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Cloud Stocks: Should Alarm.com Follow a PaaS Strategy?

Posted on Friday, May 3rd 2019

According to a Market Watch report, the global connected home market is estimated to grow 14% annually to reach a valuation of more than $138 billion by 2026. Connected homes include the ability to operate and connect various devices and appliances including those that provide security, healthcare, energy management, media, lighting, and kitchen solutions with mobile and internet connected devices. The high growth rate of the market has attracted tech giants like Amazon and Google to enter the space too. One early participant in the market is Virgina-based Alarm.com (NASDAQ: ALRM) that provides security solutions for smart homes and businesses.

Alarm.com’s Offerings

Alarm.com was founded in 2000 as a business unit within a business intelligence firm MicroStrategy. In the first few years of being set up, the Alarm.com team invented its first interactive home security solution, thus revolutionizing the way people interacted with their homes. In 2009, MicroStrategy sold off all its interests in Alarm.com to a venture capital firm ABS Capital Partners for $27.7 million to form Alarm.com Holdings, Inc.

For the next few years, the Alarm.com team continued to develop innovative home security solutions. They created device integrations to create a Smart Home as a Service offering. They diversified to automating thermostats and controlling locks and lights. They launched video monitoring, image sensors, motion detection, geo-services, and even an emergency wellness solution for seniors.

Today, Alarm.com services are installed in millions of households across the country and its services are monitored through “tens of millions of devices”. Its award-winning suite of tools continues to provide security, energy management and wellness solutions for both homes and businesses.

Alarm.com’s Financials

For the first 15 years of being founded, Alarm.com was privately held. It raised $163 million for its operations from investors including TCV, Egis Capital Partners, and ABS Capital Partners at an undisclosed valuation. In 2015, Alarm.com listed on the Nasdaq under the ticker ALRM. It raised $98 million at a valuation of $900 million.

The company recently reported its fourth quarter results that saw revenues grow 25% over the year to $111.4 million. Net income for the period grew to $7.9 million for the quarter compared with a modest $0.3 million recorded a year ago. Adjusted Net Income increased to $14.5 million, or $0.29 per share, compared to $13.0 million, or $0.26 a share, reported a year ago.

By segment, SaaS and license revenue increased 19% to $77.8 million and hardware and other revenues grew 42% to $33.58 million.

It ended the year with revenues of $420.5 million, up 25% and net income of $21.5 million, compared with $29.3 million a year ago.

For the first quarter of this year, the company provided a forecast of SaaS and license revenues of $78.5-$78.8 million. It expects to end the current year with total revenues of $440-$450 million and an EPS of $1.37- $1.41. The market has forecast revenues of $445.88 million with an EPS of $1.39 for the year.

Alarm.com’s Expanding Products

Alarm.com continues to expand its product and service offerings. Earlier this year, it announced that it had entered into a strategic tie-up with D.R. Horton, America’s largest home builder by volume. As part of the agreement, D.R. Horton will integrate Alarm.com’s services into its new Home is Connected offering to build smart home systems that include smart locks, lights, thermostats, voice control, and doorbell cameras. D.R. Horton will benefit with access to Alarm.com’s nationwide network of service provider partners for hardware installation and long-term support after the sale.

As part of technological advancements, Alarm.com deployed facial recognition technology within the alarm systems. The added capability will analyze pictures taken when the security panel is disarmed to associate a person with a specific user code. It will then be able to offer enhanced security by enabling certain security panels with built-in cameras to proactively monitor for unauthorized sharing or theft of an authorized user’s security system codes.

Within the Wellness segment, Alarm.com introduced Wellness Insights that applies predictive analytics to data generated by a suite of sensors in the home to detect changes that can indicate an emerging health or other quality of life issues. It also launched Wellcam, an enhanced 180-degree field of view video camera that provides caregivers with the ability to check in and communicate through a live two-way audio and wide-angle view.

Alarm.com also provides apps that connect smartphones and tablets with the multiple devices that it provides for smart homes and businesses. It has also integrated its products with the Apple Watch, Amazon Alexa, Google Home, Apple TV, and Amazon Fire TV. It offers a partner ecosystem that is used to connect new products to its network. But its platform is closed to third party developers and does not let them build other smart home apps. I think Alarm.com should open its platform to third party developers to build upon. What kind of apps do you think it could add to its platform to help expand the usability of its products and services?

Its stock is trading at $70.23 with a market capitalization of $3.4 billion. It had climbed to a 52-week high of $71.46 earlier this month. It has recovered from the 52-week low of $36.28 that it had fallen to in June last year.


This segment is a part in the series : Cloud Stocks


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