4Q23 Beats: Well Positioned for 2024
Tuya 4Q23 beats. Tuya reported 4Q23 revenue of $64 million, up 42% Y/Y, while overall gross margin reached a historical high of 47.3% and non-GAAP net profit reached a new peak of $12.6 million, representing 19.5% of non-GAAP net margin, driven by a global downstream demand recovery, the end of industry restocking, and Tuya’s successful execution of its big customer-focused strategy and earlier restructuring. IoT PaaS contributed $47 million of revenue in 4Q23, up 45% Y/Y, driven by the normalization of downstream inventory and Tuya’s big customer-focused strategy. Meanwhile, Tuya sees a more balanced distribution between smart lighting and electrical versus smart safety and home appliances. SaaS and Others contributed $9.5 million of revenue in 4Q23, up 19% Y/Y, with a growing share of recurring income. Smart Device Distribution contributed $7.8 million of revenue in 4Q23, up 65% Y/Y, driven by the transformation from legacy smart device supply chain services to the current smart device solution model. Notably, this transformation has caused meaningful improvement to gross profit, as this unit recorded a gross margin of 29.7% in 4Q and sustained a level above 20% throughout 2023. Winter is over. As mentioned in our initiation report published on February 26, as downstream inventories have become more normal, along with a potential recovery in consumer demand, the company believes that the “winter” is over. Tuya’s strong 4Q result reinforces this thesis. Cash is king. Tuya has a healthier and stronger cash level. As of 4Q23, Tuya had $984 million in cash and no debt. The stock is currently trading at $2.06 per ADS, equating to a $1.2 billion market cap, which is slightly above its cash balance. This translates to an enterprise value (EV) of $394 million (this calculation excludes ~$200 million of time deposits recorded as long-term investment) as of February 29. Consensus for Tuya’s 2024 revenue is $264 million. This translates into 1.5x of EV/revenue in 2024, substantially below the peer group at 12.3x. See our Financials and Valuation section for more details. 2024 growth outlook. Management is optimistic about growth in 2024, with global downstream demand recovery competition continuing to improve. However, management believes its strong 3Q/4Q results benefited the restocking efforts by downstream, which may come to an end in 1Q24.
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