Alarm.com Holdings, Inc. (ALRM, $85.17): “No snooze button for Alarm.com”
By: Chris Deneweth, AIM Student at Marquette UniversityDisclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.
- Alarm.com Holdings, Inc. (NYSE: ALRM) provides complete home automation and security equipment such as cameras, doorbells, garage doors, etc. that comes complete with the Alarm.com app that allows the consumer to control and monitor these devices.
- The smart home industry is predicted to see a CAGR of 17% from 2020 to 2030, and ALRM has been seeing an exponential increase in subscribers to their services since they were founded, reaching 7.6 million subscribers at the end of 2020.
- ALRM has seen eye-opening subscription renewal rates at around 95%.
- Continuous increase in their market share by M&A acquisitions.
- ALRM has seen an 80.71% price increase since being added to the AIM Small Cap Fund.
Alarm.com’s management has been able to successfully create a moat for their businesses which is shown their subscription renewal rate of 95%. The company saw an increase of 1.2 million subscriptions in FY 2020, which is half a million larger than the increase they saw in 2019. Their subscription rate has been exponentially increasing since 2003. Management should continue to see this exponential increase in subscriptions with the increase in people buying houses in 2021 and their ability to keep expanding their network of products.
ALRM saw a decrease in stock price this year because of the perception that they may sell more common stock soon. Investors are also scared because the board of directors has recently authorized a stock repurchase program. Management says in the 10-Q for quarter 3 that they would only exercise these repurchases if they were to undergo a fundamental change to the business or if they cannot pay back the aggregate principal amount of 0% $500 million of convertible senior bonds. They have both measures in place, so management and the board can decide what is the best plan of action if they come to this problem.
Alarm.com has continued to produce product to help bring in more subscriptions and customers. In 2021, management introduced the ability to connect the Alarm.com App to your car so that you can monitor and protect your car. They have also introduced the technology to have Perimeter Guard. This technology can help scare away intruders so that they never reach the property. This is another new step in making your entire home a smart home and continuing to protect your assets better than any other company.
ALRM operates in an industry with a massive total addressable market, and management continues to try to take over more market share every year by acquiring companies that can help increase their services. Management closed on four acquisitions and merger deals in 2020, and they have closed on 13 deals since they were founded.
ALRM realizes revenues in 40 countries worldwide. These countries only make up 3% of their revenues. ALRM has an opportunity to increase their market share in international markets and increase their revenues substantially. Management is currently making a push to increase their revenues in international markets. According to management, they are currently increasing the size of their sales force and service provider partnerships domestically and internationally.
What has the stock done lately?
In the past month, ALRM has stayed in the $80’s with an increase of $4.75, representing a gain of 5.91%. The Russell 2000 Index has outperformed ALRM by 1.3% in the past month. ALRM has also seen a decrease in EPS of $.02 compared to last quarters $.28. ALRM saw a slight drop in price after the release of Q3 earnings but has since recovered back to prices higher than before earnings.
Past Year Performance:
ALRM has had a 52-week range of $67.39 and $108.67. ALRM has seen a YTD loss of -15.21%, but a 1-year gain of 21.52%. This is because of a large stock price jump in December 2020. ALRM had a 52.14% gain halfway through January of 2021, and has since seen a downfall to 21.64%, which is under performing the benchmark by 16.26%.
Management has been able to create a successful moat that has led to a 95% renewal rate in subscriptions. Consumers appear to be very happy with the services and quality of ALRM’s products. ALRM shows that they have an unparalleled opportunity for growth. If management can successfully take over more market share domestically and internationally, they will see tremendous revenue growth which will lead to an increase in the stock price. The industry also shows the potential for substantial growth based off the increasing desire to make every product in your home a smart product. ALRM continues to introduce more products and services that complement the ones that they currently have. I recommend that Alarm.com Holdings, Inc. remains in the AIM Small Cap Fund as a hold.