Research

For multiple investments from whaling to private equity, long-term return is driven by frequencies of outliers, not by the return of the base case that memos typical portray

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Such imbalanced returns are nothing new. Tom Nicholas, a professor of business administration at Harvard Business School, compares venture capital returns to those of whaling voyages and shows that the payoffs are very similar. The amount of oil and whalebone the ship returned to port, which determined the payoff from whaling voyages, was highly variable.
Research

Microsoft's recent data shows its employees have found ways to replace in-person water-cooler team socializing with online ways to socialize and expand personal connections

View above about Issue: Percent of US office employees in an office on a peak day after paradigm shift

We know that belonging is a core human need and that feeling a sense of connection is an intrinsic motivator. This is why work relationships are so important — strong social connections help employees feel happier and healthier and build stronger networks. On our team, around Microsoft, and across many of our customers’ companies, a trend cropped up very quickly after the shift to remote work: virtual social meetings. Responding to the lack of natural touchpoints — grabbing lunch in the cafeteria, popping by someone’s desk — employees found new ones. In our group, these ranged from group lunches to happy hours with themes such as “pajama day” and “meet my pet.” Overall, social meetings went up 10% in a month. At the same time, scheduled one-on-ones among employees went up 18%, showing that people would sooner add meetings to their schedules than lose connections. We also measured networks across more than 90,000 Microsoft employees in the United States. Frankly, we expected to see them shrink significantly, given the rapid shifts in environment, daytime rhythms, and personal responsibilities. Instead, we discovered that most employees maintained their existing connections. Even more encouraging, most people’s network size increased. We had assumed that in a time of crisis, employees might strengthen networks within their own work groups in an insular way. In fact, we saw network growth not only within existing work groups but also across different groups, indicating that to adapt and thrive teams sought to build bridges.
Research

Comparisons to past misadventures in partial remote work may be misleading because the current shift to universal remote work produced different skills and rules that may be more effective

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A few years ago, Mr. Laermer let the employees of RLM Public Relations work from home on Fridays. This small step toward telecommuting proved a disaster, he said. He often couldn’t find people when he needed them. Projects languished . . . In March, when he shut down his office, he anticipated disaster — like what happened on Fridays in 2017, but five times worse. Instead, things have been pretty good. He even hired a few people he had never met, via Zoom, “and they’ve been phenomenal.” What changed? Well, the technology, including Zoom, is better. Moreover, “we have rules now,” he said. “You have to be available between 9 a.m. and 5:30 p.m. You can’t use this as child care.”
Research

Office real estate investor Chris Rising points out that some home environments are insecure and distracting for work

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Companies have come to terms with the fact that the home semi-office is good enough for now, but working from a kitchen table, hiding away in a closet to take a call, or having the kids interrupt an important Zoom meeting is unsustainable. Furthermore, there have been few studies on technological security risks and health risks for people working from home.

Office Sector Investment in a Pandemic Recession

Research

Additional integration with Google Cloud may enhance Box's stickiness for current paying customers

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Google Cloud and Box, Inc. (NYSE: BOX), a leader in cloud content management, today announced a strategic partnership to help customers transform the way they work. Under the strategic partnership, Box will leverage Google Cloud and its advanced capabilities to enhance the scale, performance, and the intelligence of its cloud content management platform globally. Box and Google Cloud will also create a seamless experience for the thousands of enterprises using G Suite with Box to power secure, remote work in the cloud.
Research

Facebook surprises by leasing 730K more square feet in NYC after saying half of employees may work from home long-term

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Facebook on Monday agreed to lease all the office space in the mammoth 107-year-old James A. Farley Building in Midtown Manhattan, cementing New York City as a growing global technology hub and reaffirming a major corporation’s commitment to an office-centric urban culture despite the pandemic. With the 730,000-square-foot lease, Facebook has acquired more than 2.2 million square feet of office space in the city for thousands of employees in less than a year, all of it on Manhattan’s West Side between Pennsylvania Station and the Hudson River. Apple, Amazon and Google all lease space in the same area, an emerging tech corridor. The timing of the deal’s announcement was somewhat of a surprise because Facebook, which had expressed interest in the Farley Building for months, has given most of its employees the option of working from home during the pandemic. Even after the pandemic subsides, Facebook has said that within the next 10 years up to half of its roughly 52,200 employees across the country would work from home.
Research

Google will invest $450M in ADT and use its installers for its Google Nest devices

View above about Issue: Odds that ADT is a material improvement for its current residential customers

Today, we’re announcing a long-term, strategic partnership between Google and ADT, a leading U.S. security and home automation provider . . . Google will combine its Nest devices, services and technology with ADT’s leadership position providing security solutions for millions of homes and small businesses in the U.S. The partnership pairs more than 20,000 ADT professionals together with Nest’s portfolio of helpful home devices. The company’s network of thousands of professional technicians will be able to sell and install devices like Nest Cameras and Nest Hub Max, all powered by Google Assistant.
Research

In a survey, police agencies & healthcare providers said they don't trust alarms from DIY systems but do trust professional security services

View above about Issue: Odds that ADT is a radical improvement for its current residential customers

In a survey of 400 Police Agencies and Healthcare Providers, significant majority of responders still regard traditional monitoring centers as more trusted sources of verified alarms, and are more likely to respond faster to calls from them, than from self-monitored do-it-yourself (DIY) users. Despite the wave of positive trade and general publicity surrounding new entrants into the residential security and automation market, the results indicate that this segment’s growth is also viewed by responders in law enforcement and health care as the cause for the increase in false alarms, according to our survey. The results of our survey indicate to us that the attitudes of the primary responders, police and health care providers, may be slower in moving away from servicing more traditional models than some investors already believe. This is not to say there will not be change in the industry, but it does seem to indicate that historical, trusted relationships likely will hold on for some time.
Research

As ADT integrated smart home products with its monitoring service, annual attrition fell from 14.1% to 13.6%

View above about Issue: Odds that ADT is a radical improvement for its current residential customers

ADT continues to make headway in the smart home market, reporting that 40 percent of its total 7.2 million clients now use ADT Pulse. That total penetration is due to the fact that nearly three out of every four new customers of the security giant now opts for Pulse, up from two-thirds a year ago. Introduced back in 2010, ADT Pulse centers on the interactive home, offering connections to security, lighting, thermostats and cameras. ADT has partnered with Z-Wave, Kwikset, Netgear, Ring, Nest and others to make the Pulse app compatible with a variety of connected home devices.Tim Whall, CEO of ADT, told investors Pulse is attractive because it brings higher revenues and retention rates. Pulse provides ADT with higher monthly subscription revenue than traditional stand-alone security. By integrating with interactive home products, ADT is helping reduce customer attrition and keep market share: Attrition fell from the same period last year by 0.5 percent, from 14.1 percent of subscribers to 13.6 percent.
Research

Hellman & Friedman's Simplisafe and Blackstone's Vivint offer professional monitoring but haven't taken much share from Apollo's ADT

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ADT is the market share leader and its two primary professional monitored competitors are Simplisafe and Vivint. Simplisafe (acquired by Hellman & Friedman for $1 billion) says it is “now protecting over two million Americans.” Don’t take that to mean the company is monitoring two million customers (not even close), or that two million people are actually using the system. Pricing for SImpliSafe's service starts at $15/month with professional monitoring (compared to $40+ / month for ADT). Vivint was acquired by Blackstone for $2 billion in 2012 and has 1.4M customers. Vivint's service cost $30-$40/month for monitoring + $12 -$23/month for equipment financing with a 60-month contract period.
Research

Many DIY security product owners are young and may add professional monitoring when they are older

View above about Issue: Odds that ADT is a material improvement for its current residential customers

In a survey of 3,001 adults in the U.S., only 38% of Americans own a home security product. The survey also showed that younger cohorts (18-34) are more likely to own a security system.Younger generations are more likely to own some kind of home security device than older generations, especially less expensive DIY options like smart locks and self-monitored systems. Younger generations are digital natives and are more comfortable with tech in the house. As this generation gets older, they may opt to combine a professionally monitored system with IoT devices such as Nest, Alexa, etc (ADT Pulse integration)
Research

43% of ADT homes pay more for smart home monitoring, up from 38% one year ago, and Amazon co-sales launched strong

View above about Issue: Odds that ADT is a material improvement for its current residential customers

The company reports that 43% of its total residential install base is now using smart home systems, either Command and Control or its predecessor ADT Pulse. That figure is up from 38% one year ago. That is significant because ADT is able to command a higher monthly monitoring fee for its smart home equipment versus its traditional alarm-only options. Meanwhile, the company reports the launch of its new Amazon Alexa Guard system went well, with 15,000 installations performed during the quarter integrated with either Command and Control or Pulse.
Research

In RBC's Home Security Survey, only 15% of homeowners thought DIY was as good as professionally-installed security

View above about Issue: Odds that ADT is a material improvement for its current residential customers

The emergence of DIY security options (e.g., SimpliSafe, Frontpoint, Nest) and Amazon’s acquisition of video doorbell maker Ring have ratcheted up discussion and angst around the competitive landscape and ADT’s positioning therein. No doubt, we see DIY as having a place in the home security landscape; however, we do not believe it represents ADT’s demise. We believe DIY is well suited for apartments, condos or small homes (and perhaps renters), but less effective for ADT’s core demographic of homeowners with families. In our RBC Home Security Survey, just 15% of responders indicated they felt DIY was as good as professional installed/monitored service, whereas 30% said they don’t trust the service. Thus, we see DIY as a way to expand the monitored security market, from the current ~20% penetration where it has been for some time. We see opportunity for ADT to capitalize on a growing market via its offerings and outsourced monitoring, gaining access to a previously untapped market.

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Research

ADT's newer "Interactive" home automation offerings have grown 14% CAGR the last 2 years

View above about Issue: Odds that ADT is a material improvement for its current residential customers

Strong ADT Interactive growth necessary to offset traditional weakness. The combination of both Pulse and the recently released Control, ADT's home automation offerings,now have ~3.05M total users and has averaged quarterly user growth of ~14% since the beginning of 2017. This strong growth within ADT's Interactive offerings has helped to offset declines in its non-Interactive business (primarily ADT's traditional offering), which we estimate has averaged a 7% quarterly decline since the beginning of 2017, but still represents ~50% of ADT's customer base of ~7.1M customers. Besides faster user growth, ARPU within Interactive is also higher than ADT's traditional offering, with pricing running ~$50+/month compared to the traditional offering closer to ~$40. This pricing differential compounds the importance of Interactive growth,as revenue from Interactive customers needs to grow at a significant rate to offset customer losses within the traditional business.