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Venture investors argue that ADT is doomed from disruptive technology
Research
View above about Model Issue: ADT Equity Price
- Supporting Evidence below from Feb 28, 2018 by Sara Salinas, CNBC
- Posted on Dec 2, 2019 by Arin Nazarian, Bullet Point Network, L.P.
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.
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LBO investors own 80% of ADT on its argument that it has a durable position, despite DIY technology competition, in an underpenetrated market
Research
View above about Model Issue: ADT Equity Price
- Supporting Evidence below from Nov 25, 2019 by Arin Nazarian, Bullet Point Network, L.P.
- Posted on Dec 2, 2019 by Arin Nazarian, Bullet Point Network, L.P.
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?
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ADT's stock price implies revenue decline and has large upside simply from reduced fear of disruption
Analysis
View above about Model Issue: ADT Equity Price
- Supporting Evidence below from Nov 25, 2019 by Arin Nazarian, Bullet Point Network, L.P.
- Posted on Dec 2, 2019 by Arin Nazarian, Bullet Point Network, L.P.
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.
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Quantifying ADT's Story in Scenarios enables putting odds on many combinations of drivers of cashflow from various markets
Analysis
View above about Model Issue: ADT Equity Price
- Supporting Evidence below from Nov 25, 2019 by Arin Nazarian, Bullet Point Network, L.P.
- Posted on Dec 2, 2019 by Arin Nazarian, Bullet Point Network, L.P.
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.
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We can even put odds on other investors' future forecasts, highlighting good odds of big increase in multiple from reduced fear of disruption
Analysis
View above about Model Issue: ADT Equity Price
- Supporting Evidence below from Nov 25, 2019 by Arin Nazarian, Bullet Point Network, L.P.
- Posted on Dec 2, 2019 by Arin Nazarian, Bullet Point Network, L.P.
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.
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We can continue attaching views and supporting evidence to drivers like the odds ADT maintains its oligopoly position and retains its current subscriber base
Research
View above about Model Issue: ADT Equity Price
- Supporting Evidence below from Nov 25, 2019 by Arin Nazarian, Bullet Point Network, L.P.
- Posted on Dec 2, 2019 by Arin Nazarian, Bullet Point Network, L.P.
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
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ADT's new Google partnership suggests lower odds of obsolescence and even better stock price upside vs. downside over future horizons
Analysis
View above about Model Issue: ADT Equity Price
- Supporting Evidence below from Oct 5, 2020 by Spencer Haik, Bullet Point Network, L.P.
- Posted on Oct 5, 2020 by Spencer Haik, Bullet Point Network, L.P.
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The ADT partnership with Google helps to drive the updated BPN scenario analysis to suggest a mean return of about 4x over 5 years, with a 25% chance of more than 6x offset by a 10% chance of losing over 20% over 5 years
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