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Winter Is Over: IoT Ecosystem Builder Pioneers the Next Stage of Growth

Tuya is a leading Internet of Things (IoT) ecosystem builder that enables businesses to quickly design networked intelligence into their products, creating competitive advantages for themselves and added benefits for end customers. Traditionally, brands and OEMs have invested significant effort and budget to make their products smart and provide end customers with a unified experience. Tuya attempts to address this market fragmentation through its one-stop platform and neutral infrastructure, which it believes enables brands, OEMs, and developers to develop, launch, manage, and monetize smart devices and services in a quick and cost-effective way. According to CIC, by 2021, Tuya had become the largest IoT Platform-as-a-Service (PaaS) in terms of the volume of smart devices powered, with 14.9% revenue share in the global IoT PaaS market for smart homes and smart businesses. Winter is over. As the COVID pandemic receded in 2021, inflation and supply chain disruptions affected the consumer economy, with decelerating end demand causing a two-year destocking cycle for parts used in consumer products. This period of industry-wide adjustment and digestion appears to be concluding, with inventory held by downstream businesses gradually returning to a normal state. Along with a potential recovery in consumer demand, Tuya believes that the “winter” is over. Tuya’s recent 3Q23 results showed a return to Y/Y growth. Winner, winner, chicken dinner. During the downcycle, several competitors downsized or exited the IoT cloud services business, including Alibaba, Google, IBM, and SAP. As a market leader focusing on building an IoT ecosystem, Tuya weathered the cycle by intensifying its customer focus and restructuring to cut operating costs. Management believes the opportunity in its sector is vast. CIC forecasts a worldwide total addressable market (TAM) of US$195 billion for IoT PaaS in 2026 if the expected penetration is reached, up from US$95 billion in 2021, implying a CAGR of 15.5%. As IoT PaaS devices expand their penetration of the consumer experience from only 4% in 2021, increasing the number of IoT devices being deployed and growing amount of IoT application scenarios being developed, Tuya believes it can quickly capture this recovery in demand and win market share through its one-stop and end-to-end solutions. Cash is king. As of 3Q23, Tuya had US$961 million in cash and no debt. The stock is currently trading at $1.66 per ADS, equating to a US$954 million market cap, which is below its cash balance. This translates to an enterprise value (EV) of US$175 million (this calculation excludes ~US$200 million of time deposits recorded as long-term investment) as of 02/20/24. Analyst consensus estimates for Tuya’s 2023 and 2024 revenue are $227 million and $261 million, respectively. This translates into 0.8x and 0.7x of EV/revenue in 2023 and 2024, respectively, substantially below the peer group at 15.4x and 12.0x, respectively. See our Valuation section for more details.