Tuya Inc (TUYA) 2021 Q4 法說會逐字稿

Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Tuya Inc.'s Fourth Quarter 2021 Earnings Conference Call. (Operator Instructions)

I will now turn the call over to the first speaker today, Mr. Reg Chai, Investor Relationship Associate Director of Tuya. Please go ahead, sir.

Okay. Thank you. Hello, everyone. Welcome to our fourth quarter 2021 earnings call. Joining us today are Founder and CEO of Tuya, Mr. Jerry Wang; and our CFO, Mr. Jessie Liu.

The fourth quarter 2021 financial results and webcast of this conference call are available at ir.tuya.com. A replay of the call will also be available on our website in a few hours.

Before we continue, I refer you to our safe statement in our earnings press release, 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 a corresponding English translation.

[Interpreted] Hello, everyone. 2021 was a remarkable and a critical year for Tuya. In March, we completed our IPO and our shares started trading on the New York Stock Exchange. We achieved over $300 million in annual revenue for the first time, representing an increase of approximately 58% Y-o-Y.

Notably, we continue to leverage our leading technology and service offerings to support the business growth of our customers. For example, a well-known international brand with 50 years of operating histories, one of our customers since 2018 became our first brand customers with annual deployments of our Tuya IoT PaaS exceeded over 10 million units. They achieved this impressive sales performance with 52 IoT SKUs powered by Tuya.

Our SaaS and other business segments achieved year-over-year growth of more than 170% for 4 consecutive quarters. Our total number of customers increased from approximately 5,000 in 2020 to approximately 8,400 in 2021. In particular, IoT PaaS premium customer with revenue contribution of more than $100,000 increased from 188 to 311. Around 50 of customers with revenue contribution -- around 50 of which are Fortune 500 companies. The annual retention rate of premium customers remain higher than 99% and the annual retention rate of our top 100 IoT PaaS brand customers reached 99% as well.

In 2021, for the first time, we experienced challenges in supply chain, international logistic disruptions and high global inflation not seen in decades. However, we still further expanded our gross profit margin from 34% in 2020 to 42% in 2021, while our gross profits increased 106% year-over-year.

The world's top technology research organization, Gartner, cited Tuya as an example of a successful global IoT technology company in 12 IoT research reports published in 2021.

In 2021, we organized the flagship events such as the Bluetooth Develop Conference (sic) [Bluetooth Developer Conference] and the Cellular Communication Developed Conference (sic) [Cellular Communication Developers Conference], which also served as a press conference for our outdoor travel IoT products. We also continue to partner with global leaders such as Google, Microsoft, Amazon and the Matter project organization to promote the rapid development of the IoT industry.

Looking back on 2021, I would like to take this opportunity to thank our investors, employees, customers, partners and everyone who had supported us.

Now let's talk about business developments in the fourth quarter.

For the full year of 2021, our IoT PaaS business had DBNER of 153%, a leading level in the cloud PaaS and SaaS industry. Our IoT PaaS business acquired nearly 1,000 new customers in the fourth quarter, a total number of customers served increased by 41% year-over-year.

We continue to attract well-known and high-quality companies around the world and turn them into IoT PaaS customers. One of these new customers, for example, is Trust, headquartered in the Netherlands. With the history of 40 years of operation. Trust is the leading brand of consumer electronics accessories in Europe.

Other new customer include (inaudible), a top 3 Turkish home high brand and the Schneider Consumer Group, a well-known European home appliance company.

In Asia, we helped our new customer, COMMAX, a global smart home brand founded in South Korea develop visual doorbells and IoT sensing products.

Other Asian customers we acquired during 2021 include [SAE], a leading robo-vacuum cleaner brand in Korea; [Brompton Grids], a leading manufacturers of consumer electronics with 75 years of history in India; Usha International, with 80 years of history that manages over 1,200 stores in India; and Bajaj Electricals, the diversified consumer electronics arm of the India leading business conglomerate, Bajaj Group.

In South America, we helped our new customer called Coppel, one of the largest department store chain in Mexico, build their own smart home ecosystem with smart home appliances, safety and wearable devices. We also worked with service Entel S.A., the largest telecom operator in Chile.

In the [UAS], our service offerings enabled Powerology, the leading consumer luxury electronics distributor and brand in the region to develop a series of IoT products such as smart cameras, robot cleaners, car refrigerators, body fat scales and ambient light.

In North America, we acquired several new customers during the fourth quarter such as the top outdoor [shower] brand, the largest vacuum cleaner brand and the leading kitchen appliance brand and a Fortune 500 air conditioner brand.

In China, we have also continue to win new customers. For example, we partnered with [Xiaopo Motors] to create in-vehicle intelligent consumer electronics products for them. We also helped (inaudible), a subsidiary of (inaudible), to make their independently design models and product smart.

We worked with [Smart Home Textile], a well-known Chinese brand, to upgrade its [plumping blanket] products with IoT capabilities.

In 2022, we will expand our partnership with Mercury in bedding products such as pillows, (inaudible), aromatherapy, machines and others.

Another example is [Gully Group], a leading stationery and office supply company in China that's utilized our service to upgrade a variety of (inaudible) selling consumer products.

We've also partnered with China's leading door lock company, Cadiz, and the China seamless commercial lighting brand, Shenzhen Aurora, for IoT implementation.

In 2021, our IoT PaaS segment has maintained solid growth trajectory in all regions around the world. We are excited to see that the growth rate of IoT business powered by Tuya Inc. in emerging markets such as China and the other Asian regions, South America and Central America has significantly exceeded that of developed markets. This trend is line with our strategy of building a more balanced global business, accelerating IoT penetration has further demonstrated the applicability of IoT technology.

As consumers develop the markets [for in love] with IoT products, more emerging markets are quickly following suit. Additionally, we further expanded our categories and empowered new IoT products while striving to gain substantial worldwide market share in each new category.

According to IoT industry data from influential professional statistic research institutions such as Euromonitor, we estimate that we have achieved more than 25% of global market shares in IoT lighting and electrical since entering in 2015.

In 2017, we began to focus on home safety-related products like sensors, locks, et cetera. And we now have a market share of about 15%.

In 2018, we expanded in to home appliances and now have a market share of about 10% in the robot vacuum cleaner vertical. In particular, we have a market share of about 20%.

Since 2020, we have expanded into digital particular -- expanded to digital entertainment and consumer energy-related products. For 2022, we will focus on outdoor categories growth. For every new category we enter, our goal is to achieve a considerable market.

Next, I would like to share some updates on our SaaS and other segments, which delivered robust performance in the fourth quarter with revenue increasing to 105% year-over-year, about $19 million in 2021.

For value-added service, monthly subscription revenue of end customer more than tripled in 2021. Demand was strong for services such as cloud storage for IoT devices and message pushing services that provides real value to end customers. We believe that there is still a lot of headroom for value-added services to grow in the long term.

We further expanded our customer base for SaaS solution during the quarter. For example, we provide smart SaaS solution for its industrial park and offices through hybrid cloud to one of China's top 5 power generator, which is also a Fortune 500 company.

In addition, Zhongwang Holdings Group, a large-scale real estate developer listed in Hong Kong, integrated our IoT platform as well as our smart SaaS solution community and the industrial park into its newly updated product (inaudible) to build out their smart thing offerings, which will be regarded as the core system for its next-generation residential products.

Moreover, we provided smart hotel SaaS and the smart partner SaaS solution to Grupo Moraval, a well-known real estate developer in Spain operating office buildings, hotels and student apartment. We've also partnered with Core System, (sic) [Core Systems], a well-known hotel system integrator in Malaysia to provide solutions for the first smart hotel powered by Tuya in the country.

Through our smart commercial lighting SaaS solution, we enable [social building] with intelligent technology and industrial lighting leader who help to renovate the maintenance hangar of the [Zhengzhou Xinzheng International Airport] and successfully achieved an almost 55% power saving in the second quarter, upgraded the factory lighting system of [using] new materials, which will reduce its lighting power consumption by about 65% and its carbon emission by about 270 tons in each year.

There are many similar customers that leverage our solution to strengthen their business. We believe that our IoT SaaS business has immense growth potential. In combination with the massive power by Tuya IoT hardware ecosystem, our SaaS solution can enable a huge number of enterprise customers with smart capabilities improve their efficiency, reduce power consumption and gain in-depth business insights through database system management.

In summary, we are proud of our performance in our first year as a public company, especially considering the significant economic disruptions caused by the COVID pandemic, global inflation, supply chain constraints and logistic disruptions. Our key operating metrics such as a number of active customers and a number of registered developers on our platform grew substantially. We also deepen our collaboration with customers. As the revenue contribution from our domestic business continue to grow, our global business [sees dollars] than ever before.

As we look ahead in 2022, the uncertainty of geopolitical conflicts and the high global inflation will likely continue to suppress consumer purchasing power while we expect 2022 to be a challenging year for the IoT consumer electronics industry. We have also seen significant improvements in upstream supply chain and logistics.

Additionally, certain e-commerce customers affected by store closures in the third quarter are also showing signs of recovery. Our plan is to navigate the challenges in the macro environment through the 3 growth drivers: the private cloud solution, cost-effective smart light IoT solution and our industry SaaS. At the same time, we will focus on the optimization of our organizational structure and our operating efficiency as we aim to better balance our business growth and the time line to profitability.

Even after 7 years of rapid growth, we believe our TAM remain significantly underpenetrated. There are thousands of product categories that can be made smart with connectivity. According to various industry research, while there are tens of millions of consumer electronic products sold in the world every year, the penetration rate of the IoT solution remains low at 3% to 5%, where we can see a dramatic and existing future growth potential of the IoT market.

To capitalize on the opportunities presented by the massive TAM, we intend to continue to invest in research and development for the foreseeable future. We believe the global IoT sector is at land-and-expand stage, and we aspire to become as an industry giant who sets the standards for the industry and connects device globally.

That concludes my remarks. I will now turn the call the call over to Jessie, our CFO, to review the financial details.

I will provide a closer look into our financial results. Before I begin, please note that all amounts are in U.S. dollars and all comparisons are on a year-over-year basis, unless otherwise stated.

As mentioned earlier, we faced a number of industry-wide challenges in the fourth quarter. Nonetheless, we have achieved total revenue of $75 million in the quarter, around 3 points of our previous guidance range. Our IoT PaaS revenue for the quarter grew by 13.9% year-over-year to $62.1 million. For the full year of 2021, total revenue was $302.1 million, up 67.9% year-over-year, and IoT PaaS revenue was $261.4 million, up 72.3% year-over-year.

We had 311 premium IoT PaaS customers for the trailing 12 months ended December 31, 2021, up 65.4% from 188 a year ago. During the quarter, premium customers accounted for approximately 87.3% of our IoT PaaS revenue.

Our dollar-based net expansion rate for IoT PaaS segment was 153% for the trailing 12 months ended December 31, 2021. This is a testament to our ability to expand our platform usage over time and grow revenue from existing customers.

During 2021, among all the categories supported our IoT PaaS solutions, home safety and sensor products, home appliances products and entertainment energy-saving products grew at a significantly faster pace than electrical and lighting products.

In 2021, the electrical and lighting category products contributed to about half of IoT PaaS revenue and the contribution of other categories continued to increase in the past few years, reflecting the success of our category expansion strategy.

As for our customer base, we classify our top 200 brand customer into 4 groups: first, well-known multinational brands; second, regional brands with local influence in all continents and countries; third one, self-owned brands of large regional retail channels and the telecom operators, and the last one, China's cross-border e-commerce brands. In 2021, China's cross-border e-commerce brand accounted for about 30% of the sales of products powered by Tuya.

During 2021, brands and business operators are increasingly recognizing the value of prepackaged industry-specific solutions, which enables them to focus on their own key points of differentiation while not wasting resources, reinventing IoT industry standards. As a result, our revenue generated from SaaS and others more than tripled to $7.3 million in the fourth quarter and $18.6 million in the full year.

At the end of 2021, our smart hotel and apartment SaaS cumulatively supported IoT upgrade of more than 40,000 hotel rooms in China, 9x at the end of 2020, and the customer repurchase rate exceeded 85%. Our smart commercial license SaaS supported nearly 300 commercial lighting projects in 12 countries and regions, including China, Singapore, German and the Netherlands, United Kingdom, Canada, (inaudible) in office buildings, sport clubs, gas stations, shopping malls and a lot other use cases.

This project also includes more than 100 schools providing students with lighting for improved eye protection. Our community and real estate SaaS was adopted more than -- by more than 100 real estate community projects in 2021 to help real estate developers and the property managers to manage their properties more efficiently.

Our gross profit in the quarter increased by 34.1% to $32.4 million, while gross margin improved to 43.2% from 38.3%. IoT PaaS gross margin continued its increase to 42.5% from 40.1% a year ago, primarily due to our increased economics of scale, improved efficiency for IoT PaaS deployment achieved through effective R&D and expansion into higher-margin IoT PaaS product line. We believe our increased IoT PaaS gross margin is a testament to the strong value that we deliver to the industry chain.

Now turning to our operating expenses. Please note that we are presenting our operating expenses on a non-GAAP basis by excluding share-based compensation expense from our non-GAAP numbers to provide greater clarity on the trend of our actual operating base expense so that you can review performance in the same way as our management.

During the quarter, our non-GAAP total operating expenses was [$66.3 million]. Expected to be non-GAAP R&D expenses grew to $42.1 million. Non-GAAP sales and marketing expenses increased to $16.8 million. Non-GAAP G&A expenses increased to $9.1 million and other operating income net was $1.7 million compared to $0.7 million a year ago. The increase in the non-GAAP total operating expenses was mainly due to the increase in employee-related costs.

Our research and development employee head count, for example increased by 56% year-over-year by the end of 2021. Our committed -- we are committed to building a sufficient reserve of talent, which we believe is an integral part of our efforts to navigate external challenges and achieve sustained long-term growth. We are also executing a series of initiatives to optimize our organizational structure and streamline our operating procedures in order to ensure our operating efficiency. As such, we are constantly evaluating our personnel structure to maintain a workforce size that is appropriate to our business scale and the long-term growth strategy.

Our non-GAAP loss was -- from operation was $33.9 million in the fourth quarter and $117.5 million in the full year. Our non-GAAP net loss was $31.2 million in the fourth quarter and $109.3 million in the full year. Net cash used in operating activities in the fourth quarter of 2021 was $53.2 million or 71% of total revenue compared to $9 million net cash yield of 14.3% of revenue in the same period of last year. The increase was mainly a result of higher employee-related expenses and a change in our working capital.

Moving on to the balance sheet. As of December 31, 2021, our cash, cash equivalent and short-term investments increased to $1.07 billion. We believe this balance is sufficient to meet our current liquidity and working capital needs.

Finally, turning to the share repurchase. During the fourth quarter, we repurchased approximately 4.3 million ADSs from the open market for a total consideration of approximately USD 25.1 million pursuant to the share repurchase program, representing around 12.5% of $200 million authorized announced pursuant to the share repurchase program. This shows our strong confidence in the company's long-term growth prospect.

Now turning to outlook. For the first quarter of 2022, we expect total revenue to be in the range of $50 million to $57 million. As you can see, this is a rather large range considering that we are 2 weeks from the end of the quarter and certainly wider than the ranges we have given in previous earnings report.

So let me explain. Historically, majority of our revenue for the first quarter of the year was recognized in March due to the Chinese New Year holidays. As of today, we have a good visibility on demand, and there's a substantial volume of our products to be delivered in coming 2 weeks until end of March. But the sudden severe COVID outbreak China is causing uncertainty on to revenue recognition because we can't recognize revenue until our products are delivered and have confirmed receipt by our customers. This is currently a challenge as the number of cities, including Shenzhen, Shanghai and Hangzhou, are implementing preventive measures while people remain staying at home or pause business activities. We may experience practical logistics difficulties.

Depending on how things unfolds in the next couple of weeks, we could have substantial delivery in some stage of delay. Having said that, we fully expect orders placed and paid, which will eventually make it to our customer and be recognized either in Q1 or Q2 Nonetheless, we are very cautious at this moment. That's why we have provided our outlook in a relatively wider range. We plan to provide an updated guidance for our total revenue for the first quarter of 2022 around the end of March when we have more clarity regarding the severity of the above-mentioned logistics challenges.

So this concludes our prepared remarks for today. Operator, we are now ready to take questions. Thank you.

(Operator Instructions) Your first question comes from the line of Yang Liu of Morgan Stanley.

(foreign language) Let me translate my questions. The first one is -- the first question is on the IoT PaaS growth outlook from multinational customers or the global brand. After the Ukraine war, was there any meaningful change for the full year outlook?

The second one is the SaaS and [IoT] part. We saw very strong revenue growth in the last year. And going into 2022, what should be the growth strategies here and which vertical we expect to see very good growth potential in addition to our hotel and the commercial lighting?

And the third question is the gross margin outlook encourage an improving environment of the supply chain.

Thank you, Liu Yang. So for the first question, we are keeping a close eye on inflation in economic conditions since they directly impact consumer demand, investing directly to impact us. Inflation has been accelerating since the third quarter of the last year. We have all seen the [statistic] numbers, I'm not going to repeat.

In Europe, the market is increasingly optimistic about the economic growth expectation and also same in the U.S. So we think inflation is surprising consumption, and the nonessential consumer goods will be affected the most.

We can see that retail channel and the brand owners have become cautiously pessimistic since the third quarter of last year. This sentiment is gradually increasing, and we haven't seen signs of recovery yet. The recent geopolitical conflict, Russia and Ukraine war, further intensified inflation, especially in Europe, which escalated the situation.

Recently, we collected feedback from our downstream brand customers in Europe and the United States. So for example, in Europe, the sales of IoT lighting products was worse than that of traditional lighting products. Against the backdrop of high inflation, this is a common trend. When consumers are under financial constraints, cheaper traditional products are more attractive.

Another obstacle is that some brands are struggling to make a profit due to the high inflation of upstream cost since last year. So the sharp increase -- and also the sharp increase of the transportation costs in summer of last year also pressured their margins. And they can't really -- when they can't raise their selling prices in the retail channel, because retail channel was facing the pressure of consumer not buying more products, in that case, even when shops and inventories are close to empty or empty, brands are reluctant to produce their products. They rather wait for upstream cost to drop significantly before placing other orders.

So as a result, we believe the consumption will improve after inflation has moderated, and the cost for the upstream supply chain and the logistics decreased significantly back to -- close to back to a normal level.

And we also noticed the sales channels of some IoT products [housed] by Tuya, for example, including Best Buy, have already given 2022 revenue guidance as a negative growth. As such, we remain cautious towards 2022 of the challenging macro environment.

We will prioritize categories where IoT products are not too expensive than the traditional IoT products, such as home safety and sensor products, home appliance products, entertainment products, other transportation products. We also will help some IoT products to reduce the cost by adopting Bluetooth smart solutions that are more cost effective.

Our SaaS business is conducting in China and still expanding very rapidly, which we aim to sustain this high growth in 2022. We will also focus on the optimization of our operational efficiency in 2022 to accelerate our breakeven time line.

For the question two, about SaaS. So we are mainly focused on developing our SaaS business in China. The focus has yielded encouraging results in 2021, so we will continue this focus. Although we do receive revenue outside of China for SaaS products as well, but our focus will remain in China in 2022.

We tailor the strategy for each SaaS segment. It's quite different as well as our extensive hardware ecosystem and software experiences. We expect all our SaaS segment to continue to post robust growth in 2022.

The first one, the hotel SaaS. So for this segment, we already covered over 2,000 hotels. After 2 years development, we already proven the market success of our SaaS products. The development strategy in 2022 is to focus on 3 initiatives. First, expand our coverage to build our competitive moat to enhance our industry influence and profit margins, solidifying the foundation of recurring revenue.

Specifically, we plan to build standard SaaS solution and increase our penetration into mid- to long-term -- long-tail markets by expanding our sales channels in the hotel and apartment verticals.

Second, we also plan to focus on acquiring the big clients, the famous hotel chain and key account customers. And also given our key -- the big customers access to our IoT core, Tuya [human], and our industry SaaS service, we will build our auto industry parts and private-type products.

The third one, we aim to increase our software subscription revenue by developing hotel solution. As we continue to power more hotel rooms, we were able to generate additional subscription revenue on top of the hotel SaaS.

The second one is the real estate and the community SaaS. This business line achieved solid progress in 2021 and actually has the -- with the largest revenue and growth among 3 business. As we further strengthen our community and residential SaaS products, we have become the preferred IoT platform in China for top real estate and property management firms. Last year, over 150 real estate and community projects were built on our real estate community SaaS. And also, our real estate SaaS covered more than 70,000 households last year. Currently, we have dozens of large-scale community projects in hand, including a number of projects with a value over RMB 1 million.

The strategy focus on our real estate and the SaaS community business in 2022 will be developing the major large Chinese customers, deepen the collaboration with city partners and expanding into industry park categories.

We will realign our products with IoT foundation, the PaaS and the real estate community SaaS. As we support several collaboration models, such as out-of-the-box solution, integrated solution, develop capability tools to separate applications platform hardware and software, this will allow large-scale customers to pick and choose a flexible product based on their needs and quickly achieve their business goals.

In addition, we also want to continue to expansion the applications in new users case. The development online capabilities such as online ordering and open framework that supports third-party applications will enable our real estate community SaaS products to interface with third-party hardware ecosystem. This will be our core competitive strength and the key factor to improve our customers' purchase decision.

And for the commercial lighting segment, we completed the business goal of our commercial lighting SaaS segment in 2021 in terms of product iteration, customer acquisition, landmark projects and scaling up our user case. In 2021, we took approximately more than 180 commercial lighting SaaS customers. In the fourth quarter, we also launched our first smart building SaaS project based on the newly developed smart building SaaS on the foundation of our smart commercial lighting solution. In 2023, we have 3 major growth strategies for our commercial lighting SaaS segment.

First, we focus on penetrating large customers as well as building and the commercial lighting brand owners by forging partnerships with certain integrators and independent software vendors with resources. We will launch more landmark projects and help -- second, we will develop value-added services such as human-centric lighting, energy-saving solution provides cloud edge, cloud services to certain customers with the private cloud needs.

Lastly, we plan to improve our integrated hardware and software solutions for each user's case to accelerate their deployment at a large scale.

So we believe that IoT SaaS has solid market demand and long-term growth prospects. So in 2002, we will continue to invest in this area.

For the third question regarding the gross margin. So regarding the pricing of IoT PaaS, our committee always focus on a few standards. It's the industry, the environment, the upstream, downstream operating conditions. Second one is our cost. And thirdly, we also consider the end product sales price. Our pricing strategy always focus on a mutual benefit along the value chain and also our own health growth.

The expansion of our gross margin in the last few years come from 3 prospects. First is the R&D efforts helped us optimize, control the cost. Secondly is revenue generated from segments with higher margins such as home appliance, home safety and sensors, entertainment, energy savings. Those have rapidly grown to almost 50% of revenue. Certainly, we're benefiting from the increasing economic scales.

Looking forward to 2022, supply chain costs, we believe it's stabilized, although it hasn't dropped. However, high inflation could create significant sales pressure downstream. So as such, we plan to keep the price of IoT PaaS stable. We will continue to improve our cost structure through R&D efforts and also continue to increase the revenue contribution from the complex product, as we mentioned earlier, which have the higher margin.

Also for the company as a whole, the revenue contribution of the SaaS segment will further increase this year. So all this will help us to expand our gross profit margin. However, to cope with high inflation this year, we will also promote the cost-effective Bluetooth speaker products. For those products, the IoT products cost has a higher price, obviously higher price percentage than the traditional products. So that could -- those Bluetooth speaker products have a lower gross margin versus other IoT PaaS, like Wi-Fi or Bixby, et cetera. So as such, as a mixed result, we expect our overall gross margin would be flat or slightly higher than last year. But of course, our goal is we'll try our best to increase our gross profit margin. So let's move on to next question.

Your next question comes from the line of Liping Zhao of CICC.

(foreign language) I have 2 questions here. First is related to Matter. Can management share your view of Matter? Any impacts on your overall business? And second is about the business adjustment. Because looking ahead in 2022, customer demand and supply chain are still under pressure due to the macroeconomic environment. Do you have any adjustment of business operations to mitigate these risks?

[Interpreted] Let me address the question by first clarifying what Matter is. It is an IoT protocol formed by integrating the technical characteristics of home kits, open [SaaS] and Zigbee 3.0.

The integrated protocol focuses on the field of smart homes and the local interconnections. Having multiple influential enterprises developing the protocol together in an open source format will accelerate its adoption, which, in turn, will help improve the low penetration rate of IoT in home appliances.

There are 5 key limitation that Matter is facing currently. First, Matter does not cover cloud connection protocols. Second, it only supports narrow-band data transmission. Third, Matter will -- may experience problems with Zigbee's fragmented protocols. Fourth, Matter will be challenged by other network protocols such as building mesh. And finally, chips that can -- meet Matter's requirements are more expensive.

So our full suite of solution excels at solving fragmentation problems at all levels through a platform-oriented approach. We unified our solution across different systems, chips, network protocols and IoT models to provide connections from terminals to the cloud and apps. Our joint development with Matter will definitely accelerate the connection across different brands. Meanwhile, we will also adjust the inability to connect due to the Matter's fragmented protocols as well as building connections between Matter and other protocols. These initiatives will improve the differentiation and the overall capabilities of IoT products on the market.

Tuya will be compatible with the Matter protocol just like we are compatible with multiple other network product protocols.

In an article about the progress of Matter published by the Wall Street Journal on February 22, the only app demo displayed was Tuya's, which not only showcase that our extensive influence in IoT PaaS field, but also highlighted the synergies between Tuya and Matter.

Okay. For the second question, before I dive into specific strategies for 2022, I want to reiterate, Tuya always focus on fundamentals of the business is, first, forming overwhelming competitive advantage. Second, gaining unrivaled market share.

With a challenging macro environment, our focus is to strengthen the core value position of products, improving customer satisfaction and enhancing our operational efficiency.

During a period of consolidation, the weak will be eliminated and the industry leader will gain more market share. So with $1 billion cash on hand, we are well positioned to weather the temporary storms and capitalize on strategic opportunities that's set to emerge.

So come to 2022. So first, let me talk about our key strategies, our supply chain. So in 2021, we have accumulated extensive experiences in managing the supply chain crisis. We forged a close partnership with core upstream suppliers and earn their trust. This enabled us to secure the necessary production capacity ahead of time.

Now in 2022, the supply chain crisis is easing. Although there are still partial shortages, we have solutions in place as we already expanded and refined our list of suppliers in the second half of last year.

Coming to the revenue strategy in 2022, we have 3 main strategies to cope with a difficult environment. First, China. We are increasing the revenue contribution of China. Although China has also macro challenges, our IoT PaaS business in China is still in its early stage and has a big headroom for growth. So take last year, for example, our domestic IoT PaaS business grew at a much faster pace than Europe and the U.S. And also, more than 90% of our SaaS revenue is from China. So we will continue invest in China's PaaS and SaaS business in 2022.

Second is the Tuya Cube, the private cloud product. We launched our private cloud product last November. This product is designed for brands and enterprises that only adopt private clouds to leverage our IoT capabilities. Tuya Cube is capable of fulfilling customers' need for local IoT deployment as it enables enterprise to quickly build their own private IoT platform with differentiated services, high efficiency and stability while keeping their data completely private. Through the hardware interconnected standards built by Tuya, Cube can seamlessly access Tuya's extensive hardware product ecosystem.

So Tuya Cube will mainly serve customers that have already developed their own in-house IoT platform or are planning to do so. We can also provide hybrid cloud and edge computing products. We have completed almost 10 private cloud edge computing hybrid cloud projects so far. We have more contract projects waiting for delivery from telecom giants in China and also telecom giants in Southeast Asia as well-known domestic and oversea brands.

In the IoT sector, 30% of the customers use third-party platform like Tuya, while actually 70% of them develop their platform in-house. So we believe that Tuya Cube will enable Tuya to penetrate that 70% in-house market.

The third one is on the product line of the PaaS products. We have gained market share, over 10%, in every major product category we have operated in, jerry just talked in his script. The dominance of our products are formed a solid foundation for us to further expand our market share in every major category to a point that no one can challenge Tuya. This year, we'll focus more on household appliance, outdoor appliance, home safety and sensor products.

Since the start of inflation last Q3, we have observed these categories have shown a much faster growth rate than lighting and electrical products. Given the current level of inflation, we will implement cost effective light-smart solutions to produce -- to products that are more price sensitive. This improvement should enable us to deliver superior customer experiences at a lower cost to boost our sales. So our unique ability to integrate software and hardware since our inception can help brand customers equip their products with IoT capabilities at lower cost. Facing an inflation crisis, we believe this will be a core value for enterprise customers.

We are both in awe and wonder of 2022. We might be at a down of a global economy recession, but winter will eventually pass and spring is sure to come. So we will be ready for the eventual opportunities. Thank you for the question.

There are no further questions at the time. I'd like to hand the conference back to our management for closing remarks.

Okay. Thank you again for our [calls]. 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. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.

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