The leading platform solution for the connected home, Alarm.com, filed a registration statement on Form S-1 with the U.S. Securities and Exchange Commission ("SEC") with regards to an IPO of its common stock. The company will get listed on the NASDAQ Global Select Market with the ticker symbol ALRM. Goldman Sachs & Co. (GS, Financial), Credit Suisse Securities (CS, Financial), and BofA Merrill Lynch (MER, Financial) will be working together as joint book-running managers for the IPO, the company said in a release yesterday. The company, tentatively, seeks to raise about $75 million, but this is subject to change.
Market watchers raise the alarm
Alarm.com, which was founded in 2000, produces and sells a Cloud-based platform for home and business owners to remotely set and control thermostats, lights and alarm systems. It was bought over from MicroStrategy Inc. (MSTR, Financial) by private equity firm ABS Capital Partners in 2009. Technology Crossover Ventures invested a further $136 million in the company in 2012. The venture capitalists own 41.6% (ABS) and 42.9% (TCV) stake, respectively. In 2014, ABS was reportedly looking to make the company public at which time it was worth approximately $1.5 to $2 billion.
Alarm.com reported 2.3 million subscribers, as of December 31, 2014. A majority of these subscribers are residential, while others are businesses such as retailers and restaurants. In its IPO filing, it lists everyday people or customers as the end users of its service. In fiscal 2014, the company reported earnings of $13.5 million while in the previous year it made $4.5 million. Revenues earned also saw a rise of 28% from $130.2 million to $167.3 million last year. Net income went from $122,000 to $563,000 in a year. Revenue earned in the first quarter of this year stands at $46 million, up 28% year on year. Net income in the first quarter is $3 million.
25 million connected devices run Alarm.com’s online/mobile tracking, monitoring and alerts platform. Over 5,000 local service providers handle sales queries and operations and hardware installations.
Potential for growth
Comparatively, rival Comcast Corporation’s (CMCSA, Financial) Xfinity Home Business has 500,000 customers. Alarm.com claims to have a 93% renewal rate from customer contracts on one-year term contracts with service providers. These contracts, however, are for 3-5 year terms between the end customer and the service provider, the company says in its filing. This translates to a high renewal rate among customers locked into 3- to 5-year term contracts, but the renewal rate after these locked-in terms end is questionable.
The company is relying on innovation and timing to stay ahead of competition. To overcome challenges from line cuts and power cuts, Alarm.com uses cellular connections to transmit signals. “Security systems, thermostats, door locks, video cameras, lights, garage doors, appliances and other devices that were once inert now have the potential to become sensor-enabled, intelligent and connected,” Alarm.com to The WSJ.
With increased interest in smart homes among customers and the potential for growth in the business automation and security sector, Alarm.com will be competing with the likes of Google Inc. (GOOG, Financial) and their Nest/Dropcam, Apple Inc. (AAPL, Financial) and their HomeKit, Samsung (SSNLF, Financial), ADT Corporation (ADT, Financial) and AT&T (T, Financial). While competition is only just heating up, market watchers advise scooping up some Alarm.com shares.
