How much can a company change in four years.

Tuya Smart shows us their answer.

From helping customers achieve device intelligence more efficiently and competitively to crossing over into the wider space of intelligent space and building a cloud platform for smart solutions that includes PaaS+SaaS+intelligent devices, Tuya has created intelligent business for giant global enterprises through the Cube Smart Private Cloud. This is not only a technological leap, but also an ecological evolution.

May 21st, Tuya Intelligence (hereinafter referred to as "Tuya") released its quarterly report, achieving Non-GAAP profitability in the first quarter for the first time. After crossing the storm, Tuya ushered in the next phase of growth.

Entering a new stage, Tuya's first-quarter report presents multiple highlights.

01

This financial report has four key points:

1. The performance of revenue and profit can be summarized as: revenue exceeded expectations, and the off-season reached a new high.

In Q1 of 2024, Tuya realized a total revenue of 61.7 million US dollars, a year-on-year increase of 29.9%, exceeding market expectations. For profitability, Tuya has achieved stable profits for four consecutive quarters, and the Non-GAAP net income for the reporting period has increased to 12.3 million US dollars. Especially, the first quarter is usually the off-season for Tuya's revenue, and Tuya still achieved outstanding performance, fully demonstrating its strong profitability.

2. Both high-speed growth and high-quality growth are achieved.

The company's financial indicators have comprehensively improved. In Q1, the company's gross profit margin reached a new high of 47.8%; operating net cash flow improved significantly month-on-month to $14.5 million; cash on hand is nearly $1 billion.

3. The largest business sector has ushered in a comprehensive recovery.

The IoT PaaS business occupies a pivotal position in Tuya's overall revenue, accounting for more than 70% of the company's largest and core business segments. In Q1, IoT PaaS revenue was $45.6 million, a year-on-year increase of 35.7%, and the net income expansion rate of IoT PaaS increased to 116%.

"This growth is due to the recovery of overseas consumer electronics demand, the steady improvement of global intelligence demand, our continuously increasing market share, our main competitors clearing out during the industry downturn cycle from 2022 to 2023, and more top brands turning to our platform from internal IoT research and development, as well as continuous new product research and innovation to help our brand customers quickly launch new intelligent products." Tuya Intelligent Founder and CEO Wang Xueji said.

4. Upgrades to business achieve good results.

The company integrates generative AI, embedded, cloud software and other capabilities into Smart Solution intelligent device solutions and in the reporting period, revenue from this sector increased by 37% year-on-year to $7.5 million.

This quarterly report is proof that Tuya has achieved a "good start". This bright start not only indicates the high prosperity of 2024, but also signifies Tuya's entering a new era of the intelligent world with new technologies like AI.

At this moment, it is necessary to re-examine Tuya's potential for value growth.

02

Three major factors of resonance from a Bass model perspective.

We have multiple theoretical frameworks to evaluate the innovation value and business value of technology companies. Among them, the Bass Innovation Diffusion Model (Bass Model) has become a key tool for measuring the value growth of technology companies. The Bass Model accurately describes the behavior of innovators and imitators, vividly showing the complete process of high-tech products from initial acceptance to widespread popularity. By analyzing the behavior of early adopters (innovators) and late followers (imitators), the Bass model reveals the dynamic mechanism of market diffusion. Its key parameters - market size (M), imitation coefficient (q), and innovation coefficient (p) - provide us with deep market insights.

Technology products usually exhibit distinct innovation diffusion characteristics, and the Bass model precisely depicts the behavior of innovators and imitators, vividly showing the complete process of high-tech products from initial acceptance to widespread popularity.

By analyzing the behavior of early adopters (innovators) and late followers (imitators), the Bass model reveals the dynamic mechanism of market diffusion. Its key parameters - market size (M), imitation coefficient (q), and innovation coefficient (p) - provide us with deep market insights. The outstanding performance of Tuya Intelligence is a typical example of the synergistic effect of these three factors.

Tuya Intelligence's outstanding performance is a typical example of the synergistic effect of the three factors in action.

Market size (M): Breaking through boundaries

Focusing on trillion-level market size

Market size (M) represents the potential sales volume or total demand, in other words, it predicts the market ceiling of the product.

Tuya's business boundaries are expanding rapidly, entering a new stage.

Hardware intelligence is a key pivot for Tuya's early-stage development. Tuya's IoT PaaS service helps companies efficiently upgrade product intelligence. In the crowded IoT market, Tuya has successfully occupied a considerable market share with this pivot.

Continuous technological progress and changes in market demand have enabled Tuya Intelligence to continuously break through its boundaries. Since four years ago, the company has moved from the intelligence of a single device to a new field of space intelligence. Today, Tuya focuses on the intelligent management and optimization of the entire environment and scenario, expanding its business to the space intelligence of industries including apartments, hotels, communities, transportation, and energy. The company is also further moving into a smart solution cloud platform that includes PaaS+SaaS+smart devices, including the Cube smart private cloud.

The greatly enriched application scenarios have driven tens to hundreds of times growth in the TAM market size. This is a key transition, marking the company's entry into a broader market, entering a new development stage, and laying the foundation for the company's value growth.

In addition to the positive impact of market size, the behavior of early adopters (innovators) and later followers (imitators) also affects market penetration. The behavior of these two groups is described by innovation coefficient p and imitation coefficient q, respectively.

Innovation coefficient (p): Embracing AI

Continuously driving innovation, helping developers upgrade

A high innovation coefficient p value means that the product or technology has strong appeal and can quickly attract early adopters.

Compared with the imitation coefficient, the innovation coefficient reflects more the ecological effect of innovation and the "siphon" effect. The acquisition of this part of customers essentially relies on the attractiveness brought by strong innovation level.

For a technology-driven company like Tuya, it fully embraced generative AI as early as 2023. The layout around the AI field is becoming an important focus for its future to open up greater market potential and create greater business value.

The natural technology gene enables Tuya to fully exploit and utilize AI technology to continuously drive innovation. Especially based on the company's cloud platform technology gene and huge intelligent hardware ecosystem, Tuya is also fully committed to the research and development of generative AI, continuously exploring opportunities for development in areas such as equipment intelligence, space intelligence, and smart solution platforms.

In the direction of spatial intelligence, Tuya integrates its AI capability into the daily management of space scenarios, enabling users to access generative AI device functions and management experience, AI-driven intelligent scene experience, or scene analysis and linkage solution recommendations.

Tuya Intelligence's Smart Solution is a microcosm of its innovation strategy in the AI era. It not only reflects Tuya Intelligence's technological depth in AI and AIGC, embedded operating systems, and cloud software, but also demonstrates its ability to integrate these technologies to create greater customer value.

In devices such as smart HVAC systems, smart watches, smart light strips, etc., Tuya Smart greatly enhances user interaction and improves operational efficiency through voice recognition technology empowered by integrated AIGC. This intelligent interactive approach allows users to achieve more precise and convenient home control, leading a new trend in smart home life. Product structure including 100-300 billion yuan products has operating income of 401/1288/60 million yuan respectively.

At the same time, in the field of pet equipment, Tuya Smart utilizes technologies such as GenAI to deeply analyze pet behavior patterns, and customizes personalized toys and games for pet owners to create highly interactive sound and visual effects. These innovations not only bring more entertainment and joy to pets, but also deepen the emotional bond between pets and their owners, providing pet owners with a richer and more loving product experience.

It is worth mentioning that on May 29th, at the Tuya Global Developers Conference, Tuya launched its own AI model - Cube AI. With the huge intelligent device scale of Tuya's global ecosystem, based on customer IoT data and specific scene requirements, Cube AI generates optimal energy-saving and emission-reducing strategies in real-time according to energy consumption in space, providing customers and users with leading AI technology product value in the field of intelligent space.

Through these specific application examples, we can see that Tuya is turning the advantages of AI technology into actual value for customers and users. This not only truly empowers customers to enhance their core competitiveness, but also further strengthens customer loyalty and satisfaction with the Tuya Smart brand.

In the wave of AI technology-driven innovation, Tuya not only improves its own innovation efficiency, but also greatly facilitates the adoption and application of its products and services by developers, helps to enhance the "dimensionality" of developers' development capabilities, and helps them efficiently produce competitive products. Meanwhile, this also further accelerates the wide application and popularization of innovative technologies. The Tuya developer platform plays a core role in inspiring vitality in a smart ecosystem of multiple brands, original equipment manufacturers, co-branding partners, and end-users.

As a global cloud developer platform, Tuya is committed to integrating AI technology into the core link of the development process, bringing developers the most advanced, convenient, and efficient development experience. Developers can use AIGC capabilities to enter the development process through simple interactive conversations, generate UI interfaces, or check problem logs with AI and return code suggestions.

In addition, AI will also help developers analyze the advantages and disadvantages of user feedback and product functionality, so that developers can improve, iterate and innovate their products. As of the end of the first quarter, the number of registered developers on Tuya's platform has exceeded one million.

The continuous iteration of AI capabilities on the developer platform enables Tuya to help deep interaction and extensive communication between intelligent devices, providing a fertile soil for technology innovation. This AI ecosystem not only accelerates the evolution and iteration of technology, but also injects innovation vitality into the entire industry, leading the industry towards a more efficient and intelligent direction.

Imitation coefficient (q): Building a high-viscosity customer base.

Making global service network unblocked.

"P" factor mainly affects the initial stage of the diffusion process, that is, the introduction period of new products or technologies, while the "q" factor plays a greater role in the later stage of the diffusion process, promoting products or technologies to a wider range of consumers. A higher "q" value reflects not only product and service customer acceptance, but also product and service scalability and ease of use, making it easier for products and services to gain more customer acceptance.

Through the constructed intelligent solution cloud platform that includes PaaS+SaaS+smart devices such as Cube Smart Private Cloud, Tuya has successfully created a series of benchmark cases, laying the foundation for its high "q" factor. Leveraging positive feedback from existing customers has also attracted more potential customers to start using its products and services.

As Wang Xueji mentioned during the performance conference call, the company has observed a group of new faces of developers and brand customers growing on the cloud platform. Among them, there are a batch of Chinese e-commerce enterprises that are more research and development and brand capabilities-oriented than those four or five years ago, and there are also well-known brand players in North America, India, Europe with more focused localization service models. The stable base of new and old customer groups has resulted in the overall growth rate of Tuya outpacing industry growth.

As mentioned above, Tuya combines the advantages of AI technology with the development of intelligent devices, bringing practical value to customers and users. In addition, through the establishment of an intelligent ecosystem platform, it provides important support for the "dimensionality" enhancement of developers' development capabilities, as well as the innovation and iteration of technology.

Let's take the case of Tuya's cooperation with French company Xanlite to see how the company has developed a high "q" factor.

Tuya's cooperation with Xanlite began with the intelligent upgrading of lighting products. As early as 2018, the two sides jointly launched the smart home brand KOZii, which has since become one of France's top smart home brands. With Xanlite actively responding to France's energy-saving policies, it began to enter the energy transition-related business.

In May of this year, the two sides ushered in a new milestone in their cooperation. At the "Zhejiang-France High-Tech Industry Innovation Cooperation Matchmaking Conference" held in Paris, the two parties officially signed a cooperation agreement to jointly promote a new path of intelligent home energy conservation. In this cooperation, Tuya Smart will use its cutting-edge technologies such as GenAI and cloud computing to jointly accelerate the landing of intelligent home solutions in France and even Europe with Xanlite, bringing more efficient and greener intelligent life experience to homes.

From the initial lighting product cooperation, to the integration of advanced energy-saving kits and smart home systems, this cooperation process highlights Tuya's remarkable achievements in meeting customer needs, providing sustained value, and deepening cooperation. This not only reflects the company's outstanding performance in customer stickiness, but also demonstrates its ability to empower enterprises with strategic transformation and continuous innovation at different stages of development.

In fact, the cooperation experience with Xanlite in France has also given Tuya the opportunity to further expand its network of partners in the local market. In 2019, Tuya also established a partnership with Schneider Electric, a pioneer in the French industry. This collaboration focuses on the development of the Wiser smart home automation platform, aiming to jointly promote innovation and application of smart home solutions by integrating the technological advantages of both parties.

In the same year, Tuya also reached a deep cooperation with CALEX, a well-known lighting enterprise in Europe, at the CIIE. Prior to this, Tuya Smart had helped CALEX's lighting products cover mainstream retail channels in about 6 countries in Western Europe.

Through this series of collaborations, Tuya Smart has not only strengthened its technical strength in the field of smart homes, but also further expanded its influence in the European and even global markets by leveraging the brand influence and market position of its partners.

In fact, Tuya Smart's cooperation cases are not limited to specific regions, but span across many countries and regions, which continues to enhance its market expansion opportunities for products and services.

For example, the cooperation project with Schneider Electric has successively landed in markets such as the Asia-Pacific, Australia, and Europe in the subsequent cooperation process. For instance, the cooperation reached with TCL in multiple home appliance categories successfully brought smart devices to customers in dozens of countries where TCL is present.

It can be said that through a series of global collaborations, Tuya has continued to expand its market influence, and has also enhanced the credibility of its brand by leveraging the market position and user base of its partners, effectively promoting the diffusion of products and services.

As mentioned in the financial report, the company's continuous overseas expansion and more balanced global business layout have made Tuya's business more resilient and opportunistic than three years ago. "We are able to keenly perceive and capture the new smart trends in various regions around the world, and better serve Tuya's global customers and Chinese manufacturing enterprises going global."

03

Conclusion

From the perspective of the Bass model, it is not difficult to see Tuya Smart's significant potential for value growth. It can be said that the expansion of the market scale (M), the technological leadership of the innovation coefficient (p), and the construction of customer stickiness of the imitation coefficient (q) together build the cornerstone of the company's continued growth.

With the continuous advancement of technology and the continuous expansion of market demand, Tuya Smart is also becoming an important force in promoting the development of the smart era with its strong innovation ability and global layout ability. (End of text)