CALL DETAILS
Date & Time: Friday 10/12 @ 10:00AM ET
Dial-In & Webcast Information: To be provided prior to the call
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Problems:
- Tied to the Service Provider market, which has flatlined on overall market penetration curve. Alarm’s market is a sub-segment that looks better than the overall home security market but it faces the same limitations due to the business model that is used by SPs and the multiplying availability of options. The new options don’t use ALRM, and they will ultimately draw out all the incremental growth from ALRM’s market.
- Pace of innovation is accelerating and not in ALRM’s favor. The new entrants in the home security and automation markets make Alarm’s innovation pace look glacial; Alarm will fall behind.
- 2/3rd of ALRM’s revenue base = reselling cellular service + re-sale of data center capacity. Classic over-earning; catalyst for change are the new entrants and new business models entering the market.
- Additional: Limited profits in model, limited FCF, and ongoing/rising litigation headwinds.
Last Points:
ALRM’s TAM is supposed to be 5x their core market thanks to the advent of the home automation market. While the market for smart home controllers has been accelerating, Alarm's subscriber growth has been decelerating, and the gap between penetration curve and reality highlights the limitation of ALRM’s go-to-market model which is captive to the SPs. Valuation also isn’t pretty. We put the Short on at 40x next year’s FCF (Street) for a model with market transition risk, decelerating growth, rising competitive intensity, a litigation-heavy business model that is getting heavier, and by the way, the Street is modeling FCF up 60% next year. Shorting an extended multiple on an inflated number sounds like a good idea.
Join us Friday @ 10AM ET.
Ami Joseph
Managing Director
Yosef Vaitsblit
Analyst
