Since 2022, the global Internet of Things industry has continued to slump, many players in the track have experienced a decline in performance, and there have been news that giant companies have shut down related business sectors. Behind this is the backlog of inventory in the consumer electronics industry, and the difficulty in releasing customer demand and other macro factors, which have led to certain operating difficulties in the IoT field.
Recently, Tuya Smart, the first global IoT cloud platform, released its financial report for the first quarter of 2023, showing signs of stabilization and recovery in performance. At the same time, Tuya Smart also announced plans to hold the TUYA Developer Conference, claiming to hold a top event in the IoT field for global developers. Does this mean that the winter of the IoT industry is about to pass?
The SaaS business is making great efforts, revenue has increased month-on-month, and losses have continued to narrow
The financial report shows that in the first quarter of 2023, Tuya Smart achieved revenue of US$47.5 million, a decrease of 14.2% compared to the first quarter of 2022, of which the main PaaS business revenue was US$33.6 million, which was US$41.8 million in the same period last year. On the whole, the macro factors affecting the performance of Tuya Smart still exist, such as the optional consumer electronics industry is still in the destocking stage, causing downstream group customers to remain cautious in purchasing decisions. But it is worth noting that there are already positive signals in the performance of Tuya Smart.
Despite the year-on-year decline in revenue, it has improved significantly from a quarter-on-quarter perspective, an increase of 5% compared to the previous quarter, while its overall gross profit margin has increased by 3 percentage points year-on-year to 44.3%. In addition, the loss of Tuya Smart also continued to narrow. The net loss in the first quarter narrowed by 61.7% year-on-year to US$21 million, and the non-GAAP net loss narrowed by 90.0% year-on-year to US$3.7 million, a new low since listing.
In the first quarter, the revenue achieved a quarter-on-quarter increase and the gross profit margin increased year-on-year, due to the further development of its SaaS business. From the data point of view, the SaaS business recorded contrarian growth in the first quarter, achieving revenue of US$8.5 million, a year-on-year increase of 42.7%, and the gross profit margin of the SaaS business was as high as 74.1%, much higher than the 40.5% of the PaaS business. In addition, the revenue share of this business is also continuing to increase, from 3.4% in 2020 to 14% in 2022, and it has risen to 18% in the first quarter of this year. It can be seen that in recent years, Tuya Smart has attached great importance to the SaaS business, and has great intentions to use it as the second growth curve in the future.
It is understood that in the first quarter of this year, Tuya Smart refined its technology and products, iterated Cube Smart Private Cloud, Tuya Smart Business and other products, combined with the hardware ecological capabilities of the company and its partners, integrated software and hardware to solve the problem Solutions, to provide customers with more comprehensive empowerment, for example, under the integrated empowerment of "Cube smart private cloud + hardware ecology + Tuya whole house & real estate SaaS", assist Thailand's leading real estate developers to build an independent whole house community IoT platform. Based on this, the SaaS business has grown rapidly, making a greater contribution to the company's performance improvement.
The sharp reduction in losses is mainly due to the company's continued efforts to reduce costs and increase efficiency. The financial report shows that in the first quarter, Tuya Smart’s research and development expenses were US$28.05 million, a decrease of more than 40% from US$47.59 million in the same period last year; sales and marketing expenses decreased by nearly 30% compared to the same period last year, and have been reduced to about US$10 million.
In fact, last year, Tuya Smart has already carried out a round of cost reduction, with a total of 27.8 million US dollars to streamline the team, operation and R & D costs, a year-on-year decrease of 39.8%. In the first quarter of this year, it was able to continue to significantly reduce costs, indicating that Tuya Smart has strong cost control capabilities and risk resistance capabilities.
However, despite continuous cost reduction and efficiency enhancement to narrow losses and considerable growth in the SaaS business, from the perspective of revenue composition, Tuya Smart still needs to vigorously boost its PaaS business if it wants to successfully get out of the growth predicament.
In a trillion-level market, Tuya Smart’s PaaS business can still gather strength to break through
According to the first quarterly report, Tuya Smart currently has three major business lines, namely PaaS business, SaaS business and smart device distribution business. Among them, PaaS business revenue still accounts for as high as 70%. Therefore, it can be seen that although the second growth curve of the SaaS business is gradually emerging, it is still far away from carrying the banner of revenue. In order to achieve real profitability in the future, the PaaS business still needs to play a major role.
However, under the influence of macro factors, the current situation of IoT players around the world is not very optimistic. For example, first, Google Cloud announced in the third quarter of 2022 that it would stop the Google Cloud Platform (GCP) IoT Core service from August 16, 2023. Then in the fourth quarter, Bosch announced that its IoT device management The platform will no longer provide services in the middle of 2024, IBM announced plans to shut down its Watson IoT platform service on the cloud, and is expected to stop the service before December 1, 2023, and Ericsson announced that its Internet of Things business (including Internet of Things Accelerator and Internet of Vehicles Cloud) to Aeris.
In this case, besides cutting costs, how can Tuya Smart, which is on the same track, tide over the difficulties and usher in a real spring?
In fact, although giants continue to withdraw from the track, it is undisputed that the Internet of Things industry is still a market with huge potential. Analytics data shows that in 2020, the number of global IoT connections surpassed that of non-IOT connections for the first time, reaching 11.3 billion. In 2021, the number of global IoT connections reached 12.3 billion, an increase of 8.85%. The number will exceed 27 billion. In terms of market size, the global Internet of Things market report released by IDC shows that the global Internet of Things (enterprise level) expenditure will reach 690.26 billion US dollars in 2021, and is expected to reach 1.1 trillion US dollars in 2026.
Therefore, in the long run, the IoT industry still has a lot of room for growth. For players such as Tuya Smart who remain on the track, in addition to meeting current challenges by reducing costs and increasing efficiency, they also need to focus on the future and think about how to build core competitiveness to tap greater increments.
It can be seen that since last year, major players have made frequent moves. For example, Huawei released Hongmeng OS3.0, upgraded the Hongmeng Zhilian experience, and created a new development platform for Huawei's smart hardware ecological partners, supporting the sharing of computing and display capabilities of mobile phones and tablets. Equipment, enabling the general trend of intelligent space. Xiaomi, on the other hand, continues to aim at the upstream of the IoT industry such as sensors, chips, and automotive lidar, and continues to expand its own IoT industry chain through investment and equity.
Recently, Tuya Smart also announced that it will hold the TUYA Developers Conference jointly with AIBA Asia-Pacific Artificial Intelligence Business Alliance, IQ Xueyuan, and IQ Investment Alliance. At that time, Tuya Smart will officially release a new and upgraded PaaS 2.0 to provide more s solution.
At present, a common pain point for developers is that the PaaS platform lacks open, flexible, and highly customizable development services, which makes it difficult to meet many personalized needs. In this regard, Tuya's upcoming enterprise-level strategic PaaS 2.0 innovatively includes "one platform + four major services", which will bring more open, flexible and highly customized development services to global developers to empower development in an all-round way. Developers create their own developer ecology. However, the final foothold is still consumers. By empowering developers, the product experience of end consumers is ultimately improved.
Of course, Tuya Smart's improvement of the development environment of the PaaS platform can also drive the development of SaaS services to a certain extent, and eventually increase the market share. This may provide an idea for solving the industry's profitability problem.
In addition, it can also be seen that since this year, Tuya Smart has also accelerated the layout of hardware terminals. It is understood that in January, when Tuya Smart participated in the CES conference held in Las Vegas, the United States, it displayed newly developed smart hardware such as smart coffee machines, smart surfboards, and electric bicycles. Prior to this, Tuya Smart has successively launched intelligent personal care solutions such as the intelligent visual ear picking solution, the visual toothbrush solution, and the visual blackhead instrument solution.
The launch of smart hardware products one after another seems to reveal that Tuya Smart has returned to the downstream industry and bet on its ambition to create explosive hardware products. In fact, as early as 2015, Tuya Smart made the first product that integrates software and hardware - iCamera APP and supporting SD card embedded with WiFi function. This product model integrating software, hardware and cloud functions has subsequently become the main business model of Tuya Smart. But now regaining the hardware business seems to mean that Tuya Smart is trying to open up a complete business closed loop of its own PaaS-SaaS-smart hardware.
Therefore, on the whole, despite the impact of the external environment, Tuya Smart’s revenue is still under pressure. It is expected to build deeper barriers to competition, and the improvement of the current financial situation has also laid a solid foundation for subsequent growth.
The company is also full of confidence in its future development. Wang Xueji, founder and CEO of Tuya, said: "Looking forward, we will continue to focus on high-return, high-efficiency products and solutions to consolidate our leadership in the IoT industry. With our innovative capabilities, extensive With our comprehensive equipment ecology and comprehensive solutions, we are capable of seizing opportunities in emerging markets."
Author: Jianbai
Source: US Stock Research Institute