Tuya Inc. Q2 FY2026 earnings call

• Overall Growth & Resilience

  • Tuya maintained solid growth momentum in Q2 2026 despite a complex global operating environment, with revenue growth accelerating from the first quarter. Growth was driven by rising smart product penetration, steady demand for home appliances, increased adoption of differentiated solutions like smart door locks, and growing demand for AI-enabled product categories, demonstrating platform resilience across regions and categories.

• AI Strategic Execution & Product Innovation

  • Advanced AI-driven development strategy, extending AI capabilities from foundation models and standalone features to platformization, productization, and scenario-based deployment. Shipment volumes of AI companion product solutions continued to expand, with consumer acceptance of new AI hardware form factors validated in the market.
  • Launched 3i Compute (Tuya Co-Builder), an AI-powered development tool that enables natural language-driven end-to-end AI hardware development from concept to physical device validation, shortening development cycles. Within just over a month of launch, its AI panel generation capability covers 30 product categories, with average single panel generation time reduced to 190 seconds.
  • Focus future efforts on three core areas: 1) Advance AI-native application and product innovation centered on high-potential scenarios including AI homes, AI energy, and AI robots to drive large-scale AI adoption across physical devices; 2) Enhance AI development tools to further shorten the cycle from ideation to deployment; 3) Expand proven solutions globally while strengthening the developer ecosystem and industry partnerships to explore long-term AI application market opportunities.

• Segment-specific Operational Progress

  • Strong performers within PaaS included home appliances, smart door locks, electronics, energy products, and AI-companion solutions. Demand recovery for traditional lighting and IP cameras remained slow, leading to divergent performance across categories. During China's June 18 shopping festival, Tuya-powered Fezuzu ranked first in the AI toy category on Tmall, with other ecosystem products also delivering strong sales, validating commercial potential of new AI devices.
  • Expanded AI energy capabilities from basic analytics and alerts to dynamic electricity tariff management and user-authorized automated device coordination, with solid growth for EV charger, smart power distribution, metering, and home energy management solutions.
  • Increased adoption of Matter-based solutions across customer product lines, with enhancements to local control, multi-protocol connectivity, and third-party ecosystem compatibility.
  • AI applications are shifting from low-margin project-based B2B customization to higher-margin recurring B2C subscription services, with recurring B2C revenue growing 22% year-over-year in Q2.

Total company revenue for Q2 2026 was 92.9 million USD, representing a 16% year-over-year increase, with growth accelerating from 8.3% in Q1 2026.

1. PaaS: Generated 67.9 million USD in revenue, up 16.9% year-over-year. This segment contributed 73.1% of total revenue, with a gross margin of 46.8%. At the end of the quarter, the top 318 PaaS premium customers (for the trailing 12 months) contributed 89.5% of PaaS revenue, keeping the core customer base stable.
2. AI Application and Other: Generated 11.5 million USD in revenue, up 3.9% year-over-year, driven by growth in cloud-based services like video cloud storage. This segment contributed 12.4% of total revenue, with a gross margin of 72%.
3. Smart Home and Robot Products: Generated 13.5 million USD in revenue, up 23.2% year-over-year, driven by growing demand for smart security, energy, and other differentiated smart products. This segment contributed 14.5% of total revenue, with a gross margin of 21.9%.

Overall blended gross margin for the quarter was 46.3%, with total gross profit increasing 11.1% year-over-year to 43 million USD. GAAP operating expenses were 33.7 million USD, down 10.4% year-over-year. GAAP operating profit was 9.3 million USD (10% operating margin), while non-GAAP operating profit was 9.6 million USD (up 11.7% year-over-year, 10.3% operating margin). Net cash from operating activities was 6.2 million USD, and total liquid assets stood at 976 million USD at quarter-end. As of Q2 end, registered developers on Tuya's platform exceeded 2.09 million.

• Overall demand for the second half of 2026 is in line with management expectations, with gradual demand acceleration continuing as customers upgrade legacy devices to new AI-enabled solutions; recovery is expected to be gradual rather than immediate.
• Management expects gross margin to stabilize in the second half of 2026 after passing through recent upstream semiconductor cost volatility, and sees potential for overall gross margin improvement via new technology and capability offerings.
• For the AI Application and Other segment, management targets a long-term gross margin of 75% to 80%, up from the current 72%, achieved by growing the share of higher-margin recurring B2C cloud services and improving technical operating efficiency, with the target expected to be reached next year.
• Demand in Russia/CIS remains paused due to ongoing military conflict, with potential demand recovery not expected until the end of Q3 or Q4 2026 at the earliest.

• Continued volatility in upstream semiconductor costs creates pressure on gross margins, driven by global supply chain fluctuations.
• Divergent demand performance across product categories and regions, with slow recovery in mature categories like traditional lighting and IP cameras, and price sensitivity in North America impacting lower-priced device demand.
• Geopolitical conflict (ongoing military conflict in Russia/CIS) has paused business activity in the region, with uncertain timing of demand recovery.
• Non-GAAP net profit declined year-over-year due to lower financial income and foreign exchange losses, creating downward pressure on bottom-line results despite growing operating profit.

Q: Yang Liu (Morgan Stanley) asked about the 2H 2026 demand outlook, with a geographic breakdown. / A: Management stated overall end demand aligns with expectations, with accelerating momentum as customers shift legacy devices to AI solutions, and recovery will be gradual. Europe sees strong demand for energy-related solutions including AI home energy management. Southeast Asia and Latin America have strong growth potential from telecom carrier strategic partnerships developed over the past 18 months, driven by ongoing B2B commercialization cycles. Russia/CIS business is currently paused due to conflict, with potential recovery expected by end-Q3 or Q4. North America has steady sales but faces price sensitivity, so Tuya is adjusting product mix with customers to strengthen 2H performance. In China, major home appliance brands are accelerating the shift to smart and AI-enabled devices, and AI companion categories are booming, with early market validation already achieved. Total characters for Q&A section: 1217