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l  We believe TUYA is basically a module design company selling SaaS/PaaS as post-sales service. It does the “dirty work” that others in the value chain do not want to do. Its valuation has exceeded its value;

l  While white label products globally need a standard coordinator, TUYA can face compatibility barrier as the industry matures and consolidates;

l  We initiate TUYA at sell with a TP of US$16
 

TUYA’s model is like Qualcomm, without the patent barrier

We are perplexed at valuing TUYA. At one end, interoperability among the labyrinths of IoT standards calls for a “coordinator”, especially the white label products. On the other hand, TUYA’s valuation doesn’t befit this role.

 

TUYA is an IoT module design company, not PaaS or SaaS

TUYA’s cost of revenue and product offerings indicate it is an IoT module design company and its design mainly entails by mix-and-matching different components for the numerous IoT end use scenarios. While this work is necessary for white label manufacturers selling on Amazon, it exists largely because no one wants to do it.

 

White label is and will be TUYA’s main customer base

Our study suggested 94% of TUYA’s revenues comes from white label manufacturers. TUYA’s solution runs on Amazon-backed FreeRTOS which in our view doesn’t stand out among the universe of IoT standards because it is e-commerce driven and unit driven;

 

TUYA’s gross margin is overstated, in our view

We believe the labor cost of a great number of engineers doing customization work at TUYA is currently placed under R&D, which we believe should be placed under the cost of revenue. We argue gross margin is not a good indicator of TUYA’s operating performance.

 

Valuation is too high…Initiate @ SELL

We believe TUYA should be traded as a hardware+system integration company instead of as a PaaS/SaaS company. Initiate with SELL with PT of US$16.

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