“The number one IOT cloud in the world” Graffiti Intelligence seems to have ushered in a landmark turning point.

After the US stock market on August 26, Tuya.US (TUYA.US), the world's leading IoT cloud development platform provider, released financial results for the second quarter, which greatly exceeded market expectations.

According to financial reports, in Q2 2024, Graffiti Intelligence achieved total revenue of 73.3 million US dollars, an increase of about 28.6% year on year; achieved net profit of 3.1 million US dollars, completed the first profit under GAAP, and achieved adjusted net profit of 20.8 million US dollars, a significant increase of 1276.5% year over year. Overall results far exceeded market expectations.

(Data source: choice)

Looking at the timeline, Graffiti Intelligence's performance in achieving profit in the first quarter is undoubtedly very intuitive. Since successfully landing on the NYSE in March 2021, the company has been questioned by the market about the sustainability of its business model due to “still in loss”. Now, for the first time, the company has achieved positive profits for the first time, which is clearly a major milestone.

However, from a more advanced perspective, is Graffiti Intelligence (TUYA.US) really “worry-free”?

Continue to dig deeper on the path of “cost reduction and efficiency”

The Zhitong Finance App learned that Graffiti Intelligence, founded in 2014, is a world-leading IoT cloud platform that mainly provides enterprises with comprehensive ecological empowerment from technology to channels.

The company's business mainly includes IoT PaaS, SaaS and other smart device distribution, and provides one-stop AIoT PaaS-level solutions. The services cover the three aspects of networking modules, apps, and intelligent clouds.

Judging from the development stage, Graffiti Intelligence has generally gone through two stages: the first stage is the platform construction period (2014-2016), where the company successively released the IoT public cloud, IoT cloud platform, and graffiti cloud module, etc., focusing on PaaS services and completing the initial construction of the cloud platform; the second is the business development period (2017-present), where it has achieved major breakthroughs in the PaaS business, implemented diversified strategies in the business, and focused on building the Graffiti IoT ecosystem.

Looking at the revenue structure, in Q2 2024, graffiti intelligence can achieve a “double harvest” of revenue and net profit, which actually has deep implications.

According to financial data, in Q2 2024, the company's IoT PaaS revenue was 54.3 million US dollars, up 32.0% year over year, mainly due to reduced downstream inventory backlog, global economic recovery from the same period in 2023, and the company's strategic focus on customer needs and product improvements.

The “second growth curve” SaaS and other businesses recorded revenue of $9.6 million, an increase of only 2.4% year over year. Among them, the reason for the growth was that the company continued to strive to provide customers with valuable value-added services and diversified software products during this quarter. Additionally, revenue from smart solutions was $9.4 million, up 44.2% year over year.

As can not be seen from the above data performance, the “second growth curve” of Graffiti Intelligence's revenue growth rate of SaaS and other businesses has shown a clear slowdown. At the same time, since intelligent solutions have yet to form a scale effect, it is still unknown whether the company's main business, IoT PaaS, can carry the next big flag of growth.

Furthermore, looking at the company's operating cost data, it is easy to see that graffiti intelligence can achieve positive profits in the first quarter. Currently, it is mainly due to the company's “cost reduction and efficiency” measures.

According to reports, in the second quarter of 2024, R&D expenses for Graffiti Intelligence were 2.3 million US dollars, down 13.1% from the same period in 2023, mainly due to reduced employee-related costs; sales and marketing expenses during the same period were 9.4 million US dollars, a decrease of 4.5% year on year, mainly due to reduced employee-related costs; general and administrative expenses were 16.9 million US dollars, a decrease of 30.5% year on year, mainly due to reduced credit-related impairment of long-term investments.

Looking at it this way, at a time when the growth rate of the second growth curve can be seen to the naked eye, the growth significance brought about by the steady growth of the IoT PaaS business+cost reduction and efficiency alone is probably not very strong.

The commercialization of the Internet of Things is still a “problem to be solved”

With continuous breakthroughs in technology and strong policy support, the general trend of “the Internet of Everything” has become an undeclared consensus.

However, in reality, for the IoT industry, how to better achieve commercial monetization is probably still a “difficult problem” to be solved.

According to IDC research, the global IoT market will reach $1.5 trillion by 2025. In China, the IoT market is also expanding. The national IoT market size is about 3.05 trillion yuan in 2022, 3.5 trillion yuan in 2023, and the national IoT market is expected to reach 4.31 trillion yuan in 2024. With the continuous penetration and application of IoT technology in various fields, the market size will continue to grow rapidly.

Although the Internet of Things is an emerging Chaoyang circuit with broad development prospects, the capital market's attention to the Internet of Things field has gradually declined in recent years.

On the other hand, news of some tech giants shutting down their IoT business has been repeatedly reported. For example, many tech giants such as Google, Ericsson, SAP, IBM, and Bosch have made drastic adjustments to the IoT business: Google Cloud announced in August 2022 that its IoT Core will stop serving in August 2023, Bosch announced that its IoT device management platform will no longer provide services in mid-2024, and IBM announced plans to shut down the Watson IoT platform service on its cloud...

On the other side, how many companies in the IoT field are showing a state of “a few happy, a few sad.” For example, Yiyuan Communications (603236.SH), a leading IoT service provider, saw both a decline in revenue and net profit in 2023, recording revenue of 13.861 billion yuan, a year-on-year decrease of 2.59%; net profit to mother of 90.7061 million yuan, a year-on-year decrease of 85.43%; while Guanghetong (300638.SZ), a leading IoT module leader in automotive, FWA, PC, etc., increased 36.65% and 54.47%, respectively, with strong performance.

The reason for this is that the IoT industry is in this state of fragmentation, and it is still unable to escape the problems of commercialization and monetization of the industry.

This phenomenon also seems to affect the performance of graffiti intelligence in the secondary market.

On March 18, 2021, Graffiti Smart was successfully listed on NASDAQ at an issue price of 21 US dollars. On the first day of listing, it closed up nearly 20%, and the stock price once rose to a high of 27.65 US dollars. Who thought “listing is a highlight” and then its stock price went all the way down. Up to now, its stock price has fallen to 1.4 US dollars, which is nearly 95% “cut in the ankle” from the highest price of $27.65.

The same is the performance of Graffiti Smart H Shares (02391). It was successfully listed for the second time on the Hong Kong Stock Exchange for HK$19.3 on July 13, 2022. As of January 30, 2023, its stock price rose to a high of HK$22.5, and since then it has continued to fluctuate downward. Up to now, its stock price has fallen to no more than HK$13, and has “shrunk” by 42.2% from the highest price.

In summary, the reason behind the steady decline in Graffiti Smart's stock price is not unrelated to external factors, but the market's doubts about the sustainability of its business model are probably also the main reason for the sharp drop in stock prices. Therefore, this profit is only a phased “victory” for Graffiti Intelligence, and whether it can regain the “joy” of the market through continuous growth in performance may still be a key point.