Research

Venture investors argue that ADT is doomed from disruptive technology

View above about Issue: ADT Equity Price

Amazon purchased the smart doorbell maker Ring for $1 billion to help the company jump an important hurdle in its Amazon Key delivery business. But it could also deal a painful blow to ADT, Calacanis said, if and when the combined company puts out smart alarm products. “They’re going to take the cameras and the alarms and put it together and the big loser in this will be ADT,” he told CNBC’s “Squawk Alley.” ADT charges thousands of dollars for installation and a steep monthly fee for continued service, Calacanis said. “People absolutely hate that company, and now there’s new products that are coming out where there’s nothing down, $20, $30 a month for the service to let the alarm company know, and you can install it yourself,” he said.
Research

LBO investors own 80% of ADT on its argument that it has a durable position, despite DIY technology competition, in an underpenetrated market

View above about Issue: ADT Equity Price

ADT is currently America's #1 home security system provider. But with DIY competitors backed by behemoths like Google and Amazon getting into the space, will ADT's competitive advantage continue? ADT, backed by Apollo, IPO'd in early 2018 at $14 per share and has been a long slide downward ever since. With over $10 billion of debt and concerns over growth, analysts have cut their price targets. But can ADT continue to maintain its 7M subscriber base, continue uptake of its digital ADT pulse product and hold back the competition? What are the odds of a 2x in 2 years?  A 3x in 5 years? A complete wipe-out?
Analysis

ADT's stock price implies revenue decline and has large upside simply from reduced fear of disruption

View above about Issue: ADT Equity Price

By Quantifying this Story in Scenarios using the BPN Platform, we can explore how much ADT Equity share price upside or downside there may be at multiple future horizons from changes in investors' expectations about the odds of different levels of differentiation amongst competitors in maintaining its subscriber base, amongst other drivers. The market has priced in a decline in ADT revenues and increase in subscriber acquisition costs based on increasing competition. If ADT investors come to see upside from partnerships with tech/DIY offerings, there is lots of upside. If differentiation proves elusive, there is considerable downside as ADT maintains a heavy debt load.
Analysis

Quantifying this Story in Scenarios enables putting odds on many combinations of drivers of cashflow from various markets

View above about Issue: ADT Equity Price

By Quantifying the ADT Equity Story in Scenarios, we can explore the odds of combinations of its major drivers, from the odds that ADT loses significant share to new market entrants such as SimpliSafe, Vivint and DIY solutions, to the odds is continues to be a dominant player with its ADT Pulse product, to how those odds affect customer acquisition cost and lifetime value. Revenue multiple and valuation at a horizon like year-end 2021 can be influenced heavily by investors' outlook at year-end 2021 for long-term for these drivers. In the table below, explore the odds of year-end 2021 stock prices, and the combinations that influence them, by dragging the dot at the bottom to toggle some of our 100 cases.
Analysis

We can even put odds on other investors' future forecasts, highlighting good odds of big increase in multiple from reduced fear of disruption

View above about Issue: ADT Equity Price

Is ADT Equity "cheap" at 6.5x forward EBITDA, while some comparables trade at 9x or more? Well, that depends on whether its price will trade at a higher or lower multiple in the future, say in 1 year, 2 years, or 5 years. And as it does today, its multiple then may depend on the outlook at that time for peak economics, which may drive the outlook for cash production over the long-term. In the chart below, hover over 1 of the 100 cases in any of the 4 time horizons to see the outlook at that time. Click a case to zero in on it. And select horizons at the bottom to zero in on them too. Explore what could drive revenue multiple to, for example, above our 90th percentile of 12.0x in 5 years or below our 10th percentile of 0.5x. If you are reading this on a smart phone, flipping to landscape mode will help.
Research

We can continue attaching views and supporting evidence to drivers like the odds ADT maintains its oligopoly position and retains its current subscriber base

View above about Issue: ADT Equity Price

We keep models living and breathing by attaching research directly to key drivers inside the BPN Platform. As new evidence is attached and views change, we can update the judgments for those key drivers, such as what are the odds ADT maintains its oligopoly position and retains its current subscriber base

Research

Inc. Magazine argues that DIY tech is likely to cause attrition of ADT customers

View above about Issue: Odds that ADT is not a material improvement for its current residential customers

The global security market is slated to surpass $100 billion by 2020. Home security systems will account for an estimated $47 billion of the total security market. The main drivers are: 1) Tech upgrades are hugely expanding the functionality of electronic security systems. This includes wireless integration and other "smart home" features that provide greater flexibility and convenience for consumers. 2) DIY home security solutions--in which homeowners install and monitor the systems on their own--are in high demand. ll told, DIY systems are on track to take over 34 percent of the home security market by 2020. They're also projected to account for more than 62 percent of the market by 2035. 3) Millennials' consumer preferences are spurring growth across industries, and the home security market is no exception. DIY home security solutions are especially enticing to consumers under the age of 45. 4) The profitability of home security systems has become ever more apparent. That's resulted in intense competition within the industry as startups and big-name corporations duke it out. While the Home Security market is growing rapidly, the competition is increasing and DIY solutions are becoming more prevalent and this is likely to lead to customer attrition for ADT
Research

Consumer reports says ADT costs $2,425 over 5 years and DIY can cost $620

View above about Issue: Odds that ADT is not a material improvement for its current residential customers

Shares in Boca Raton-based ADT, the security provider that went public in January, took a fall after Amazon in February announced its $1 billion acquisition of Ring, a maker of systems that connect doorbells with security cameras. Amazon’s move opens the possibility of the Seattle giant disrupting the new market for do-it-yourself home security, a fast-growing category that threatens to squeeze ADT and its long-established model of installing elaborate systems and insisting on three-year contracts. According to Consumer Reports, signing up for service with ADT would cost $2,425 over five years, including $925 for hardware. Do-it-yourself systems are significantly less expensive, costing as little as $620 for hardware to cover 15 windows and two doors, and nothing for monitoring. Amazon isn’t the only tech company eyeing ADT’s market. Google owns the home-technology company Nest, which is pushing cheaper alternatives to traditional security monitoring. In a March conference call, ADT Chief Executive Tim Whall acknowledged new competition from tech giants. “Now you see Google Nest coming out there with products,” Whall said. “You see Amazon, potentially Apple.”
Research

Motley Fool says ADT stock dropped due to threat from SimpliSafe and Ring

View above about Issue: Odds that ADT is not a material improvement for its current residential customers

After pricing its initial public offering at $14 back in January, the home security company has seen its stock price plummet to around $8. Investors have soured on ADT's prospects -- and for good reason. In fact, here are three reasons ADT's stock price descent may not yet be over. 1) Intensifying competition: A new company is starting to make a name for itself: SimpliSafe. With far lower equipment costs and easy, do-it-yourself installation, SimpliSafe offers consumers an attractive value proposition. And they've been signing up in droves; more than 2 million people have already become SimpliSafe customers, making it the fastest growing home security company. 2) New entrants: Ring makes camera-equipped doorbells and other security video equipment, and it recently debuted a comprehensive home security system with alarm monitoring priced at only $10 per month. Ring's equipment costs and monitoring fees drastically undercut those of ADT. In addition, Ring's home security system is expected to add full integration with Amazon's Alexa smart assistant platform. This newfound competition with Amazon may further slow ADT's customer growth and make it much more difficult for ADT to raise prices, which could severely crimp its profit margins. 3) Debt is a burden: ADT's nearly $10 billion in debt -- compared to only about $260 million in cash -- is another risk factor for investors. The cost to service this debt will continue to weigh on ADT's profits for the foreseeable future.
Research

Parks Associates forecasts 5 year CAGR of 19% for DIY vs. only 2% for professional install

View above about Issue: Odds that ADT is not a material improvement for its current residential customers

The residential security market is fragmented and competitive, with ADT owning an estimated 30% share. The competitive landscape includes traditional operators, cable/telecom MSOs that sell alarm monitoring as an add-on to existing customers, and more recently, technology-based companies offering security and automation products direct to consumers, supporting the DIY sub-segment with self-monitoring capabilities and outsourced monitoring as an option. ADT has to compete against well capitalized companies such as Vivint (owned by Blackstone) and Monitronics (Ascent Capital), Comcast, Spectrum, AT&T, and DIY companies. According to Barnes Associates, DIY generated ~$30m in RMR in 2016, or less than 10% the RMR of ADT. However, it was projected that DIY RMR grew ~27% in 2016 and a Parks Associate report projects self-install to show a 19% CAGR 2017-2022 versus 2% for professional install.
Research

Parks Associates points out that home security remains underpenetrated overall and DIY remains in minority of home security

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

Parks Associates estimates that adoption of security systems among all U.S. households will be roughly 27 percent, or 30 percent of broadband households, by 2021. This will leave 70 percent of broadband households untapped by the security industry. While the emergence of smart home products extends the value of a security system, it also increases competition, as smart devices are often sold independently of a traditional security system. Many are self-installable, meaning consumers are increasingly becoming accustomed to self-installing systems. Parks has noticed a growing trend of self-installed security systems, Abdelrazik noted. “Self-installed systems have slowly been taking a larger share of the overall security systems market. They remain, however, in the minority,”