As today is a fairly slow news day, we wanted to take a look
at Alarm.com (ALRM), which sold off in late February on a weak Q4 report but
has since recovered those losses and is now trading at new 52-week highs.
Alarm.com offers a suite of cloud-based software for smart home and business products and tools, such as interactive security, video monitoring, intelligent automation, and energy management. Millions of property owners rely on ALRM to secure, monitor, and manage their homes and businesses. ALRM's technology enables subscribers to connect to their property through mobile apps and websites and through connected devices like Amazon Echo, Apple TV, and Amazon Fire TV.
Most of its revenue comes from its network of thousands of partner providers. These partners are third parties who sell, install, and support ALRM's platform. Service provider partners resell these services to customers and pay ALRM monthly fees. Service provider partners typically sign 3-5 year contracts with home or business owners, whom ALRM calls subscribers.
ALRM also generates revenue from hardware and other sources, primarily from sales of items like gateway modules, video cameras, and smart thermostats and from activation fees charged to service provider partners. ALRM regularly launches new enhancements for its products, including its recent Video Analytics Service, which provides an engine that is capable of object classification, meaning it can distinguish between people, vehicles, and animals tracked on video. It can also identify important or irregular events occurring on a property while ignoring routine activity.
Most of ALRM's customers today are residential customers in North America. Over the last couple of years, ALRM has been expanding into the commercial space; the company just recently introduced Alarm.com for business. Commercial comprises less than 5% of the company’s revenue, and international is less than 5% of revenue. Both of those areas can be long-term growth drivers for the company.
On top of that, video has really been evolving over the last couple of years; video adoption for subscribers has increased. A big chunk of hardware revenue now comes from video cameras and video doorbells. ALRM also recently launched Wellcam, which is a 180-degree field of view video camera that, extending existing Alarm.com services to the home of a loved one living independently, uses predictive analytics powered by sensors to detect emergent health or quality of life issues. Caregivers and family can check in and communicate through a live two-way audio and wide-angle video experience.
The stock seems to have shaken off concerns from the Q4 report, and investors are looking forward to ALRM's Q1 report, which is expected in early May. The company is profitable and expects to generate revenue of $440-450 mln in 2019. Of that, $328-332 mln is expected to be cloud and license revenue, which is highly recurring in nature.
It's also good to see ALRM focusing more on partnerships. For example, its whole-home automation platform (smart locks, lights, thermostats, voice control, and doorbell cameras) will now power every new home built by DR Horton (DHI), America's largest home builder by volume, with more than 50,000 new homes closed in 2018.
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