Hello everyone, my name is Marco Jiang. Welcome to today's fireside chat with Tuya at the Consumer Electronics Show in Las Vegas. I'm the research analyst at Water Tower Research, covering Tuya, a new client for us. We are excited to initiate our coverage with this preview chat, which will be followed up with a formal initiation later this month. Tuya is a leading IoT ecosystem builder that enables businesses to quickly design network intelligence into their products, creating competitive advantages for themselves and added benefits for end customers. Tuya was founded in 2014, went public on New York Stock Exchange in 2021, and dual listed on the Hong Kong Stock Exchange in 2022. Today, we welcome COO Alex Yang and CFO Jessie Liu.
Alex and Jessie are right now in Tuya's booth on trade show floor at CES in Las Vegas. Before we start, we remind you all that Tuya's disclosures regarding forward-looking statements can be found on the company's website. Alex and Jessie, welcome, and thank you for joining us.
Thank you, Marco.
So let's get started. Tuya's story may be still new to many of our audience, so we'd like to start with an overview. Tuya offers an IoT cloud development platform with your platform-as-a-service segment, what you call PaaS, contributing around 75% of your revenue. Can you share the story of how you built this product and how you make money from PaaS? Also, please share some color on the near-term growth drivers. Alex?
Yeah. Thank you, Marco. So I think when we established Tuya, because we are the startup team, this is our second enterprise which have been established, and we're looking for some huge opportunities that are beyond the internet. And so the mobile internet will be a massive trend for the industry. But we think that what will be the next huge revolutionary technology gonna looks like? And we think that a new massive network will be the one. So internet is connecting all those in the computing devices, starting from the PC, desktop, laptop, and then the smartphone. And so a new internet is trying to connect all kind of things, then that we call IoT. There's a huge gap about the capabilities in the industry. The majority of those device makers, which we call manufacturers or designers or the brands.
So when they try to involve in IoT, so the software engineering capabilities, including the cloud service, including the applications, including all those systems on the device side, will become kind of the gap for them. So it's not their experience in the past decades. So that's be the first one. We found there's a very generic demand out there about the capability on software engineering and across different infrastructures in IoT. Because IoT is not connecting a single type of devices, it's not just a one form, one type of form that you can standardize all over the world. It comes with hundreds and thousands different type of devices all over there. And so that fragmentation, which brings a huge challenge when each of the builders is trying to build everything on their own.
So they have to build everything from scratch, which might not be skilled enough to bring a cost efficiency for themselves. So the fragmentation, along with the standardization of the infrastructure gap, is something we found is very extremely valuable for this new industry. And we believe that this can have an opportunity to provide a new layer or role in the industry, what we call the new type of infrastructure. So that's what we call it the PaaS. So we design PaaS as a turnkey one-stop solutions for any device makers. So they don't even have to hire any new engineers. With their own in-house engineering capabilities, they can finish all the software engineering, and it will enable to turn the legacy devices into our connected smart devices. We offer them that kind of solution.
So we started to build that things in 2015, and then in the beginning of 2016, we start to publicly promote the platform as a public services. To target at any type of the device maker and brands who want to, you know, turn their, device business into a new connected and smart devices business. And, so we successfully using some turnkey one-stop solutions to shorten the development period for majority of the device makers, starting from 12-18 months to 1-15 days. So that will be the start of the idea of the PaaS. So we try to standardize a lot, lot of major demand on the same framework that people need it for the technology, put it together, offer as a one turnkey solution, and then lower the barriers for any of the newcomers who want to enter this new industry.
Then we're starting to expand our coverage, starting from one -two categories, and we start to cover majority of electronic devices, starting from consumer and into industrial level. We have, right now, covered what we call 8 major vertical industries for electronic devices, and we have over 260 subsidiary categories under each of the verticals. And so through that, till now, we've helped our customers to build over 600,000 different type of SPUs or different type of IoT devices, making connect them smart. That is where we are. The major growing factor for the PaaS, and we put them into three. The first one is that, in the beginning, we provide them a very easy-to-use turnkey solution. The first step is getting connected.
But we believe that smart is more than just getting things connected. So we try to enhance all the values that I can put on top of the devices, more than connectivities into some kind of algorithms, new control, you know, protocols, new user interface, new automation, and, and the automation, programs, et cetera. So to strengthen the value of the each of the connected devices, to bring up our ASP. So given the value of each of the connected devices to bring up the ASP will be one package. And the second one is that during the past three or four years, we continue to be more focused on the key accounts customers, especially like the, like the other core local team in every single vertical, in every single areas all over the world.
So also including some of the Fortune 500 brands, we serve over 60 of them, like the Schneider, and Philips, and ABB. So those kind of huge customers, once they turned IoT as one of the growth strategy for the product for, for the next 1-2 decades, and they continues to invest more resources to grow the business out there. We believe that we can, we can grow together with them. And the third factor is that besides the key accounts, so we have an open developer portal that is for any type of developers all over the world, to standardize, to provide a standardized services to cover all those kind of long tail developers market, to cover all the SMB areas all over the world. But till now, we almost hit 900,000 developers all over the world.
So they create all different type of innovations and different type of, you know, vertical market in vertical areas, which maybe we don't have the, antenna to touch there, but they can deliver to provide the service there through our framework infrastructures. So that will be the, the core, values and also the, the growth factors of the Tuya in the past eight years.
That's very good to hear. So as PaaS contributes most of your revenue, while SaaS has impressive profit, can you contrast these two main business units, particularly how you allocate resources between these two business units?
Yeah, that's a very good question. That's a very good challenge that works for us for all those decades. And we're always trying to find a balance, because to be able to provide a more standardized solutions is easy, I mean, to focus on, but also to be able to create enough diversity within the solution itself. And we believe that, like I mentioned, we believe IoT will naturally go to the diversity one. So for us, so we divided our entire engineering resources into two parts. The first part is a PaaS one. So we divided PaaS by different vertical, we call the categories. So easy to understand as like the appliances, like lighting, like the energy label and security, etc.
So we divided, we have eight units, focused on different vertical category in the space, in all different type of devices. And those guys are focused on how they can provide the solutions for the makers to turn the devices into a smart one. And also those guys will be focused on any type of value, solutions, and services they can put on top of the connected devices. So like I mentioned, the cloud storage services is coming from our power category teams. They build a service on top of that, directly on the device. So this unit will be valued by the ROI and growth rate. So whether they can find the right type of the device or solutions, they can standardize that, they can scale the market, they can find the massive demand in the global market, that's a challenge.
We will put a track on there to evaluate whether we can find the next killer app or they can manage very successfully in their own efficiency through ROI. The second layer is our SaaS and add-on units. So for them, you can consider as they are the application development on top of the devices. So they are more focused on to find those kind of massive usage about how the business users like to use those devices. So including in ourselves, we have the industrial SaaS team. So they focus on different type of industrial scenarios, industries, like the hospitality, like the retail partners, like the commercial lighting, et cetera.
So those guys keep scanning on what type of verticals might be the first one or be, might be the first route who will penetrate IoT, and they come with a bigger pain points that IoT can contribute. So they, they provide a solution to that, and they group different type of developers in the industries and to work in the same target. And another type of things were like the Cube team. So they focus they focus on how to decentralize the tool's capabilities and, build enough, and then offer other flexible software modules to the users. So the Cube team will be focused on to identify what will be the new, type of the target customers who require IoT in the long run.
Maybe through a central of the government, through any type of M&A, and then we offer them some solutions directly to them. So they don't have to take everything from IoT; they only want to take things that's valuable for them. So the Cube team will be running as more of a consulting solution team that offering to different type of models. They can be our RP users, you know. So that will be how we allocate our resources for engineers. So two tests for us to challenge them, the first one will be the ROI. So whether we'll be able to really invest their own resources on some valuable market in the mid, in the short and middle term, but also keep an eye on long term. And also the growth rate is the way we evaluate.
Either it can grow fast enough, or either it can be cost efficient and revenue efficient enough.
Thank you, Alex. Hey, Jessie, being at CES, what's the biggest topic there in your space? Would you like to share any exciting news with us regarding your new products or offerings this year?
Sure, Marco. This time, the theme of our booth is Altogether, All On Smart. This reflects the concept of full integration of thousands various home electronics with advanced technology. We have showcased different exciting smart devices from the global partners and developers. There are three things I want to report to you about our booth. First is home energy management system. We believe this is a very important trend globally for the next 10-20 years. This time we are very excitedly to announce that we have brought Tuya developed home electronics, home energy management system, including both hardware and software, for global homeowners to save energy. Secondly, we have showcased some new exciting, some smart devices from our global developers.
For example, just for the lighting space, there are several different types, new products developed by our developers. First, the smart mouse pad supporting RGB lighting, and also the smart bicycle lighting, which can automatically adjust the brightness based on the driving and the road conditions. There's also a sleep aiding smart lights. Basically, it can help the consumers easily falling asleep and also easily waking up by the smart products. So we hope the audience can enjoy all these exciting new products. And thirdly, we also brought our customers from various countries other than just U.S. to showcase the new products.
For example, from Europe, we brought our customers, Calex, who is a well-known lighting brand in Europe, for their suite of smart lighting products, and also Sharp Europe, for the e-bike Sharp and Tuya co-developed. From Latin America, we brought Claro, which is a leading telecom operator. So through Cube products, Claro and Tuya has developed wide suite of smart home products for Latin America. And also we brought our Korean customer, Haatz , to showcase their full suite of smart home products. And there are many our top US customers products here as well. So, there's many things happening in CES. So we welcome audience investors investors come to experience the new trend of smart devices.
Yeah, that's great to hear, Jessie. Yeah, let's talk about your financials. We know that you recently announced Q3 results with a profitable bottom line and return to year-over-year growth. So Jessie, as CFO, can you review the financial developments and overall growth outlook for 2024?
Sure, Michael. We excitedly announced our Q3 results in late November. As we all know, that macro economies experienced a difficult situation since the end of 2021, and it's easing right now. Tuya has shown a turning point since mid of 2023. So let's talk about the revenue growth first. We have returned year-over-year revenue growth since Q3 2023. For example, our one of our key revenue part, the lighting products, has seen a very strong bounce in Q3 2023, which is benefiting from the de-stocking inventory cycle come to an end globally. Now let's talk about gross margin.
We have experienced a continuous gross margin improvement since 2021, from around 40% to now it's almost around 47%, in Q3 2023. We will continue to deliver better value cost products to our customers, which will be reflected in continuous improvement of gross margin. Thirdly, regarding our operating expenses. In the last two years, we have put significant efforts to reduce the operating expenses through different initiatives. We have been happy to see that, with seven consecutive quarters, we have decreased our operating expense significantly. First time in our history, we gave a non-GAAP net profit positive result to our shareholders.
Going forward, we will continuously be very disciplined on managing the operating expense, and to make the net profit as a top goal of the company, along with the revenue growth. Also our cash flow has been operating cash flow has been positive since Q2 of 2023, and increased significantly in Q3 of 2022. We stand on a $960 million net cash at the end of Q3 2023. It has been a strong basis for the company to continuously grow for the future.
So overall, we are happy that we have been turning around the company in terms of both the profitability, turning positive cash flow and returning to a year-on-year revenue growth. Looking forward to 2024, we have been happy to see the macroeconomic situation globally, like in U.S., Europe, turning positive. So we're confident the microeconomic environment will gradually be more optimistic going forward. So we will cooperate with our partners and developers in 2024 to continuously provide better products, services to our end users and the customers and to deliver a long-term growth to the shareholders.
Thanks, Jessie. Congrats on your Q3 results. As you mentioned earlier, so after several years of growth, revenue declined in 2022, and the stock dropped under $1. Even now, your market cap is only modestly above your cash balance. Can you please tell us, like, what happened in 2022 and 2023, in terms of what changed in your market then and how it is recovering now?
Sure, Marco. Since the end of 2021, to now, in the last two and three years, both the economy and the capital markets have experienced a very rough cycles. So in 2021, as all of us know, the economy and capital markets were booming at that time. In 2022, until now, we have experienced a pretty tough, macroeconomy situation, and the capital market has reflected that. The software companies, especially, in the last two to three years, the valuation of software company has gone from a... For U.S., U.S.-listed companies, have gone from, like, 13 times of PS, in average, to now, like, 5 times, PS in average. And now we have seen a recovery of both the economy and the capital market.
So let me go to a few more details. First, in terms of macroeconomy, the consumer electronics industry has experienced a weakness of consumption, affected by the global inflation since the end of 2021, and the worst has happened in 2022, combining with a destocking of inventory. And then in 2023, we start to see a ease of inflation and the inventory decycling has become to the end. So that's what has happened to economy cycle. So for our company, we have seen the same trend happened to our upstream suppliers to ourselves and to our thousands downstream customers. We have all gone through this cycles, and we all have learned a lot.
Second, what happened during this downstream cycles, a lot of our competitors have decided to quit this IoT cloud business. The name list has been pretty long. It's been on the public news, including the Google IoT, SAP IoT, IBM IoT have announced at the end of 2022 to discontinue this business in 2023. And Ericsson IoT decided to sell their IoT business in 2023. Most recently, Alibaba IoT announced just in November 2023 a strategy change, so they were no longer to focus on the fragmented consumer electronics IoT devices business, but more focused on other part of the cloud business.
This has given Tuya a good competitive position in the industry at current stage, so leaving a much better competitive landscape for us for the next 10-20 years in the future. We believe IoT is still under-penetrated and has still long-term growth. Thirdly, it's about Tuya ourselves. In the last 2-3 years, we have learned a lot, and we have made a lot changes to our organization and how we run our business. So first, we have focused on premium customers and important product categories in the last 2 years. And by doing that, we are able to significantly cut our organization size to be much more efficient.
Then we have achieved, by average per employees and per customers, achieved a record high revenue, gross profit. That's why by Q3 2023, we are able to turn net profits, Non-GAAP net profits in Q3 2023. We have also increased, improved our business model. So for example, for the smart device distribution, this segment, we have significantly changed our business model, from delivering a more logistic service for our IoT plus brand customers, to deliver a high value smart solutions with our R&D efforts to global customers. So the gross margin has improved significantly, from 10% to 12% Q3 2022 to 27% Q3 2023.
So going forward, we will continue all these efforts to be a much better, mature company. So, overall, I think, in this 2- to 3-year cycles, what we can come to a conclusion first, the microeconomy has seen a turning point. The capital market has seen a turning point. Tuya become a much better company, and the competition landscape is a better field right now for us. Less competition, less competitors. In terms of capital markets, our market cap right now is around $1.3 billion. The net cash we own is $960 million by the end of 2023 Q3. We don't have any interest-bearing debt.
We are a light asset company, turn to profitability, and generate positive net cash flow since Q2 2023. So we believe our market cap is undervalued. But we believe that, with us, we continue to deliver good results, the capital market will recognize the internal long-term value of Tuya. So thanks, Marco.
Thank you, Jessie. Yeah, I think we will leave it here, today. We are about out of time. Alex and Jessie, I appreciate you joining us today on today's Fireside Chat, and wish you all the best at the CES. To learn more about Tuya, please visit their website or access our research on WTR's website at www.watertowerresearch.com. Thank you, everyone, for joining us.
Thank you.