Why Tuya Stock Plummeted on Tuesday

What happened

A disappointing earnings report was the catalyst for Tuesday's sell-off of Tuya (NYSE:TUYA), a China-based company that operates an Internet of Things (IoT) cloud development platform. The company's American depositary shares (ADS) fell by as much as 20% during the session before recovering to end the trading day nearly 10% lower.

So what

In the earnings release published after market hours Monday, Tuya said that for the fourth quarter, it booked revenue of $75 million -- roughly 19% higher on a year-over-year basis. On the other hand, the company's non-GAAP (adjusted) net loss deepened to nearly $49 million ($0.09 per ADS), from the year-ago period's deficit of slightly more than $18 million.

Image source: Getty Images.

On average, analysts following the stock were modeling for almost $74.3 million on the top line, but they were expecting a narrower adjusted net loss of $0.06 per ADS.

Management said Tuya's top-line growth was due to several factors.

"During 2021, our core IoT [platform-as-a-service] business continued to expand in both geographic coverage and product categories," said CEO Jerry Wang. "Importantly, the increasing penetration of IoT worldwide has demonstrated the immense market opportunities globally."

Now what

Tuya also proffered limited guidance -- specifically, a revenue forecast for the first quarter of $50 million to $57 million. The top of that range would be only slightly higher than the $56.9 million it brought in during Q1 2021. It would also be far below analysts' average estimate for revenues of just under $95 million. It's understandable, then, why investors sold off the stock Tuesday.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.