Tuya's Q2 2025 Earnings Call: Contradictions Emerge in AI Strategy, Tariff Impact, and Growth Outlook

The above is the analysis of the conflicting points in this earnings call

Date of Call: None provided

Financials Results

• Revenue: $80.1M, up 9.3% YOY
• Gross Margin: 48.4%, with management noting stability YOY and sequentially
• Operating Margin: Approximately 11% non-GAAP operating margin in Q2; non-GAAP operating profit up ~127% YOY

Guidance:

- Tariff uncertainty to pressure Q3; management expects conditions to be better in Q4.- Retailers/brands remain conservative; mix shifting to more entry-level products.- FX pressure exists but is stable/under control.- Focus by region: Europe (AI energy-saving, air conditioners), APAC (integrated AIoT for buildings/residences), North America (AI pet/avian entertainment), China (deepen partnerships, e-commerce, industry channels).- Accelerate AI innovation and commercialization via developer platform and ecosystem co-creation.- Continue regular dividends supported by profitability and cash flow; Board approved ~$33M cash dividend; exploring additional uses of excess capital.

Business Commentary:

Revenue Growth and AI Integration:* - TûYà reported revenue of US$155 million for 2025, representing about 15% year-over-year growth. Revenue in Q2 reached around US$80.1 million, an increase of 9.3% year-over-year. - The growth was driven by strong AI product adoption and resilient performance across multiple fundamentals despite global trade uncertainties and U.S. tariff disruptions.

• Operating and Net Margin Expansion:
• TûYà achieved a 10% non-GAAP operating margin and a 25% net margin in Q2, with non-GAAP operating profit growing approximately 127% year-over-year.

• Margin expansion was driven by disciplined execution, operational cost controls, and a reduction in accounting share-based compensation expenses.

• AI Developer Ecosystem and Engagement:

• Over 1,510,000 global developers are on TûYà's platform, with 93% of shipped products equipped with AI capabilities.

• The growth in the developer ecosystem is attributed to the company's commitment to advancing AIoT, hosting events like Tuya Open, and fostering innovation through collaborations.

• Smart Solutions and SaaS Growth:

• Smart solutions revenue increased by 16.7% year-over-year, while SaaS and others revenue was about US$11 million, up 15.6% year-over-year, driven by recurring revenue exceeding 6% in Q2.

• The growth is supported by differentiation in hardware offerings and increased adoption of AI-driven solutions, particularly in energy-saving and air conditioning categories.

• Regional Performance and Strategic Focus:

• North America saw strong momentum for AI solutions like the SmartBird feeder, while China showed positive feedback for AI toy solutions.
• Strategic focus on regional opportunities, including Europe's energy-saving categories and Asia Pacific's smart fixtures, is driving growth amidst macroeconomic challenges.

  Sentiment Analysis:

  • Q2 revenue grew 9.3% YOY with 48.4% gross margin and ~11% non-GAAP operating margin; non-GAAP net margin was 25.1% and GAAP net margin 15.7%. Management highlighted resilience and operating leverage, but cited ongoing tariff-driven uncertainty, conservative retail planning, and Q3 pressure with improvement expected in Q4.

  Q&A:

  • Question from Yang Liu (Morgan Stanley): What is the growth outlook for Q3 and the rest of the year given global trade/tariff changes, and what was constant-currency growth/FX impact in Q2?
  • Response: Q3 remains pressured by tariffs and conservative retail plans; conditions should improve in Q4; FX pressure exists but is stable/under control (no specific constant-currency figure provided).
  • Question from Timothy Zhao (Goldman Sachs): How will Tuya sustain advantage as IoT PaaS shifts to AI, and what is the framework for shareholder returns?
  • Response: Driving broad AI adoption among developers (93% of shipped categories AI-enabled) and incubating new AI categories; dividends to continue as a regular policy backed by stable profitability and cash flow.
  • Question from Cai Zhao (CICC): What drives gross margin going forward, especially with AI revenue mix; and what are primary growth engines/outlook for SaaS and Smart Device Solutions?
  • Response: Margins reflect value proposition: PaaS ~47–48%, SaaS ~70% scaling via recurring premium features, Solutions >20% with differentiated offerings to key customers; AI solutions (e.g., toys) expand coverage and stickiness.
  • Question from Matt Ma (Jefferies): Are supply chains shifting overseas due to U.S. tariffs and what is the impact; why was Smart Solutions GM 22.5% and long-term margin profile?
  • Response: Supply chain shifts vary by category; Tuya supplies wherever customers produce; near-term tariff uncertainty broad-based but likely to resolve; Solutions GM dipped due to new launches and supply chain factors; aim to sustain Solutions >20%, PaaS ~47–48%, SaaS ~70% with operating leverage improving over time.