Tuya Inc. (NYSE:TUYA) reported second-quarter revenue of $92.9 million on August 24, up 16% from a year earlier. Platform-as-a-service revenue increased 16.9% to $67.9 million, while smart home and robot product revenue rose 23.2% to $13.5 million. Total revenue growth accelerated from 8.3% in the first quarter to 16% in the second quarter, but the cash-flow statement kept the results from being an uncomplicated win.
Net cash generated from operating activities at Tuya Inc. (NYSE:TUYA) fell 66.1% to $6.2 million from $18.2 million. That divergence matters because the company simultaneously reported a sharp improvement in GAAP profitability.
Bull Case
The strongest argument for Tuya Inc. (NYSE:TUYA) is that its core platform is expanding while GAAP expenses are declining. PaaS revenue supplied nearly three-quarters of quarterly sales, and the number of premium PaaS customers, defined as customers contributing more than $100,000 over the preceding 12 months, increased to 318 from 285. However, non-GAAP operating expenses increased 10.9%, showing that the adjusted cost base was not shrinking.
Gross profit at Tuya Inc. (NYSE:TUYA) still rose 11.1% to $43 million despite margin pressure. GAAP operating expenses declined 10.4%, helping operating profit reach $9.3 million from $1.1 million and lifting operating margin to 10% from 1.4%. Non-GAAP operating profit also increased 11.7% to $9.6 million, although its margin declined 0.4 percentage points to 10.3%.
The balance sheet gives Tuya Inc. (NYSE:TUYA) time to improve conversion. Cash, time deposits and treasury securities recorded as short- and long-term investments totaled $976.1 million at June 30, close to the company’s roughly $1.1 billion market capitalization.
Bear Case
The quality of the margin expansion requires scrutiny. Overall gross margin at Tuya Inc. (NYSE:TUYA) declined 2.1 percentage points to 46.3%, reflecting product mix and semiconductor supply-chain pricing. PaaS gross margin fell to 46.8% from 48.7%.
Lower share-based compensation also drove much of the GAAP expense improvement. General and administrative expense fell 49.8%, mainly because share-based compensation declined. The company’s non-GAAP measures exclude share-based compensation and credit-related impairment or reversals on long-term investments. Non-GAAP net income fell to $18.9 million from $20.1 million despite the increase in adjusted operating profit.
Cash conversion at Tuya Inc. (NYSE:TUYA) weakened more sharply. Operating cash flow equaled about 33% of GAAP net income in the quarter, down from roughly 145% a year earlier. For the first half, operating cash flow was $12.6 million against $34.4 million of net income, versus $27.5 million against $23.6 million a year ago. Tuya attributed quarterly operating cash flow mainly to ordinary-course working-capital changes. Over the six months ended June 30, inventory increased to $63.8 million from $30.9 million, while prepayments and other current assets rose to $29.2 million from $16.5 million. Those six-month balance-sheet changes provide context, but they are not a complete reconciliation of the second-quarter cash-flow decline.
Hedge Fund Sentiment
The filings available so far reflect positions held before TUYA reported 2Q results. Insider Monkey’s database showed 10 hedge funds holding TUYA at the end of 2Q2026, unchanged from three months earlier.
Conclusion
Tuya Inc. (NYSE:TUYA) is growing again, and its PaaS momentum supports a constructive operating view. However, the adjusted figures show less leverage than the GAAP margin suggests, while cash conversion has weakened across two quarters.
The large liquidity position limits near-term balance-sheet risk, but it does not resolve the central question. Tuya Inc. (NYSE:TUYA) becomes more compelling when operating cash flow begins tracking earnings more closely. Until then, the stock is a profitable growth story with an unresolved cash-conversion test.
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Disclosure: None. This article is originally published at Insider Monkey.
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