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Parks Associates points out that home security remains underpenetrated overall and DIY remains in minority of home security
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View above about Model 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,”
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ADT announced a deal with Amazon selling ADT professional installation
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View above about Model Issue: Odds that ADT is a material improvement for its current residential customers
ADT Inc. today announced a new strategic initiative with Amazon. Starting later this year, ADT will support integration of Amazon's new Alexa Guard feature with the ADT Pulse security system, helping ADT customers enhance their home's security capabilities by detecting specific sounds via the customer's Echo device when they're away from home. Once available, ADT professional installation and monitoring solutions will be offered to customers through the Alexa Guard website and Amazon mobile app. By building partnership with leading IoT companies, ADT may be able to provide its vast monitoring infrastructure to customers who want to be connected to their home devices helping ADT maintain its customer base.
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ADT's newer "Interactive" home automation offerings have grown 14% CAGR the last 2 years
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View above about Model 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.
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In RBC's Home Security Survey, only 15% of homeowners thought DIY was as good as professionally-installed security
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View above about Model 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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43% of ADT homes pay more for smart home monitoring, up from 38% one year ago, and Amazon co-sales launched strong
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View above about Model 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.
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Many DIY security product owners are young and may add professional monitoring when they are older
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View above about Model 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)
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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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View above about Model Issue: Odds that ADT is a material improvement for its current residential customers
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.
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Google will invest $450M in ADT and use its installers for its Google Nest devices
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View above about Model 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.
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ADT joined the board of the z-wave alliance, which could reinforce its value proposition in the residential market
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View above about Model Issue: Odds that ADT is a material improvement for its current residential customers
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The Z-Wave Alliance announced that ADT (NYSE: ADT), a leading provider of security, automation, and smart home solutions serving consumers and businesses, has joined the Z-Wave Alliance as a new Principal Member, granting them a seat on the Board of Directors....As the newest Principal Member of the Z-Wave Alliance, ADT joins other industry leaders including Alarm.com, Assa Abloy, Leedarson, Ring, Silicon Labs, StratIS, and Qolsys in advancing Z-Wave technology.
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