3Q24 Revenue and adjusted net profit exceeded our expectations

Tuya Inc announced 3Q24 results: revenue of 81.62 million US dollars, up 33.6% year on year, exceeding our previous expectations, mainly due to revenue growth of IoT PaaS and intelligent solutions exceeding expectations; adjusted net profit of 20.14 million US dollars, up 99.4% year on year, corresponding adjusted net profit margin of 24.7%, higher than our previous expectations, mainly due to the company's strict control of expenses and scale effects.

Development trends

The recovery of IoT PaaS continues, and smart solutions are growing rapidly. Thanks to strong customer demand, all segments of 3Q24 Graffiti achieved steady growth, with IoT PaaS revenue rising 26.4% year over year to $57.86 million. In the past 12 months ending September 30, 2024, the net expansion rate of the IoT PaaS business increased to 124% (78% in the same period last year), the number of IoT PaaS developers increased by 26.9% to 1.26 million at the end of the third quarter, the number of high-end customers increased from 263 in the same period last year to 286, and revenue from high-end customers increased to 85.6% of total IoT PaaS revenue (83.5% in the same period last year). In September 2024, Graffiti released a newly upgraded AI Agent development platform, further enhancing the interaction, efficiency, and functionality of intelligent products. Revenue from SaaS and other businesses increased 16.7% year over year to 9.92 million US dollars in the third quarter, mainly due to the growth of cloud software products; revenue from intelligent solutions increased 102.9% year over year to 13.84 million US dollars, and customer demand for intelligent solutions was initially verified. From a geographical perspective, 3Q24 graffiti has developed steadily in the European market, while emerging markets such as Latin America are growing rapidly.

Cash flow continues to improve, and capital reserves guarantee long-term development. 3Q24 graffiti's comprehensive gross margin was -0.7ppt to 46.0% year over year, mainly affected by changes in revenue structure. Among them, IoT PaaS gross margin was +2.3ppt to 46.9% year over year, mainly due to increased product value; SaaS and other gross margin -2.3ppt to 71.6% yoy; and smart device solution gross margin -3.4ppt to 23.5% yoy, mainly affected by product restructuring and price discounts. In the third quarter, Graffiti recorded an adjusted operating profit of 7.4 million US dollars, corresponding to an adjusted operating profit margin of 9.1% (-5.7% in the same period last year); cash flow from operating activities was 23.85 million US dollars, and cash on hand (including long-term and short-term investments) exceeded 1 billion US dollars by the end of the quarter. We believe that the company's sufficient capital reserves are expected to support technological innovation and sustainable development.

Profit forecasting and valuation

Taking into account the recovery in downstream customer demand and the smooth development of new business, the 2024 and 2025 revenue forecasts were raised by 5.2% and 16.0% to $0.3 billion and $360 million; to take into account scale effects and cost controls, the adjusted net profit forecast for 2024 and 2025 was raised by 34.5% and 20.9% to $66.2 million and $65.69 million. Maintain the outperforming industry rating and maintain the target price of $2.0 (based on 4 times the 2024 P/S valuation), taking into account the decline in the industry's valuation center. The company is currently trading at 3.0 times P/S in 2024, and our target price has 29% upside compared to the current stock price.

risks

Downstream demand is weak, and customer growth falls short of expectations.