. The total operating expenses increased by 6% year over year to RMB 103.7 million.

In particular, R&D expenses increased by 22% to RMB 55.5 million, mainly due to the increase in staff compensation as we continue to invest in our R&D department, improve IT infrastructure, such as a higher bandwidth and cloud expenses to support the expansion of the SaaS businesses. Selling and marketing expenses increased by 5% to RMB 29.4 million, mainly due to the increase in stock compensation and travel expenses. G&A expenses decreased by 22% to RMB 18.8 million, mainly due to year over year reduction of RMB 6.9 million in bad debt provision due to our proactive and strict financial control measures. Adjusted EBITDA calculated as EBITDA excluding share-based compensation, impairment of long-term investment and change in fair value of foreign currency swap contracts improved by 27% year over year to negative RMB 16.1 million from negative RMB 22 million in Q3 2020.

For the third quarter of 2021, we delivered another set of solid financial results. For year over year comparison, the key highlights for this quarter include revenue of our SaaS businesses increased significantly by 38%; group gross margin improved from 47% to 74.4%, a direct result of Q3 2021 gross margin being 100% contributed by high-margin SaaS businesses. Operating expenses, however, increased by only 6%. As a result, our adjusted EBITDA improved by 27%, which continues to demonstrate the scalability of our business model.

And this is the third quarter where we have delivered SaaS business on the results, and we are very pleased with the results we have achieved. We believe that the growth momentum of Q1, Q2, and Q3 this year will continue to bring more strong results in the coming quarters. Next on to the balance sheet. I'll start with two very important KPI that we closely monitor.

Firstly, the AR turnover days decreased from 45 days in Q3 2020 to 39 days in this quarter. This was similar to the trend we have seen last quarter, due to both the shift away from the legacy targeted marketing business to focus on SaaS businesses and the disciplined credit granting policy and our focus on improving AR collection. Secondly, the total deferred revenue balance which represents cash collected in the banks from customers. For a sixth consecutive quarter has exceeded RMB 100 million at quarter end.

As of September 30, 2021, the balance was at RMB 119 million, up from RMB 111.5 million in Q2 this year. Next, total assets were at RMB 627 million as of September 30 of 2021. This includes cash and cash equivalent of RMB 281 million. Accounts receivable of 41 million, prepayments of 13 million, fixed assets of 68.9 million, long-term investment of 165.6 million.

Total current liabilities were at RMB 373.1 million as of September 30, 2021. This includes short-term loan of 105 million, accounts payable of 13.5 million, deferred revenue of 114.4 million, accrued liabilities of 95.1 million. Next on to business outlook. Based on the current available information, the company sees full year 2021 revenue guidance to be in the range of RMB 350 million to RMB 360 million, representing growth of 36% to 40% year over year compared with last year and our guidance for our full year gross margin to remain above 70%.

Please note that for meaningful comparison purposes, the prior year revenue numbers used to calculate the growth percentage exclude revenue from the targeted marketing business. The growth outlook is based on the current market conditions and reflects the company's current and preliminary estimate of the market and operating conditions and customers' demand, which are all subject to changes. Lastly, before I conclude, I'll give a quick update on the share repurchase plan. In the quarter ended September 30, 2021, we did not repurchase any shares.

As of September 30, 2021, cumulatively, we have repurchased a total of 921,000 ADS since the start of our repurchase program. And this concludes the management's prepared remarks. We're happy to take your questions now. Rene, back to you.

Rene Vanguestaine -- Investor Relations

Operator, please start the Q&A.

Questions & Answers:

Operator

[Operator instructions] Our first question is from the line of Brian Kinstlinger of Alliance Global Partners. Please go ahead.

Brian Kinstlinger -- Alliance Global Partners -- Analyst

Great. Thanks for taking my question. First, can you comment on the pace of JG Alliance integrations? Has the pace picked up to the same pace prior to the discussions of new regulations? Or is there going to be a gradual pickup and you still have a bit more to go before the pace returns to that rapid pace?

Fei Chen -- President

Brian, this is Fei. So in terms of the apps, the pipeline to join the JG Alliance, right? So we do see actually starting from the end of third quarter, beginning of the fourth quarter, many apps before they were delaying the process, has renewed the process, started engaging with us. So we actually currently are seeing a pretty decent pipeline. It will be a very strong pipeline, not only some medium-sized apps but also some large, very large apps who are in the discussion with us.

So we do expect there's a decent number of DAUs going to be join our -- joining our network in current quarter. So because of this situation, this outlook that's why we give this confidence that we will be able to narrow our guidance range for the revenue, as you have seen, right? We've narrowed to the upper end. So that shows the confidence and the visibility we currently have.

Brian Kinstlinger -- Alliance Global Partners -- Analyst

Maybe just a follow-up on that. Is the pace fully recovered or is it partially recovered and you still have more to go as those apps improve their regulatory situation for their own apps?

Fei Chen -- President

I think that it will be -- most of it has recovered. Yeah, I would say 70%, 80%.

Brian Kinstlinger -- Alliance Global Partners -- Analyst

OK. And then in terms of JG Alliance. Talk about the mix of direct sales versus publishers? And how you kind of rank these and see these going forward as growth drivers?

Fei Chen -- President

I think that the growth driver -- because actually the demand is always there and the demand for our product -- actually that's not a bottleneck as I previously shared with you this commentary in previous calls. Actually, the bottleneck is always -- has always been on the supply side. So as long as there are more apps joining more DAUs joining our network, we will be able to offer more impression, more exposure to the customers on the demand side. right? So that's the situation I want to emphasize again.

Brian Kinstlinger -- Alliance Global Partners -- Analyst

OK. And lastly, can you talk about the early adoption trends with JG Video-as-a-Service product since launch? And how do you expect this to impact revenues over the near and long term? And then in terms of that, maybe go through the sales cycle, how long will prospective customers maybe check this product before purchasing?

Weidong Luo -- Chairman and Chief Executive Officer

Yeah. So in terms of JG VaaS products, right? So actually, since this launch, we are continuing to educate and explore the market, and we have discovered that demand actually is coming from a very diversified industry verticals, such as the financial institutions, the security houses, right, local services, transportation, entertainment, many industry verticals, the customers -- the app developers in those verticals expressed a strong interest. As you have read the press release, right, we recently successfully signed up the contract with a leading IoT manufacture in China. This is a very big contract, OK, close to RMB 1 million versus traditionally, actually, the ARPU for this product is about 100,000, right? So initially, for the video content, we appear on this IoT user's mobile app.

And then we will appear on the smart devices. Think about the user case, when you wake up in the morning, go to the kitchen and start preparing your breakfast. When you are cooking, the big screen on your refrigerator will start showing your favorite short videos. So isn't this going to be -- going to make your cooking more fun? All this is possible is because it is powered by JG VaaS.

So we think this is what's going to happen in the future, and we think it's really exciting. I think the adoption across multiple industries are going to happen not overnight, but we do see the trend. Actually, the demand is there.

Brian Kinstlinger -- Alliance Global Partners -- Analyst

So in the short term, there'll be a very small contributor to revenue. But as we look to maybe the second half of 2022, does it become a catalyst to revenue growth? Or is that even too soon?

Weidong Luo -- Chairman and Chief Executive Officer

That's what we are aiming to. Yeah, you are correct. In the short term, the revenue contribution is still relatively small, given our -- the large base of our traditional products, the push services and the other related SDK tools, right? But for next year, actually, we aim to have the sales force and to have -- to drive strongly to promote to sell this product. So certainly, that will be our key focus for next year for this VaaS product,  as well as the UMS product, these two new products.

Brian Kinstlinger -- Alliance Global Partners -- Analyst

OK. Thank you.

Operator

Thank you. We have our next question from the line of Ryan Roberts of Navis Capital. Please go ahead. Your line is open.

Ryan Roberts -- Navis Capital -- Analyst

Hi. Good evening, guys. Can you hear me?

Weidong Luo -- Chairman and Chief Executive Officer

Yes, Ryan.

Ryan Roberts -- Navis Capital -- Analyst

Great. So my question is really kind of more on the, I guess, the financial performance. So first question kind of on gross margin for SaaS, I know it moves around a little bit from kind of from quarter to quarter. It looks like it's softened a little in this quarter.

And so, I was kind of curious if you can give us some color on why that might have been? And I've got a question about kind of the outlook after that?

Weidong Luo -- Chairman and Chief Executive Officer

Yes. I guess, the margins did not move as much as what we have expected, it did drop a bit, but I guess there's a more functionality on some of the apps that we brought in for the JG Alliance we, yes, we managed to get more than some of the share of revenue. So in that case, we are giving them some of the benefits of our gross margin. So we do not expect that to be a continuous trend.

So we expect the margin to be above 17% nevertheless. So as far as the margin is concerned, we don't see that as a meaningful dip.

Fei Chen -- President

Yeah. So we aim to keep our gross margin above 17% at least that's our near-term target.

Ryan Roberts -- Navis Capital -- Analyst

Got you. Got you. OK. And then that sounds kind of like, I guess, a base case.

I think in the past several quarters, it's been certainly well above that. So that's, I guess, how I'm looking at that. And really kind of -- as we sit here now in November, looking into, I guess, really, actually, we're almost in December here, how are we thinking about next year? Because it sounds like you have JG Alliance devices coming back into the pool, the previous analyst asked about sign-ups and kind of you mentioned that you're back on to a normalized pace, which I've realized there are vagaries there with what developers want to do or not. But how are we thinking about the year ahead? And maybe on JG Alliance, can you update us on kind of the overall ad load as you go into the end of the year and also eCPM.

How are those metrics kind of shaping up?

Weidong Luo -- Chairman and Chief Executive Officer

Yeah. So Ryan, so actually our teams, different business units currently are still undertaking the process to finalize the next year's budget, right? So we usually have used two approach, bottom up and a top down, OK? So the management -- the top management people sitting here have a goal we want to achieve for next year, right? But also, we need to look at how the people in the field, they look at their confidence level and what they see in terms of the demand and the microenvironment, etc. So we need to take everything into consideration and then come up set a goal for different business units, and then we come up the guidance for the entire company, right? So currently, we are still in the process of doing this. So I think by next earnings call, we should be able to give you confidently a concrete number of what we are going to achieve.

And then, in terms of -- yes, the ad load, right? So ad load actually is actually determined by a number of factors. One is we talked about this a number of times, basically the product called the SSP 2.0, which allows -- enables the mods for exposure for DAU, right? So actually, talk about this product actually in the third quarter, it continued its product iteration. We made some progress in the third quarter which actually helps improve our ad loads a little bit. The magnitude is not used to our satisfaction.

Currently, the improvement is less than 10% overall. And the progress of the transition is a little bit lower than we expected, and we expect the full migration of existing apps into SSP 2.0 will be delayed to the first quarter 2022 because not only the product needs to be robust enough but also, we need the sales force and app traffic operating team working together to identify each app usage scenario that is suitable for multiple exposure. For example, we need to determine when a user enters what page and conducts what action, then it is appropriate to send another in-app message, right? So after such information has been analyzed, we need to have the conversation with the app developers one by one to tell them this is how we think about it and why they should add this functionality. And all this actually takes time.

So our goal is to have the ad load exposure for DAU from this perspective to improve by close to 20% overall by end of third quarter. And other than this SSP 2.0, the improvement, which will improve the ad load. Actually, there are other ways we can improve the ad load as well, such as we are making technical improvements, and which can give ads more chances to display. For example, we are storing some backup ad if the first impression doesn't work, doesn't happen and then the backup ad can show up, which will certainly help improve the ad load.

And this is a technical improvement. And also, we are identifying and eliminating some unnecessary loss opportunities in displaying the ad due to certain rule setting. So there are multiple things we are currently undertaking to try to improve the ad load. So I think if one or two of these things we do well.

I think the ad load will continue to see upward trend. So in terms of the -- what's the question you asked? That's a third question.

Ryan Roberts -- Navis Capital -- Analyst

The other question was on eCPM.

Weidong Luo -- Chairman and Chief Executive Officer

OK, eCPM in the quarter actually remained stable during the quarter. And eCPM actually is pretty much determined by the CPC and the CPA and that's actually determined by how well we fine-tune the algorithm. And certainly, we actually spend a lot of other efforts on other things and this improvement on eCPM actually, we currently have a plan, but that was not our whole focus in the third quarter.

Ryan Roberts -- Navis Capital -- Analyst

Got you. And then maybe if you could share some -- because I know the advertising industry in China has been a bit touch and go, I guess, in the last several months in terms of demand and kind of where that's coming from the education part. Can you give us a sense of where you are vertical-wise, kind of what's meaningful right now? And kind of maybe if you could share a little bit of kind of outlook on demand, what you're seeing from them? That would be helpful.

Weidong Luo -- Chairman and Chief Executive Officer

Yeah. So actually, recently, a number of Internet platforms, right, they reported earnings. As we all know, they were expected by macro environment. And the regulation, supervision of key advertisers' industries, right, which directly impacted their customer churn, which is what we have seen in the education industry or had the budgets reduced on the client side such as the gaming industry.

However, for JG Alliance, we don't have much coverage in those two industries. Our main customers are mini program advertisers, app retargeting advertisers and the advertisers in the field of finance and e-commerce. So customer budgets in those areas are relatively stable. And so actually, we are not seeing any weakening in terms of the demand from the demand side.

So we do not really see the demand will have an impact on our JG Alliance growth going forward.

Ryan Roberts -- Navis Capital -- Analyst

Got you. OK. And so, it sounds like churn then, I guess, sounds pretty low. I think you mentioned the last analyst asked about mix between agents and kind of your direct sales.

Any kind of churn, I guess color you can share?

Weidong Luo -- Chairman and Chief Executive Officer

You mean the agents, advertising agents versus direct?

Ryan Roberts -- Navis Capital -- Analyst

So yeah, you went into that. I think on the last question -- sorry, a question earlier, but in terms of any churn in terms of like the advertisers, I guess, ultimately, you know who's advertising to the platform. Do you see any kind of any changes in overall kind of as composition of who's buying ads. I mean you mentioned kind of many programs in one...

Weidong Luo -- Chairman and Chief Executive Officer

Yeah. So the core, actually, the top advertisers are still the similar -- the same guys, right, and the players basically who are the mini program operators and the players who are for actually targeting purpose such as companies such as Taobao, Alipay, right, and Meituan and Weibo. These customers remain our top customers, and they are very, very stable. And other than that, actually, we are continuing to penetrate into new industries, such as the -- actually the car industry, OK? So we acquired some customers in that quarter.

And also, we continue to leverage our ad agencies. So if you look at the revenue mix between the ad agency and direct sales, actually, actually, last quarter, it was about 50-50. But this quarter, actually, the ad agency contributed around 55% of the JG Alliance revenues, right, right? So it's actually -- you are seeing the pickup in terms of the revenue mix by the ad agencies and these ad agencies, they bring in fresh, brand new customers to our ad customers to our platform, which is a good thing. So I think overall, the customers are stable and we are not seeing any meaningful churn by any large customers.

Ryan Roberts -- Navis Capital -- Analyst

OK. Great. Thank you.

Weidong Luo -- Chairman and Chief Executive Officer

Yeah, sure.

Operator

Our next question is from the line of Brian Kinstlinger of Alliance Global Partners. Please go ahead.

Brian Kinstlinger -- Alliance Global Partners -- Analyst

Thanks for taking my follow-up. First of all, on the gross margin of 70%, again, you have been quite a bit higher for the last three quarters from there. Will you see that much pressure over the next few quarters to get you as low as 70%? Or is that -- as the previous gentleman just said, is that just sort of the base pace long term of where you'll be?

Weidong Luo -- Chairman and Chief Executive Officer

Yeah, I think we have been operating the business with margin of 74%, 75%. No, we do not expect the margin to dip in Q4.

Brian Kinstlinger -- Alliance Global Partners -- Analyst

OK. And then...

Fei Chen -- President

So Brian, Brian, actually, let me clarify actually, we constantly actually say that we will keep our gross margin above 70%, right? So that's our base case. And above 70%, between 70% and 75%. Certainly, you'll see fluctuation probably between quarter and a quarter. But that is normal, right? Because some business segments such as the JG Alliance, the margin sometimes is actually decided by how we cook the deal with the app developer -- the supplier -- the targeted supplier, right? But certainly, we aim to keep the gross margin above 70%.

So that's our goal.

Brian Kinstlinger -- Alliance Global Partners -- Analyst

Yeah. OK. And then as we head into next year, talk about the seasonality and how much of an impact the Chinese New Year has on each of your businesses?

Weidong Luo -- Chairman and Chief Executive Officer

Yeah. So if you look at our past several years, Chinese New Year seasonality, certainly, the first quarter is the weakest quarter for us, not only for us, actually for the other -- most of the Chinese companies as well. First quarter because that's the Chinese New Year and basically, at least the two weeks, nobody is working, right? So basically, nobody is spending money. So that certainly will impact the demand for JG Alliance business.

For the other business because it's subscription-based, right? So it's a highly, highly stable, highly visible. But that said, overall, for the company as a whole, you should see certain magnitude of seasonality in the first quarter, i.e., there will be sequential revenue decline by a little bit in the first quarter.

Brian Kinstlinger -- Alliance Global Partners -- Analyst

But what you're saying is the SDKs and the Vertical Applications, both will be a little bit more flattish?

Weidong Luo -- Chairman and Chief Executive Officer

SDK will be OK but vertical application that's one product called financial risk management. Financial risk management, actually, our end customer, there end demand is consumer-related demand. So because people will borrow money less. So during that time, actually, if there any consumer demand decreases, their usage to use our service will decrease as well because it's a volume-based pricing model.

So that will be impacted as well, but other than that, our subscription-based business and our -- the industry insights, those business should be stable.

Brian Kinstlinger -- Alliance Global Partners -- Analyst

Great. Thank you.

Operator

Thank you. There is a follow-question from the line of Ryan Roberts of Navis Capital. Please go ahead.

Ryan Roberts -- Navis Capital -- Analyst

Hi. Thanks for taking the follow-up. Had a question actually thinking about like here, and again, and I realize you're in the planning process, so on and so forth. Again, but here we are finding ourselves knocking on December's door.

Looking at the kind of the R&D spend, which has been kind of chunky compared to last year, most of that headcount. What are you thinking about next year in terms of headcount and kind of expense allocations? I know for this year, things have been kind of tightly controlled, but as you move into next year, what are you thinking about? And maybe what are some of the, I guess, key concerns that you're weighing looking into the year end?

Weidong Luo -- Chairman and Chief Executive Officer

Yeah. So for next year, actually, in terms of the opex and also the spending, right, particularly R&D. One thing is clear, we are not going to try to increase much about the R&D expense, OK? And we are not going to increase much about the R&D headcount, OK? And we think there's a lot of room to improve the efficiency, OK, not only by the -- from the human resource perspective, but also from the IT resource perspective, and we are currently basically doing the analysis to see where we can improve the efficiency, right? So this improvement that needs to happen, OK, next year. So that will basically we are not -- you will not see much increase in the expense on R&D.

Ryan Roberts -- Navis Capital -- Analyst

Understood. OK. And maybe if I could turn back to something you mentioned earlier in the call. Sorry, maybe Weidong, I think he maybe mentioned it.

Kind of the Huawei kind of news or maybe some of the investor's kind of on the call, that are not super familiar with the landscape of the cloud providers in China and maybe what that actually means transformationally kind of for your company. What that gives you exposure to. Can you maybe talk a bit around kind of what you're thinking about the, I guess, the impact of the Huawei deal? Who that opens your software SDKs and stuff, who that opens you up to in terms of the overall kind of, I guess, a market share perspective? And maybe you could kind of give us some insights on what that could mean for you?

Weidong Luo -- Chairman and Chief Executive Officer

Yeah. So recently, our JVerification and other Customized Service will officially launch on Huawei Cloud. So, basically, the cooperation with Huawei Cloud has been demonstrated industrywide credit and trust we come out for our robust capability and service. So basically, developers can -- they can purchase and experience our JVerification service by logging in their Huawei Cloud account on Huawei Cloud platform.

So we have launched the alliance a couple of months. So we already see a few contracts from this alliance. So next, Huawei Cloud plans to build an asset one-stop integration service platform with us primarily to package our Developer Service product into one solution and host on its cloud platform. So these will give developers the ease of one-stop purchase experience.

So at the same time, we will provide systematic training for Huawei Cloud sales teams to get a better understanding of our operating regarding this channel, and work closely with them to generate more sales opportunity. In addition, we will also collaborate with them to -- on marketing activities, such as office offline events targeting the financial industry. Of course, a huge developer group base that we own will also provide a great commercial value for Huawei Cloud itself. We are also actively discussing how we can embed Huawei Cloud service into one -- into our commercial solutions in the new future and promote them to our various cloud base, but that's what we see so far.

OK.

Ryan Roberts -- Navis Capital -- Analyst

[Foreign language]

Weidong Luo -- Chairman and Chief Executive Officer

Yeah, yeah, yeah. In fact, that's not about their manufacturer customers. I don't know Huawei Mobile, but about their Huawei Cloud, that's the business customer, right? Huawei Cloud is actually growing really, really faster. So it's similar like Ali Cloud.

Ryan Roberts -- Navis Capital -- Analyst

Right, right. I just wanted to understand that -- again, the difference was like this is to kind of get the Huawei Cloud and infrastructure provider as opposed to any kind of relationship with the Huawei smartphone brand. So it's -- I guess, there's maybe some potential misunderstanding about Huawei Cloud and blah, blah, blah.

Weidong Luo -- Chairman and Chief Executive Officer

Right. We are not collaborating with Huawei smartphone. We are only collaborating with the Huawei Cloud business. Basically, they have the 2B business, right? So we have the 2B business.

So that's a customer synergy. So basically, I'll give you a number. Huawei Cloud has around 2,000 sales in the -- I mean, all of China. We only have...

Ryan Roberts -- Navis Capital -- Analyst

I think they're like No. 2 in China, right, in terms of cloud?

Weidong Luo -- Chairman and Chief Executive Officer

Currently, it's No. 2 or 3, I'd say, Tencent Cloud or Huawei Cloud. But I think -- yeah, yeah, yeah. That's it.

No. 2 or 3.

Ryan Roberts -- Navis Capital -- Analyst

Got you. OK. OK. thanks That's what I wanted to clear up Thank you very much.

I appreciate that.

Operator

[Operator instructions] OK. I'd now like to hand the conference back to Mr. Rene Vanguestaine for closing remarks. Please go ahead.

Rene Vanguestaine -- Investor Relations

OK. Thank you, Annie. Thank you, everyone, for joining our call tonight. If you have any further questions and comments, please don't hesitate to reach out to the IR team.

This concludes the call. Have a good night. Thank you all.

Operator

[Operator signoff]

Duration: 56 minutes

Call participants:

Rene Vanguestaine -- Investor Relations

Weidong Luo -- Chairman and Chief Executive Officer

Fei Chen -- President

Shan-Nen Bong -- Chief Financial Officer

Brian Kinstlinger -- Alliance Global Partners -- Analyst

Ryan Roberts -- Navis Capital -- Analyst

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