Tuya Smart Sets Sail on A New Course with First-Time Quarter

The commercial value of the global intelligent industry is transitioning from concept to reality.

Recently, Tuya Smart ("Tuya" or the "Company") released its Q2 2024 financial results. According to the results, the total revenue for the second quarter reached US$73.3 million, a year-on-year increase of approximately 28.6%; The non-GAAP operating profit was US$7.4 million, with a non-GAAP operating margin of 10.0%, achieving quarterly non-GAAP operating profit for the first time in its history. From Q2 of 2023 to Q2 of 2024, Tuya has maintained positive net cash generated from operating activities for five consecutive quarters.

The Company also declared a special cash dividend of approximately US$33 million, equivalent to its non-GAAP net profit for the first half of the year, marking the first cash dividend.

A positive response was revealed to the market in the financial report: Tuya holds the ability to share long-term value, and has returned to the upward curve, driven by favorable factors such as going global.

01 Embracing Milestone Financial Results, Tuya Embarks on New Start for Smart Technology

Three highlights can explain why this financial report is considered a milestone:

1. Strong Growth Momentum of Previous Quarters Continues Despite of A Relatively High Revenue Base

Tuya delivered a year-on-year revenue growth of approximately 28.6% in Q2 2024, marking the fourth consecutive quarter of year-on-year growth, with the growth rate exceeding 30% if the impact of exchange rate fluctuationsis excluded. If calculated in RMB, the Company's quarterly revenue was very close to its historical high. In 2021, benefiting from special subsidies during the epidemic period in the European and American markets, as well as optimistic expectations for the industrial chain, downstream enterprises significantly prestocked their inventory under the stimulation of a chip shortage and price increases, resulting in a concentrated outbreak of performance in the consumer electronics technology service industry and supply chain in the two quarters of 2021, with a "superficial prosperity". In contrast, these days the Company’s revenue under normal conditions has approached the historical high point of the special period.

In addition to approaching all-time highs in revenue, the Company's non-GAAP net profit broke records by US$20.8 million, with a non-GAAP net profit margin of 28.4%.

2. Ushering in a Profitable Era for Third-Party Intelligent Cloud Platform.

During the reporting period, Tuya achieved a non-GAAP operating profit of US$7.4 million and a 10.0% non-GAAP operating margin, which is a positive financial performance. Operating profit, which refers to the net profit directly contributed by a company's core operating activities, demonstrates the Company's ability to maintain stable profitability without relying on other non-operating income.

In the start-up and growth stages of the technology industry, facing the uncertainty of business models, companies often need to constantly explore to establish market positioning, optimize product iterations, diversify revenue streams, and adjust cost structures. This process is inherently challenging and unpredictable. The importance of operational profitability is self-evident as a key indicator for evaluating the effectiveness and sustainability of business model execution. Tuya’s achievement of operating profitability signifies that its business is proven and demonstrates its highly sustainable and stable profit-generation capability.

Furthermore, a 10.0% non-GAAP operating margin indicates that Tuya can create additional economic value with its revenue fully covering its operating costs and expenses, which is not only a solid foundation for the Company's sustainability and sustained growth, but also reflects the advantages of its business model in creating market value, accurately meeting customer needs, and effectively participating in market competition. The sustainable profitability of the Company is thereby indicated.

3. First-ever Dividend, Sharing Long-term Value with the Market

Thanks to its continuous improvement in profitability, Tuya realized a net cash generated from operating activities of US$11.8 million in the second quarter, marking the Company's fifth consecutive quarter of positive operating cash inflows. Also, the Company's net cash reserves reached US$1 billion as of the first half of the year, highlighting its strong financial condition and abundant cash flow. This number, however, even exceeded the Company's total market value, indicating a valuation slump in its stock price.

Stable profitability and sufficient cash reserves formed a solid foundation for high dividends. Tuya announced its first-ever cash dividend of US$33 million, demonstrating the Company's determination to deliver consistent returns for its shareholders.

Revenue and profit hit all-time highs, with non-GAAP operating profit and dividends of large amounts for the first time. These data indicated both the basic completion of its previously promised short-term business goals, and a qualitative leap in its development.

Technological innovation is a life and death journey, and the climbing process is full of hardships and uncertainties.

Even if a company shows great potential in the early stage, countless challenges and obstacles may still fall upon in the ever-changing market and competitive environment. Tuya was faced with a rapidly frozen industry environment amid a major reshuffle in the entire industry brought by the downward cycle of the past two years. The management team focused on and adjusted their strategies while steadily expanding their business, moving towards the vision of "realizing the Internet of Everything and Intelligence of Everything through technology". As a result after lots of tempering, the Company took the lead in ushering in the era of cloud platform profitability.

Mr. WANG Xueji (Jerry), the founder and CEO of Tuya, noted that the Company will continue to focus on long-term revenue growth and profit margin improvement.

02 Enhancing Smart Products Capabilities, Tuya Teams up with Customers to Accelerate Success

To answer whether a company's profit model is sustainable, it not only depends on its past operating conditions, but also on its foundation for future development. From a future perspective, Tuya is also well-positioned to continue innovating and growing in new directions.

It can be seen based on the inherent context in this financial report that the "ecological card" in Tuya’s hand is far from being played.

The "Tuya Smart Ecosystem" consists of three parts:

First is the IoT platform-as-a-service ("PaaS") business, a set of underlying architectures that directly serve upper level intelligence. The IoT PaaS business facilitates strong "customer stickiness" by helping them circumvent weaknesses of traditional IT infrastructure with lower requirement for programming skills and more favorable conditions for rapid development. The success of this strategy is clearly reflected in the financial report. The 12-month Dollar-based net expansion rate (DBNER) has rebounded for three consecutive quarters and climbed to 127% in Q2; Meanwhile, the number of registered IoT device and software developers on the Tuya Developer Platform has also seen significant growth, exceeding 1.192 million as of Q2, an increase of 20.1% compared to the end of last year.

Although it is the earliest business area that Tuya has entered, IoT PaaS’s potential is still being deeply explored and released. In Q2, the Company continued to accelerate its global layout and promote the widespread implementation of IoT PaaS business. In Europe, the Company collaborated with AX Tech Group, a renowned energy integator company in France, to explore a new chapter in smart energy; In Latin America, the benchmark project of the Company has rapidly expanded to top service provider customers in Central America, Colombia, Chile, and other regions, and has helped emerging smart home brands in Brazil jump to the forefront of market shipments. In the Asia Pacific region, the Company has partnered with Vietnam's largest telecommunications operator to further expand its market boundaries. This series of successful collaborations not only consolidates the market position of the Company as one of the world's largest smart solution cloud platforms, but also drives the IoT PaaS business to achieve a 32% year-on-year revenue growth in Q2.

Beyond the IoT PaaS business, Tuya continued to broaden its business boundaries and elevate its capability circle to new heights. In 2020, the Company expanded its space intelligence business. In 2023, the Company started to focus on the development of its Smart Solution business.

The Smart Solution business combines generative AI, embedded operating systems, and cloud software capabilities to create high-value smart solutions that integrate software and hardware. “We select high-value, software-intensive categories to deliver complete smart products," Wang said.

In the second quarter, the revenue of the Smart Solution business increased by about 44% year-on-year, and the gross profit margin increased to nearly 27%. The Company reached cooperation agreements with 6 European brand customers, with Smart Solution cooperation orders exceeding 500,000 units valued at approximately US$5 million. The Company has also secured orders for temperature control valves, gateways, and other devices from a leading German food retailer, and signed a multi-million-dollar annual framework contract with Dutch industry leader Firefly.

Wang also emphasized that IoT PaaS and Smart Solution formed a synergistic and complementary business logic loop. This ecosystem enabled the Company to not only focus on the full scenario needs of diversified customers, further explore vertical industry value maximization, but also quickly replicate successful experiences in more fields, helping customers swiftly capture the market share.

At present, Tuya has served customers in over 200 countries and regions. It is expected to accelerate on its growth path with higher penetration rates, growing user base, more comprehensive customer lifecycle services, and more diverse vertical landing scenarios.

03 Comprehensive Layout of GenAI, Tuya Solidifies Intelligent Connotation

Generative AI is becoming the most fundamental production tool, driven by various technology giants, accelerating the empowerment of various industries in society, and revolutionizing the improvement of production efficiency and technological level. As an industry bellwether, Tuya actively embraces AI technology, integrating GenAI with IoT platforms and the "Tuya Ecosystem" to generate new innovation sparks and lead the industry forward.

Tuya released its first AI spatial model at the TUYA Global Developer Conference in Q2 2024. The AI product matrix and solutions are gradually emerging to the public.

If the spatial large model aims to reshape the underlying technological power, then the AI development tools and AI mini app development base of Tuya directly help customers achieve hardware innovation. For example, the Company has launched an AI pet mini app that seamlessly integrates GenAI technology with pet hardware such as feeders and pet teasers. It also provides users with a comprehensive pet care and companionship solution.

Looking ahead, the Company will continue to deliver software technology, strategic algorithms, and platform capabilities driven by GenAI, and provide smart device solutions to help partners enhance their advantages in their respective fields.

04 Conclusion

Back to the perspective of investors, for every tech firm, major events such as profit breakthroughs and technological innovations will reshape the market's judgment of the company's value potential.

Now the time comes for Tuya to shine.

Currently, profound changes have taken place in the competitive landscape of the global third-party cloud platform market. After years of striving, only a few companies like Tuya and Amazon have stood out from competitors that were knocked cold, and the once crowded track is no longer crowded. Wang also stated that Tuya is at a new starting point in the smart sector and in the entire industry. This new starting point includes a better external competitive environment, as well as a restart of smart consumer electronics and smart business scenarios. As the industry returns to a pro-cyclical trend, the Company may make greater breakthroughs in the commercial ecosystem in the future with good cards in hand.