Tuya - Earnings Call - Q4 2024

Transcript

Operator (participant)

Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Tuya Inc.'s fourth quarter 2024 earnings conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press Star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press Star one one again. Please be advised that today's conference is being recorded. I will now turn the call over to your first speaker today, Mr. Reg Chai, Investor Relations Director of Tuya. Please go ahead, Reg.

Reg Chai (Investor Relations Director)

Thank you. Hello, everyone. Welcome to our fourth quarter 2024 earnings call. Joining us today are Founder and CEO of Tuya, Mr. Jerry Wang, and our co-founder and CFO, Ms. Alex Yang. The fourth quarter 2024 financial results and webcast of this conference call are available at ir.tuya.com. A replay of this call will also be available on our IR website in a few hours. Before we continue, I refer you to our safe harbor statement in our earnings announcement, which applies to this call, as we will make forward-looking statements. With that, I will now turn the call to our Founder and CEO, Mr. Jerry Wang. Jerry will deliver his remarks in Chinese, which will be followed by corresponding English translation. So, Jerry, please.

Jerry Wang (CEO)

大家好，感谢大家参加图亚2024年Q4及2024年度的业绩电话会议。2024年度，我们实现了接近30%的收入同比增长，以及两个重大的财务的里程碑。一个是首次量GAAP的经营性季度及年度盈利，二是首次年度GAAP的净利润盈利。这两个指标前者证明了图亚的独特的商业模式，后者将在法定股东权益层面支撑我们有更多的动作的可能性，也让我们对未来的发展充满更强大的信心。

Hello, everyone. Thank you for joining Tuya's fourth quarter 2024 and full year 2024 earnings call. In 2024, we achieved nearly 30% year-over-year revenue growth and reached two significant financial milestones. First, our inaugural quarterly and annual non-GAAP operating profitability, and second, our first-ever annual GAAP net profit. The former validates Tuya's unique business model, while the latter provides us with greater flexibility at the statutory shareholders' equity level, enabling us to take further strategic actions. These achievements strengthen our confidence in the company's future growth.

2024年是图亚坚定地投入AI研发的一年。我们在2024年Q2发布了图亚自己的AI大模型空间大模型，持续耕耘On-Device AI，致力于通过真实AI大幅提升智能产品体验，以带给客户更好的产品竞争力，带给用户更有价值的智能产品的体验和功能。我们相信通过AI、IoT、Cloud等技术，将会驱动全新的用户体验，并真正地提升设备智能化的渗透率。

2024 was the year of unwavering commitment to AI research and development. In the second quarter of 2024, we launched Tuya's proprietary AI large model, Spatial Large Language Model, while continuing to advance On-Device AI. Our goal is to leverage GenAI to significantly enhance smart product experience, providing our customers with superior product competitiveness and end users with more valuable smart features and functionalities. We firmly believe that AI, IoT, and cloud technologies will drive a new era of user experience and substantially increase the penetration of smart devices.

过去一年，我们也坚定继续升级图亚平台独特的软硬一体商业模式，从PaaS延展到了硬件产品的Solution模式。无论是在我们优势领域的智慧家庭，还是包括酒店公寓、地产、园区、出行和新能源等商业行业领域，我们将为开发者客户不断地提供更具竞争力的硬件产品，让客户参与竞争的过程中，从Powered by Tuya的软件竞争力延展到了更具供应链和硬件产品竞争力。由此，我们也得到了更多客户的认可，并推动我们的Smart Solutions收入板块实现年度约58%的同比增长。

Over the past year, we have also made significant strides in upgrading Tuya's unique software and hardware integrated business model, extending beyond PaaS into a hardware solution model. Whether in our core strengths, smart home, or in commercial verticals such as hospitality, real estate, mobility, and renewable energy, we're dedicated to providing developers with increasingly competitive hardware solutions. This allows our customers to expand their competitiveness beyond Powered by Tuya software capabilities into supply chain and hardware advantages. As a result, we have gained further customer recognition, driving an approximately 58% YoY growth in our smart solution revenue stream.

展望2025年的战略发展，我们将会全力构建全球AIoT开发者生态，包括不断迭代完善我们的AI Agent和TuyaOS开发者产品，以及以Tuya Open为代表的AIoT开源软件产品，以构建长期的护城河。同时，也将继续致力于抓住国际市场的增长机遇，推动全球AIoT领域和AI应用的快速发展，并努力为长期支持Tuya的股东带来回报。

Looking ahead to 2025, we will be fully committed to building the global AIoT developer ecosystem. This includes ongoing iterations of our AI Agent and the TuyaOS developer products, as well as AIoT open-source software solutions such as Tuya Open to build long-term competitive advantages. Meanwhile, we remain committed to capitalizing on growth opportunities in international markets, accelerating the development of AIoT and AI applications worldwide, and delivering long-term value to our shareholders.

为了有更多时间进行交流和回答大家的问题，更多的业务和财务的细节，由我们的联合创始人兼CFO Alex直接与大家分享。

To allow more time for discussion and Q&A, our Co-founder and CFO Alex will now provide more details on our business and financial performance.

Alex Yang (Co-founder and CFO)

Hello, everyone. I'm Alex. Today, I'd like to share an overview about our 2024 performance and our thoughts for the future. Before that, let me summarize the recent financial results. We wrapped up Q4 2024 on a strong note, delivering about $82 million in revenue, representing a solid 27.4% year-over-year growth. Given the higher base for the prior year, this growth demonstrates strong momentum. Our Q4 PaaS revenue reached about $59.3 million, up 25.7% year-over-year, driven by our strong foundational market position and value proposition, enabling rapid transmission of customer expansion and end market demand into revenue. SaaS and others revenue was about $11.5 million, up 21.1% year-over-year, benefiting from the stable growth of SaaS value-added services across our extensive devices space.

Smart Solution revenue reached about $11.3 million, growth by 45.5% year-over-year, supported by robust data demand across categories such as gateways, central controls, and energy efficiency solutions. For the entire year, our total revenue reached about $298.6 million, making nearly 30% year-over-year growth. Our overall gross margin remained stable at around 47%, while annual operating expenses declined by approximately 10% year-over-year due to the continued cost discipline of the company, so as a result, revenue and gross profit growth efficiently translated into operating profit, leading to a 7.4% non-GAAP operating margin and a 25.2% non-GAAP net profit margin, with GAAP profitability achieved for the first time as well. On the cash flow side, we generated around $80.4 million in positive operating cash flow for 2024.

Following the dividend declared in August and paid in October, we ended Q4 with a net cash balance of over $1 billion, maintaining a strong liquidity position. Throughout 2024, we observed sustained growth in end market demand, stable customer relationships, and their increased investment in a smart product line, and the rapid adaptation and adoption of GenAI and LLMs, so this drives a positive response from the consumer electronics industries towards intelligence trends. For Tuya, our unwavering commitment to the developer platform model, combined with our unique software and hardware integrated approach, and customer-centric product expansion strategy, so that has amplified those industry tailwinds, helping both of us and our customers achieve solid business results. In 2024, the number of IoT PaaS premium customers growth by 11% to 298.

Our revenue dollar expansion rate, so DBNER, exceeded 122% at the end of the Q4, marking five consecutive quarters above 100% and three consecutive quarters above 120%. Our products and services offering provide customers with all necessary technology and software to efficiently create competitive smart devices and bring them to market. So the DBNER matrix reflects our continued ability to enhance our customers' competitiveness through Tuya's technology leadership. As a B2B company, our top 10% revenue contributing customers maintained a retention rate of about 97%, underscoring a strong thickness of our neutral, open, and scalable technology platform. So our strategically focused on key accounts has driven efficiency improvements too, evidently by about 37% and 40% year-over-year increase in average revenue per customers and average gross profit per customers, along with about 47% increase in company-wide revenue per employee.

So at the same time, the scalability of Tuya ecosystem and our strong market positions has freed us from rigid marketing and sales expenses, allowing us to dynamically allocate resources, strategically promote new product capabilities, feature sets, and precisely target key markets and expand our influence as well. Consequently, our sales and marketing efficiency improved by about 40% year-over-year. In the PaaS business, 2024 witnessed a more diverse and dynamic developer base, so contributing to solid year-over-year growth across all categories. Our product categories structures have become increasingly balanced and diversified, aligned well with the trend of customer expansion, their product lines. In a highly fragmented and dispersed global consumer electronic market, those widespread adoption of technology continues to drive innovations across diverse product categories.

This increasing variety of smart devices is fostering a more comprehensive approach to spatial intelligence, enhancing user convenience and comfort, ultimately progressing towards the vision of an interconnected and interoperable intelligence ecosystem. We're also pleased to see that our smart solution business model efficiently aligned with the need of top-tier customers, achieving about 58% year-over-year growth in 2024. For instance, in response to the French government's energy subsidy policy, we assist and help our French customers in becoming among the first to meet the country's energy efficiency subsidy standard. So this incentive program is set up to help millions of French households to achieve green energy saving. At this stage of smart technology development, whether in consumer electronics or in industry-specific applications, a rich ecosystem of smart devices is essential for top-tier customers. In this regard, Tuya possessed a significant advantage over other players throughout its expansive developer ecosystem.

As smart solutions further enhanced our ability to support customers, strengthen engagement, and boost their market competitiveness. At the same time, we remain committed to building a robust developer ecosystem. At the end of 2024, the number of registered developers on our platform reached around 1.32 million, with over 1.07 million SKUs of smart devices developed onto our platform, spanning more than 3,000 product categories. We continue to foster an extensive ecosystem by, for example, integrating with Google Home APIs to create seamless smart home experience and collaborating with Chery to establish a new vertical home interoperability ecosystem. At the same time, we're dedicated to expanding to a global influence, positioning ourselves as a reliable partner for the customers and developers worldwide.

Our HEMS, the Home Energy Management System Solutions, has recognized in the United Nations Global Compact report 20 best corporate sustainability practices in 20 years, highlighting Tuya's commitment to sustainability. Additionally, we achieved MSCI ESG rating of A and WIND ESG rating of A2, and we were included in the S&P Sustainability Yearbook China edition, and so on. Next, I'd like to discuss Tuya's opportunity in device and edge AI. As a technology-driven company, Tuya fully embraced the GenAI and LLMs in early 2023. In Q4 of 2024, we launched the Tuya AI Agent development platform, integrating all major large language models, including ChatGPT, Qwen, DeepSeek, Doubao, Le Chat of Mistral, GenAI, Amazon Nova, and Claude, etc. Tuya's LLM agnostic approach eliminates the complexity of developing smart devices and applications from the ground up, providing developers with a crucial middleware layer that bridges LLMs' capabilities with real-world applications.

Those developers, they can flexibly choose the most suitable AI models based on their business and market needs. We're leveraging Tuya's templates library or customer solutions, customized solutions to develop AI devices and applications. This philosophy aligns with Tuya's cloud agnostic strategy, ensuring customers do not have to worry about compatibility and sustainability of cloud services, device types, or hardware architectures. So those agnostic compatibility provides Tuya developers with unparalleled flexibility and adaptability, distinguishing us from single category solutions. Moving forward, we'll continue to prioritize AI devices and spatial intelligence applications, focusing on areas such as audio-video interactions, efficiency optimization, and decision-making automations. So audio-video AI enhanced user devices interaction by enabling advanced content input and output mechanisms, while efficiency and decision-making AI helping end users to optimize their smart devices and usage strategy to meet personalized and differentiated needs.

We also continue to explore the application of Tuya's Spatial LLMs in energy management and other spatial intelligence scenarios as well. 2025 will mark the breakthrough year of device and edge AI. We plan to integrate AI capability across all categories within the Tuya developer platform, ensuring that every Powered by Tuya devices is AI-enabled by default in the future. Together with a global developer partner, we'll explore various innovations and scalable applications for AI devices, continuously shaping a viable global AI IoT developer ecosystem. Looking ahead, intelligence will evolve through the integration of software and hardware, constructing differentiated scenarios throughout interoperable smart devices and to meet the customized needs of individuals, households, and spaces. The industry remains in a penetration-driven phase with a vast and promising total addressable market to achieve sustained growth. We'll focus on the following key areas.

The first, we'll continue to expand the global market penetration. We'll leverage a combination of PaaS, SaaS, and smart solutions to deepen our growth reach, particularly in Europe, Latin America, and the Asia-Pacific region, while increasing customer use cases. For the large enterprise customers, we'll offer Cube, our smart provider, private cloud solutions to help them to build secure and scalable enterprise-level smart platforms. Second, advancing the AI device and applications, we're committed to leverage Gemini and LLMs to significantly enhance smart product experience, driving product competitiveness and delivering great values to the end users. We're continuing to innovate across high-potential markets such as smart companionship, smart outdoor, smart energy, and smart spaces, complementing and accelerating smart devices penetration by AI applications.

Third, throughout our integrated hardware-software smart solutions, we're helping top-tier customers to speed up their product launches and establish differentiated competitive advantages across different categories and regions, directly increasing end-market penetration and delivering a greater and more sustained value. Fourth, maintaining a customer-centric approach. We aim to serve high-quality core customers efficiently, supporting their business growth, increasing customer stickiness and repeated purchases, and ultimately enhancing our operating leverage and efficiency. Last, to continue to build our global developer ecosystem, we continue to integrate and refine Tuya's AI Agent platform, empowering developers worldwide to create customized AI devices and scenario-based applications easily. Additionally, we'll leverage GenAI tools to improve the development phases efficiently as well. So finally, let's address some frequently asked topics from the capital market regarding the internal operation efficiency, the share-based compensation, expenses, and dividends.

Throughout 2024, our total headcount has remained at about 1,450 employees, reflecting about a 12% reduction from 2023. And by Q4 of 2024, our average revenue per employee has exceeded early 2022 levels by more than three times. So over 70% of our team consists of R&D technology development and a products person, so who drives rapidly product integration across Tuya's business line and prepares for the next generation of opportunities. Notably, Tuya's revenue growth is not dependent on heavy investment in sales and marketing, which has been key factors in our stable and continuously improving profitability. We're committed to further improving the operating leverage while our net profit structures and quality will become even more sustainable and organic.

Regarding share-based compensation expenses, the current costly accounting expenses primarily stem from the legacy grant issued to our ESOP in a higher valuation years ago, which has been amortized quarterly according to the vesting schedules. So those expenses are unrelated to any recent equity grants. As those legacy awards are gradually fully vested, SBC expenses will see a substantial decline starting in 2025, leading to a visible reduction in the accounting impact in our income statements, an improvement that's already evident in Q4 of 2024. So earlier today, ahead of this earnings call, our board of directors approved the second dividend for 2024, totaling about $37 million, given our robust non-GAAP margin. Normally, non-GAAP metrics reflect the direct results of operational decision-making, excluding external factors unrelated to our business model.

So those non-GAAP margin and strong financial positions is the base we offer for the dividend, with over $1 billion in net cash and seven consecutive quarters of positive operating cash flow from Q2 of 2023 till now. We believe that Tuya is well-positioned in sustaining a long-term growth throughout its competitiveness mode and while also rewarding our shareholders who have demonstrated steadfast support. We remain committed to driving forces in both our global business and capital markets. Overall, 2024 has been a profitable year for Tuya, marking our first year of operational profitability, the execution of our AI strategy, and a breakthrough in our shareholder structure. During this strategic update, we have been fortunate to experience multiple dimensions of progress and transformations, whether in achieving operational profitability, expanding our global footprint, or optimizing our international shareholder base.

Notably, our partnership with 65VP, a subsidiary of Temasek, as a strategic investor has positioned them as Tuya's largest institutional shareholder. Furthermore, our achievement has been strongly recognized by the market in early 2025. I believe this success is rooted in Tuya's global presence, its unique hardware and software-integrated business model, and its strategic focus on the global developer platform. Thank you, everyone. Operator, we can now begin with Q&A.

Operator (participant)

Thank you. We will now begin the question and answer session. As a reminder, to ask a question, please press Star one one on your telephone and wait for your name to be announced. To withdraw your question, please press Star one one again. Please stand by while we compile the Q&A roster. We will now take our first question from the line of Timothy Chow from Goldman Sachs. Please go ahead, Timothy.

Timothy Chow (Executive Director)

Thank you.

Thank you, management, for taking my question and congrats on the very strong to end the year of 2024, and I think your presentation is very helpful. I have two questions here. One is that I think on AI impact and in your smart solution business, could management further elaborate on what kind of usage scenario that you are seeing?

Alex Yang (Co-founder and CFO)

Yeah. Thank you for the question. So for the AI, what we see here is that this will be a really good year for the AI, and we'll consider it as the first year that we can really turn the AI devices into reality. What we see is the priority of the AI opportunities on the device side. So we'll start with all the audio and video interaction devices, which means that to bring a new way to have the people interact through the audio and video to the device.

So that would be one thing. So no matter if some use cases where they show that in the last quarters, like the pet feeders, like the bird feeders, and the pet-related appliances, and some control panels on the wall with a screen as well. So that will be one thing. And the second thing is that all those types of analytic type of the devices that need a complex decision. So one significant use case is energy solution because for comprehensive energy solutions, you need to be able to read through dozens of variables from different types of devices and from the outside factors like the weather, like the utility data, etc., and then make some adjustment automatically or very dynamically, making new decisions to operate the device in a different way. So the AI definitely will help in that part. So that will be something.

And also, what we see is a very interesting new type of stuff will be all types of toys. So we found that the kids will be the perfect adopter for AI because they don't have any stereotype about any existing technology, so they grab anything as a fresh new, so they can just easily tap in. And so since January, after the CES, we really got plenty of customers reaching out to us, bringing different ideas about how they can integrate AI into toys. So that will be some of, what I see, incubating categories we're starting to catch in now. But I believe there will be more booming stars throughout the entire year or even in the next couple of years.

While the AI, starting from the very fundamental stuff like the LLM, someone can bring an easier approach to the market to activate all the new ideas. And so while the barrier becomes low and you have thousands of thousands of companies and the developer joining in, so that will become a robust market we're looking forward to. So there might be thousands of different types of things coming after.

Operator (participant)

That's it. Well, Timothy, do you have any follow-up questions?

Timothy Chow (Executive Director)

Sure. Can you hear me well?

Jerry Wang (CEO)

Yes, we can. Please proceed.

Timothy Chow (Executive Director)

Yeah. Great, great. Sorry about that. Yeah. My second question is regarding your margins. Just wondering, I think, with the AI enhancing the demand for IoT, what is the unit price trend over time and how that will impact your margin? I think it's more on the gross margin level.

Can you also talk about your OpEx, given I think you have been investing on AI and operating efficiency on the OpEx level has been quite high? Just wondering, how do you think about your operating leverage into 2025? Thank you.

Alex Yang (Co-founder and CFO)

Yeah. So the first one is that the AI will be still in a very early stage. So we're not making a final decision or we didn't make the final call about how we're going to commercialize the AI. So we try different types of commercial use cases. In one word, is that we're starting to deploy the AI into all three business models we have, including the PaaS, the SaaS, and solutions. So we'll offer the AI in a different way based on what type of needs it is. So that would be one thing.

And so sometimes it will be a new offering that we provide to the market. So we will repricing that as a new product. So for that part, the margin will depend on not only the cost, but also depends on the demand. This depends on what type of reasonable pricing we'd like to put into the market to scale it. And another part is that some of the AI, if we think that will be very, very we want to put that as the default features that might enhance our customers to improve their competitiveness. So we'll integrate that into our existing PaaS solution too. So the margin impact, I think that in the short term, I don't have visibility for that because the scale might not be growing that significantly to influence our overall margin. So that will be a smaller pie at this moment.

In and around, I believe that AI will bring more value, but we're not committed to when because for sure the focus for us, I mean, the priority for us is always scalability. Yeah. So that'd be one thing. And the second thing about the OpEx, so like I mentioned earlier, we're starting to invest in AI once the Gemini came out back in early 2023. So it's not a new investment for us. Throughout the past two years, we've already relocated our resources internally and improved our talent structures in some roles to be capable of building AI already. So right now, there are a lot of departments in my company that are all AI-ready now, which means that I don't have to recruit a team to rebuild things all over again. It's already been there.

And so for this year, we will slightly increase some of the specific application investment by the demand of the market slightly. And also in the same time, we're looking forward to see what will be the right opportunity or right type of way that we can market it in a better efficiency since it comes with a new concept. So you better make some noise. But that type of impact, we'll see that it's very controllable. So I'll say that we'll not improve the OpEx significantly. It will be in a very management level.

Timothy Chow (Executive Director)

Thank you. That's very helpful.

Operator (participant)

Thank you. We will now take our next question from the line of John Roy from WTR. Please ask your question, John.

John Roy (Analyst)

Can you hear me okay?

Alex Yang (Co-founder and CFO)

Yeah, I can hear you, John.

John Roy (Analyst)

Great, great. Excellent year last year. Very well done.

So I was wondering about SaaS and its growth prospects. Do you see that as something that could really change the landscape, or is that just more of an add-on?

Alex Yang (Co-founder and CFO)

Yeah, that's a good question. Thank you for that. So the first one is that SaaS is based on our deployment of the, I mean, on the base of the total deployment of our devices. So that will be later business models versus the first, versus the PaaS, which means that we need to enlarge and scale the PaaS. And on top of that, we can do more SaaS. That would be one thing. And the second thing is that we're facing structural improvement in the SaaS model, which means that we try to increase the portion of the recurring models in the SaaS type, not only the software base, but also the recurring software base.

That would be the second thing. And so for that part, I'm not worried about the growth. I'll pay more attention to the stickiness of the customers, whether they can use that type of thing as long as they can use that. So the payment, the continuing annual payment will be a very strong base for us. That would be the second thing. And the third thing is that within the PaaS, so there will be one portion of that is for the commercial software. So it's not the consumer-facing one. So for the commercial one, in the past three years, the major market we're trying to do this business now is in Asia and China. So because that's within COVID period, which means that it brings us difficulty to be able to incubate new business across the global basis.

Starting from late last year, we're starting to duplicate that use cases in different countries. We try to bring that into the global market. We really have some really positive progress there, no matter in Latin America, Southeast Asia, and Europe too. For that part, right now, we are approaching to a bigger total addressable market on the regional basis. We really found the duplicatable applications or products that are proving to work out. We already have a customer base that's applying with the recurring models. For the SaaS, I believe there will be our long-term growing business line. I'm not looking forward to any short-term surprising or short-term significant improvement. For the long run, maybe after five years, that will be a very, very juicy number for us.

John Roy (Analyst)

Great. Thank you for that.

So obviously, the dividend is very nice, and you have a pretty significant cash position. What is your view on the acquisition front? Is that something you're actively watching? How are the prices in that market?

Alex Yang (Co-founder and CFO)

M&A? Right.

John Roy (Analyst)

Yep.

Alex Yang (Co-founder and CFO)

Yes. M&A is always an open option for us. And so we keep screening on what type of extension, what type of companies or partners can be our extension, either to extend our scope of coverage of different types of scenarios or to be a vertical solution, a more vertical solution provider for specific industries. So we keep screening on that. And yeah. So I think that's an option for us. I think the key part is that the first one is that no matter with or without acquisition too, those guys should be our developers.

So the first priority is to have a very strong global developer ecosystem. I think that will be our major focus. In the same time, anyone may be within an ecosystem that can show a better potential, no matter, like I mentioned, it's that horizontally extend our scope or vertically that improve our vertical industry insights. So for that part, we can easily identify that.

Yeah. We'll keep it that open. And we'll keep for anyone to help us to find some interesting target too. If you have anyone introduce to me.

John Roy (Analyst)

Will do. Thank you so much. And again, congratulations.

Operator (participant)

Thank you. We will now take questions from the line of Kai Xiao from CICC. Please ask your question, Kai.

Kai Xiao (Analyst)

好的，谢谢各位管理层。我这边一共是两个问题。第一个是关于IoT PaaS，想请教各位领导，从今年来看的话，下游的需求是怎么样的？哪些国家，哪些品类比较有，是有比较高的增长潜力？然后我们对于毛利率是如何展望的？然后第二个问题是关于我们的大客户。就看到公司在大客户战略下优质的PaaS客户是有非常强劲的增长。那想请教一下公司未来进一步去拓展优质PaaS客户的潜力是怎么样的？然后如果展望我们在GenAI的一些布局，是不是有助于帮助公司去拓展更多的高端客户？一共是两个问题，然后我这边也翻译一下.

So this is Ben from CICC Research, and congratulations for the strong quarter. So my first question is regarding the IoT PaaS.

So what's the current downstream demand for IoT PaaS, and which countries and categories you think have more potential, and how can we unlock the gross margin? And the sixth question is regarding the high-quality customers. So we see the number of customers have very strong growth. So what do you think the further potential for the company to further expand the high-quality PaaS customers in the future, and will GenAI help in the acquisition of more high-quality customers? Thank you.

Alex Yang (Co-founder and CFO)

Yeah. Thank you for the questions. So the first one for the PaaS, as we can find in our business, it's very strong showing that we have a very balanced structure on the business. So no matter it's on the regional side or on the category side. So right now, the business comes from over 3,000 categories on the Tuya platform.

We didn't rely on any single category, which means that we're quite diversified in the category side. That's what I mean that whenever or whatever type of new booming stars in the smart devices market occurs, for sure that there are someone making that into our platform, into our ecosystem, not from somewhere else. For sure that we will cover any new opportunities. On the regional side, right now, we're very balanced too. The largest regional market in Europe only covers slightly over one-third of 35% of our business, and I'm on the end-user demand. For all other countries, North America, Latin America, Asia, and Australia, including China domestic, so they're quite balanced.

So we didn't rely on any single region market too, which brings us a very good barrier or very good protections for any type of change happening right now in the geographic scenarios. So that would be one thing for the PaaS. And for the second question, I think the major customer here is that right now, for the first 10 years of the establishment of this company, and the larger portion of the ecosystem comes from the consumer fields. So what we found here is that two extensions on the customer side. The first one is that for the past three years, we have more and more customers and use cases come from non-consumer fields, no matter it's a commercial one, industrial one, and that type of things. And also, in the company, we have new business lines just focused on that part.

So that would be one thing. That will be total extension, some new type of customers from that part, including the telecom carriers. So we continue to have new telecom carrier partners coming in. Yeah. So that would be one thing. And the second thing is that exceeding from the device-based stuff, in the near future, we believe there will be more and more spatial solutions being needed. And the spatial solution providers usually will be a different type of company too. And for that, no matter it's for the property manager, warehouse manager, logistics. So those guys manage some type of space, the house, the building, the warehousing, or some asset too. So those types of solutions, before AI technology happens, they don't have a comprehensive write-up solution to carry the pain point.

And while the spatial models and spatial solutions we design can meet that, so that can help us to open another door too. So that will be two, what we call the new grass man for us. That's it.

Operator (participant)

Thank you. Kai, do you have any follow-up questions?

That's all. Thank you.

Thank you. Our next question comes from the line of Yang Liu from Morgan Stanley. Please ask your question, Yang.

Yang Liu (Analyst)

Okay. Thank you for the opportunity to ask questions. Two questions here. The first one is on the outlook of the revenue structure because we observed in the past few quarters that IoT SaaS and other growth recovered meaningfully. And while the smart device distribution growth has been relatively volatile, so this kind of change, a mixed change, is very critical to the overall gross margin.

So I would like to hear your view in terms of the three business lines relative growth rate going forward and whether it will have meaningful impact on the blended gross margin. That is my first question. And my second question is regarding what's your view on the expectation in the AI era for the IoT solution provider? Do you see more hyperscalers who would like to develop IoT hardware themselves, or do you think it is still, or is it a booming market with a lot of smaller product development companies in the market, and Tuya can continue to add a lot of value to those customers? Thank you.

Alex Yang (Co-founder and CFO)

Yeah. So for the question, I think that's our three business models because they come in with a totally different approach to the customers.

So I mean, overall, the margin level of each of the business models will be kind of stable. So for the PaaS, we believe that the overall margin for PaaS will remain at around 45%. We think that will be reasonable or slightly over 45%. And for the SaaS, because it's software-based, I think that over 70% will be remained. And on the solution side, because we'll follow the hardware game rules. So while you scale the volumes, while the customer scales the volume too, and sometimes you have to subdivide some of the profit to the customer. So we believe that on the solution side, maybe by we scale it into we double that or we scale that in a bigger base, that maybe the margin of solutions will slightly decline a little bit, but not that much.

We think that we'll continue to maintain the solutions margins over 20% or 21%. So that would be overall the margin or the nature of the margins underneath each of the business models. And put that together, and what we found is that so the PaaS will continue to provide a stable growing base for the entire Tuya business because that will be essentially everything that the customer needs to purchase. And SaaS, like I mentioned earlier to John's question, so we think that the SaaS will be more long-term growing curve for that. So we're not inquiring. So continue to enlarge the device base and the customer base, and we deploy those services on top of that and convert more of them to pay the recurring revenue. That will be a long-term journey, but remaining similar growth with the PaaS. Maybe that'll be our expectation too.

And solution, because solution comes from my past customers. They're calling out for a solution rather than the development toolkit from the PaaS side. So solution is that we convert more and more customers' demands directly from my PaaS base. So for that part, the solution might grow faster. And while solution becomes a larger pie of my total revenue, so my general growth margin, my GPM, we believe that in the long term will slightly decrease a little bit. But I think that will be reasonable. I mean, the margin will, because I have a bigger pie of the solution side, we come with a lower margin compared with the other two business models. So for that part, we think that will be good. But that's not the problem for us.

I believe that the key to evaluate the gross margin is that you need to break down each of the business models and tell the value of that, whether that values reflect to the right margins as that business models. And I need to compare that business model to the industry level. So the SaaS is compared to other SaaS company or other SaaS peer, and the PaaS is farther past it. So yeah, that's the point I'd like to try to make. So it's a very stable business model, and structure will start to change slightly. Thank you.

Yang Liu (Analyst)

Thank you. How about the second question? What is the outlook for the competitive landscape in the AI era for the IoT?

Alex Yang (Co-founder and CFO)

Yeah. I think that we covered part of the question, right?

I think that right now, the good part for AI is that right now is in a very positive and active momentum for the market, not for capital market, but I mean, is for the hardware industry, so we have a lot of movers as either designers or manufacturers or solution providers, and so right now, we prioritize three, right, like I mentioned, either the video, audio, interactive, and/or the decision-making analytic one, and the IoT, but we believe that there will be thousands of, at least thousands of more vertical use cases we're coming from, so it's very early stage, and this year is that we got so many players on the field to try different types of ideas, so what we need to do is that we offer them a toolkit to easily turn their ideas into tools.

I think that will be the unique value that Tuya provides, and also that's why we have such a successful developer ecosystem, so to let them get away from doing everything in-house, we offer them a shortcut to test their ideas, so I believe that this year will be kind of very starting line for the AI device that you can find millions of new devices out there. A lot of people trying, and some will prove to work it out and starting to scale that. Maybe some not. They redesign that, so yeah, I think that will be the momentum we're looking forward to see, and so what we do is that just, like I mentioned, we continue to lower the barrier for anyone trying to get in.

Yang Liu (Analyst)

Thank you.

Operator (participant)

Thank you. As a reminder, to ask a question, please press star 11.

There are no additional questions at this time. I'll hand back to the management team for any closing remarks.

Reg Chai (Investor Relations Director)

Okay, so thank you again for joining our call tonight and this morning. If you have any further questions, please feel free to contact us or request through our website. We look forward to speaking with everyone in our next earnings call, so have a good day. Thank you. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.