Tuya Inc. (TUYA) Earnings Call Transcript & Summary

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. [Operator Instructions] 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.

Thank you. Hello everyone. Welcome to our fourth quarter 2024 earnings call. Joining us today, our Founder and CEO of Tuya, Mr. Jerry Wang; and our Co-Founder and CFO, Mr. Alex Young. 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.

[Interpreted] 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 2 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 Stage 3 shareholders' equity level, enabling us to take further strategic actions. These achievements strengthen our confidence in the company's future growth. 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. Over the past year, we have almost 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 strength, 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% year-over-year growth in our Smart Solution revenue stream. Looking ahead to 2025, we will be fully committed to building a global AIoT developer ecosystem. This includes ongoing iterations of our AI agent and the Tuya OS developer products as well as AIoT open source software solutions such as tuyaopen, 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. 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.

Hello, everyone. I'm Alex. Today, I'd like to share an overview of our 2024 performance and our thoughts for the future. Before that, let me summarize our 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 USD 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 solutions revenue reached about $11.3 million, growth by 45.5% year-over-year, supported by robust demand across categories such as gateways, central controls and energy efficiency solutions. So 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 operation expenses declined by approximately 10% year-over-year due to the continuing cost discipline of the company. So as a result, revenue and gross profit growth efficiency 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 the 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 the increased investment in a smart product line and the rapid education and adoption of GenAI and LLMs. So this drives a positive response from the consumer electronics industries towards intelligence trend. 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 grew by 11% to 298. Our revenue dollar expansion rate, so DBNER exceeded 122% at the end of the Q4, marking 5 consecutive quarters above 100% and 3 consecutive quarters above 120%. Our products and services offering provide customers with an all-necessary technology and software to efficiently create competitive smart devices and bring them to market. So the DBNER metrics 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 retention rate at about 97%, underscoring a strong stickiness of our neutral open and scalable technology platform. So our strategy strategically focused on key accounts has driven efficiency improvements too evidenced 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 products capabilities, feature set 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 has become increasingly balanced and diversified, aligning well with the trend of customer expansion in the 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 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 were ceased and help our French customers in becoming among the first to meet the country's energy efficiency subsidy standard. So this incentive programs is set to helping 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 expensive developer ecosystem as smart solutions further enhanced our ability to support customers, strengthen engagement and boost the market competitiveness. And 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 buying, for example, integrating with Google Home APIs to create seamless smart home experience. And collaborating with Chery to establish a new [indiscernible] Ryco Home interoperability ecosystem. At the same time, we are 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 Win ESG rating of A2 and we were included in the S&P Sustainability Yearbook China Edition and so on. So 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, including all major large language models, including ChatGPT, Qwen, DeepSeek, Doubao, Le Chat of Mistral, Gemini, Amazon Nova and Cloud, et cetera. So 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 LLM's capabilities with real-world applications. Those developers, they can flexibly choose the most suitable AI models based on their business and marketing needs, while leveraging Tuya's template library or customer solutions, customized solutions to develop AI devices and applications. This philosophy aligned 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. Those agnostic capability provide 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 automation. 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 too. 2025 will marks as 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 will explore various innovations and scalable applications for AI device, continuously shaping a variable global AI IoT developer ecosystem. Looking ahead, intelligence will involve through the integration of software and hardware, construction differentiated scenarios throughout interoperable smart devices and meet the customized needs of individuals, households and spaces. The industry remains in 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 continue to expand the global market penetration. We 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 offer Cube, our smart private cloud solutions to help them to build secure and scalable enterprise-level smart platforms. Second, advancing the AI device and applications, we are committed to leverage GenAI and LLMs to significantly enhance smart product experience, driving product competitiveness and delivering great values to the end users. We're continuing to innovating 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 and software smart solutions, we are helping top-tier customers to speed up their product launches and establish differentiated competitive advantages across different categories and regions, directly to increase 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 operational leverage and efficiency. Last, to continue to build our global developer ecosystem. We continue to iterate and refine Tuya AI agent platform, empowering developers worldwide to create a customized AI devices and scenario-based applications easily. Additionally, we'll leverage GenAI tools to improve developer -- improve the development phases efficiency as well. So finally, let's address some frequently asked topics from the capital markets regarding to the internal operational efficiency, the share-based compensation expenses and dividends. Throughout 2024, our total head count has remained at about 1,450 employees, reflecting about 12% reduction from 2023. And by Q4 of 2024, our average revenue per employee has exceeded early 2022 levels by more than 3x. So over 70% of our team consistently consists of R&D, technology development and product person, so who drive rapidly product integration across Tuya's business line and prepare 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 a stable and continuous improving profitability. We are committed to further improving the operational leverage, while our net profit structures and quality will become even more sustainable and organic. Regarding share-based compensation expenses, the current quarterly accounting expenses primarily stem from the legacy granted and issued our ESOP in a higher evaluation years ago, which has become amortized in 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 statement, an improvement that's already evident in Q4 of 2024. So earlier this day, ahead of this earnings call, our Board of Directors approved the second dividend for 2024, totaling about USD 37 million. Given our robust non-GAAP margin, normally, non-GAAP metrics reflect the direct results of operational decision-making, excluding external facts unrelated to our business model. So those non-GAAP margin and strong financial positions is what we -- the base we offer for the dividend, with over $1 billion in net cash and 7 consecutive quarters of positive operating cash flow from Q2 of 2023 till now. We believe that Tuya is well positioned in sustain 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 upgrade, we have been fortunate experiences multiple dimensions of progress and transformations, whether in achieving operational profitability, expanding our global footprint or optimizing our international shareholder base. Notably, our partner with 65EP, a subsidiary of Temasek as a strategic investors has positioned them as Tuya's largest institution shareholder. Furthermore, our achievement has been strongly recognized by the market in early 2025. I believe this success is rooted in Tuya 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 the Q&A.

[Operator Instructions] We will now take our first question from the line of Timothy Zhao from Goldman Sachs.

Congrats on the very strong to end the year of '24. And I think your presentation is very helpful. I have 2 questions here. One is that I think on AI impact and in your smart solutions business, could management further elaborate on what kind of usage scenario that you are seeing?

Yes. 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 as the first year that we can really turn the AI devices into reality. What we see 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 will be one thing. So the matter is some use cases where we showed that in the last quarters, like the pet feeders, like the bird feeders and the pet-related appliances and some control panels on the board with the screen as well. So that will be one thing. And the second thing is that all those type of -- analytic type of 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 type of devices and from the outside factors like the weather, like the utility data, et cetera and then make some adjustment and automatically or very dynamically making new decisions to operate the device in 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 start will be the all type of toys that -- so we found that the kids will be the perfect adapter for AI because they don't have any stereotype about any existing technology. So they grab anything as a fashion, so they can -- they just easily tap in. And so since January, after the CES, we really got plenty of customers reach out to us bringing different ideas that how they can integrate AI into toys. So that will be some of the, what I say, incubating categories we start to catching up. But I believe there will be more booming stars throughout the entire year or even in the next couple of years. And while the AI starting from the very fundamental stuff like the LLM, someone can bring a easier approach to the market to activate all the new ideas. And so while the barrier become low and you have thousands of thousands of companies and the developer joining in, so that will become a robust market, what we're looking forward to do. So there might be thousands of different type of things coming after. That's it.

Timothy, do you have any follow-up questions?

Sorry. Can you hear me well?

Yes, we can. Please proceed.

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

Yes. 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 up the final call about how we're going to commercialize the AI. So we try different type of commercial use cases. In one word is that we're starting to deploy the AI into all 3 business models we have, including the PaaS, the SaaS and solutions. So we offer the AI in different ways 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. It 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 a default features that by enhance our all 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 may not be growing that significantly to influence our overall margin. So that will be a smaller pie at this moment. And in the long run, I believe that AI will be more values, but we will not committed to when because for sure, that the focus for us -- I mean, the priority for us is always scalability. Yes, that will be one thing. And second thing about the OpEx. So like I mentioned earlier, we're starting to invest in the AI once the GenAI occurs back to early of 2023. So it's not a new investment for us. Throughout the past 2 years, we already relocate our resources internally and by improve our talent structures in some roles to be capable of building AI already. So right now, there are a lot, a lot of departments in my company, they are all AI-ready, now. So 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 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 in a better efficiency since that 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 say that will not improve the OpEx significantly. It will be in a very management level.

We will now take our next question from the line of John Roy from WTR.

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?

Yes, 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 grow more SaaS. That will be one thing. And second thing is that we are facing a 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. So that will be the second thing. And so for that part, so I'm not worried about the growth and more -- I'll put more -- pay more attention on the stickiness of the customers, whether they can use that type of thing. As long as they can use that, so the payment -- the continually annually payment will be a very strong base for us. That will be the second thing. And the third thing is that within the PaaS, so there will be some -- 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 3 years, the major market we're trying to do this business line is in Asia and China. So because that's within COVID period, so which means that it brings us difficulty to be able to incubate new business across the global basis. And starting from late last year, we're starting to duplicate that use cases in different countries. We try to bring that into global market. We already have some really positive progress there, no matter in Latin America, Southeast Asia and Europe too. So for that part, right now, we are approaching to a bigger total addressable market on the regional basis. And we're ready from the duplicable applications or products that are proving to work out and we already have a customer base that's applied with the recurring models. So for the SaaS, I believe that will be our long-term growing business line. We're not looking forward to any short-term surprising or short-term significant improvement. But for the long run, maybe after 5 years, that will be a very, very [indiscernible] for us.

Great. 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?

I think that -- I'm thinking of -- you mentioned about MMM, right? MMA?

Right. Yes.

Yes. So MMA is always an open option for us. And so we keep screening and what type of extension, what type of companies or partners can be our extension either to extend our scope of coverage of different type of scenarios, or to be a vertical solution, a more vertical solution provider for specific industries. So we keep screening on that. And yes, 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 and 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 the ecosystem that can show a better potential no matter, like I mentioned, that horizontally extend our scope or vertically that improve our vertical industry insights. So for that part, we can easily identify that. Yes. 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.

We will now take question from the line of Kai Xiao from CICC.

So this is [indiscernible]. 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 outlook the gross margin? And the second question is regarding the high-quality customers. So we see the customer -- 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 for the question. 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. So we didn't rely on any single category so which means that we're quite diversified in the category side. So that's what I mean that whenever or whatever type of new booming starts in the smart devices market occurs, for sure that there are someone making that into your platform, into your ecosystem, not from someone else. So for sure, that will cover any new opportunities. And on the regional side, right now we're very balanced too. So the largest regional market, Europe, only covers slightly over 1/3 of 35 of our business and on the end user demand. And for all other countries, North America, Latin America, Asia and Australia, including China domestic, so they are quite balanced. So we didn't rely on any single region market too. And which bring us a very good barrier or very good protections for any type of change happening on the right now the geographic scenarios. So that would be one thing for the PaaS. And for the second question, 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 there are a larger portion of the ecosystem come from the consumer field. So what we found here is that 2 extensions on the customer side. The first one is that for the past 3 years, we have more and more customers and use cases come from non-consumer fields. No matter it's commercial one, industrial one and that type of things. And also in the company, we have new business lines, just focus on that part. So that will be one thing. That will be 2 to extension and some new type of customers from that part and including the telecom carriers. So we got -- we continue to have new telecom carrier partners coming in. Yes, so that would be one thing. And the second thing is that exiting 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 will be a different type of company too. And for that, no matter it's for like the property manager, warehouse management, logistics. So those guys manage some type of space and the house, the building, the warehousing or some asset too. So those type of solutions, before AI technology happens, they don't have a comprehensive right of solution to carry the pinpoint. 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 what we call the new [indiscernible] for us. That's it.

Do you have any follow-up question?

That's all.

Our next question comes from the line of Yang Liu from Morgan Stanley.

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 volatile. So this kind of change -- mix change is very critical to the overall gross margin. So I would like to hear your view in terms of the 3 business lines revenue 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 competition in the AI for the IoT solution provider? Do you see more hyper-scalers would like to develop IoT hardware themselves? Or do you think it is still -- or it is a booming market with a lot of smaller product development company in the market and Tuya can continue to add a lot of value to those customers?

Yes. So for the question, I think that our 3 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 -- so 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 have -- you scale the volumes, while the customers scale the volume too and sometimes you have to subsidize 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 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 will be overall the margin or the nature of the margins on 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 in hurry. So continues to enlarge the device base and 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 will be our expected too. And solution because solution come from my PaaS 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 demand directly from my PaaS base. So for that part, the solution might grow faster. And while solution become a larger pie of my total revenue, so my general gross margin rate -- gross 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 will come with a lower margin compared with the other 2 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 model and tell the value of that, whether that values reflect to the right margins at 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 peers and the PaaS is for other PaaS too. So that's the point I try to make. So it's a very stable business model and structure will start to change slightly.

How about the second question? What is the outlook for the competitive landscape in AI for the IoT?

Yes. I think that -- I think I already 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 for the hardware industry. And so we have a lot like a movers as either designers or manufacturers or solution providers. And so right now we process 3, right? Like I mentioned, it's either the video-audio interactive and all the decision-making analytic one and the toy. 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 type of ideas. So what we need to do is that we offer them a toolkit to easily turn their ideas into tool. 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 -- to everything in-house, we offer them a shortcut to testify 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 try in and some will prove to work it out and starting to scale that. Maybe some not, they redesign that. So yes, 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 to get in.

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

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 IR 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. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]