As the time approaches mid-2024, generative AI is still flourishing. Not only have listed companies launched a new round of financing for generative AI research and development, but the stock prices of the secondary market have also risen at the news. In terms of product structure, the operating income of the products with 10-30 billion yuan was 401/1288/60 million yuan respectively, achieving a significant YoY growth rate of +28.10% and overall sales volume of 18,000 kiloliters.
Recently, the news of Tuya Smart-W (02391) joining the United Nations Global Compact caused a 10% pre-market trading surge in the US stock market. The company will use innovative technologies such as generative AI to promote sustainable development measures and support global sustainable development. Since May, the company's Hong Kong stock price has risen by about 27%, driven by better-than-expected Q1 results.
Q1 revenue exceeded expectations, but the company is still not profitable.
According to the WiseMoney APP, Tuya Smart is a representative company in the Internet of Things field, with deep experience in IoT software development and comprehensive IoT development solutions, which meets the different technical needs of corporate customers ranging from large consumer hardware manufacturers to small OEMs.
In Q1 2024, Tuya Smart's total revenue was 61.7 million US dollars, a YoY increase of 29.9%, mainly due to the increase in IoT PaaS revenue, SaaS and other revenue, and smart solution revenue; net loss narrowed by 83.2% from 21 million US dollars in the same period last year to 3.5 million US dollars.
Since 2021, the company's losses have continued to narrow. In 2023, its revenue was 230 million US dollars, a YoY growth rate of 10.5%, and its net loss was 60.3 million US dollars, a narrowing of 58.7%. Its non-GAAP net income was 20.4 million US dollars in the first year of profitability under non-GAAP accounting standards. marking the company's first time earning a profit under non-GAAP accounting.
As of Q1 2024, Tuya Smart has steadily made profits for four consecutive quarters, and for the first time in history achieved non-GAAP profitability in the first quarter, which is usually a low season due to the Spring Festival. Thanks to the recovery of overseas consumer electronics demand and a steady increase in global demand for smart solutions, the company's core business, the IoT PaaS business, continues to rebound strongly, driving margin improvement and laying a good foundation for 2024.
However, it is worth noting that the company's operating expenses in 2023 decreased from 258 million US dollars in the same period last year to 212 million US dollars, of which research and development expenses decreased by 43 million US dollars. The net loss for the year dropped from 146 million US dollars to 60 million US dollars. The extent to which the narrowing of the company's losses is attributed to the reduction in research and development costs remains to be seen.
In terms of business segments, IoT PaaS is still the main revenue contributor. In Q1, IoT PaaS revenue was 45.6 million US dollars, a YoY growth rate of about 36%. SaaS and other revenue were 8.6 million US dollars, a YoY growth rate of about 1.8%. Smart solution revenue was 7.5 million US dollars, a YoY growth rate of about 37.3%. In the future, the single-income structure may affect the company's ability to withstand risk.
In terms of the core IoT business, the company has adopted a focus on major customers strategy, and the total number of customers has decreased over the past year, while the number of premium IoT PaaS customers (i.e., customers whose IoT PaaS revenue contribution exceeds $100,000 in the reporting period) has increased slightly.
Specifically, the total number of company customers decreased from 7,600 at the end of 2022 to 6,100 at the end of 2023, and the total number of Q1 2024 customers was about 3,000, a slight increase from 2,800 in the same period last year. The number of IoT PaaS customers also saw a similar decline, down 22% or 1,100 in 2023, while remaining stable in Q1 2024 compared to the same period last year.
For premium IoT PaaS customers, the proportion of revenue from this group of customers increased from 81.7% in 2022 to 83.4%, reaching 85.1% in Q1 2024. Although the overall IoT revenue achieved growth, the company’s development capabilities for new customers may become a concern for investors.
In contrast, the IoT developer ecosystem is more optimistic. By the end of 2023, the number of registered IoT devices and software developers increased by 40.3% YoY. It continued to grow by 8.2% to reach 1.074 million people in Q1 2024, breaking through the one million developer mark.
In addition, the globalization layout has become a highlight of the company's performance. About 83% of Q1 total revenue came from overseas demands, with Europe slightly exceeding one-third, the Asia-Pacific region one-third, and the contribution from Southeast Asia and Latin America regions rising significantly for three consecutive years. At present, the contribution rate of revenue from Latin America has exceeded 12%.
The commercial dilemma of the IoT field remains to be resolved.
According to data from CCID Consulting, the Shenzhen IoT Industrial Association, and other sources, the scale of China's IoT industry increased by 2 percentage points YoY in 2023 to reach approximately RMB 3.6 trillion. During the 13th Five-Year Plan period, the average annual compound growth rate of China's IoT industry reached 23.4%. It is estimated that during the 14th Five-Year Plan period, the industry will still maintain a high growth rate of 18.9%. The scale of the national IoT industry is expected to exceed RMB 5 trillion by 2025.
Although the Internet of Things belongs to the emerging and broad prospects of the new Yangtze River course, in recent years, the capital market's attention to the Internet of Things sector is less than that of sectors such as new energy and big data. Also, tech giants such as Google and LM Ericsson repeatedly announced news of shutting down their IoT businesses. The main reason behind this is the difficulty in acquiring customers and commercializing the technology.
According to the WiseStocks APP, while the number of users and terminal connections in the Internet of Things field is continuously increasing in 2023, the performance of Internet of Things companies is mixed.
While China Telecom's IoT business revenue increased by 48.3% per year, Quectel Wireless Solutions (603236.SH), as the leading provider of IoT services, went from profit to loss, dropping from a profit of 277 million yuan in the same period last year to a loss of 115 million yuan. In addition, Fibocom Wireless Inc. (300638.SZ), a leading IoT module supplier focusing on car, FWA, and PC categories, saw its full-year revenue and net profit increase by 36.65% and 54.47%, respectively, with strong performance.
Looking at the companies in the Internet of Things industry, how to deal with the 'dimension reduction' attack from Internet giants will become an inevitable challenge for each company. As Quectel Wireless Solutions' communication modules face competition from integrated chips with wireless communication capabilities self-developed by chip manufacturers, TuYa Smart also needs to think about how to deal with Internet giants such as Google and Microsoft's self-built IoT platform and ecology. In this case, TuYa Smart has a natural disadvantage in terms of branding, and the fact that the company's customer base is decreasing seems to indicate that the company's market share is somewhat falling behind.
Looking at downstream industry applications, the new energy auto market is also one of the popular paths for many IoT companies to wager on. For example, Fibocom Wireless Inc. acquired Reh-Ling Wireless, a wireless communication module supplier for cars, and has become the company's largest business segment. In comparison, TuYa Smart's customers mainly come from industries such as smart homes, smart businesses, new energy, education, agriculture, outdoor sports, and entertainment. Judging by the growth rate of downstream demand, the company's future performance growth space may be limited.
Can AI large models 'fly' stock prices?
In 2023, the hot wave of generative AI has also swept into the IoT industry. Recently, TuYa Smart officially renamed its intelligent device distribution segment as Smart Solution intelligent device solutions. This business recorded a revenue of $7.5 million in 2024Q1, an increase of 37% year-on-year, and the gross margin rose from 21% in the first quarter of last year to 28.3%.
According to the WiseStocks APP, TuYa Smart's intelligent device distribution segment mainly focuses on smart hardware devices, including Zigbee gateways, central control screens, smart anti-loss devices, and smart bird feeders. The company's new Smart Solution concept, specifically speaking, is to integrate speech capability with generative AI in smart central control, smartwatches, smart light bars, and smart pets devices. In home and other scenarios, the AI capability will enhance the interaction experience and efficiency, providing users with personalized intelligent scene configuration suggestions, operational status query warnings, scene analysis conclusions, and linkage solutions.
In terms of the developer ecosystem, the company plans to integrate generative AI technology into the development process, allowing developers to enter the development process through conversational interaction, generate UI interfaces, or check problem logs through AI, and receive code suggestions.
Recently, TuYa Smart plans to launch its first AI space large model-the Net Zero Carbon Large Model. According to the introduction, this model is based on TuYa's vast device scale and open-source large model capabilities and can comprehensively reflect the world's actual energy consumption situation. It can mine hidden energy-saving and emission reduction rules and provide huge value to customers and users in the field of space intelligence services.
However, it is well-known that the training costs and computing power infrastructure of AI large models require a large amount of capital investment. In the case where the company has reduced research and development costs by nearly 30% last year, how much 'gold content' this AI large model will have is still unknown.
Overall, behind TuYa Smart's recent good performance, the factors of reduced customer numbers and research and development cost reductions are still worrying. The progress in AI may be more towards a gimmick. Looking forward to the future, the opportunity for the company's value reassessment lies more in when its performance will turn losses around. After all, if you can't achieve self-generation, no amount of growth story can be discussed.