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Alarm.Com’s IPO and Valuing the Managed Smart Home

July 27, 2015, 11:18 a.m.
Jonathan Collins, Research Director

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At the end of June 2015, smart home SaaS player Alarm.com launched its IPO. Priced at US$14 a share, by the end of the first day’s trading, the stock had reached up to US$17.88, or 27.7% above the offer valuation.

A few days ago, the financial analyst quiet period ended and the underwriter firms have sent a range of expectations on the stock. Those recommendations range from neutral (from Goldman Sachs – one of the lead underwriters),to outperform (from another lead Credit Suisse). The stock price closed last week at is $17.63, but some financial analysts have expected levels as high as $22 (from co-manager Stifel).

Given the success of the IPO and the recommendations,Alarm.com has every reason to have enjoyed its initial dealings with the stock market, however, it is the first company of its type to come to market and it will be interesting to see how far the company’s stock benefits from being a bellwether for managed smart home services and how much it acts as a lightning rod for valuations in the broader smart home market.

Alarm.com has built its business upon delivering smart home subscription and management software that its partners sell to their own customers. As well as SaaS and software licensing, Alarm.com has a range of smart home devices offered as alternatives to third-party devices that also connect to the company’s core platform.

Alarm.com joins Control4 as the only pure smart home players to be listed. Control4 plays to a different aspect of the smart home space with a very different history and business model to Alarm.com. Since it launched its IPO in 2014, Control4 has seen its valuation often fluctuate in smart home news regardless of whether it relates directly to the company’s core business or not. Since launch its stock has declined from US$20 to the $7.61 mark at the close of last week.

The Alarm.com IPO came as a host of competitive changes are emerging. Much larger players such as Google and Apple have stepped up their own plays within the software side of the managed smart home space. Apple has its developing HomeKit framework and Google has grown through a series of acquisitions, including Nest and Revolv, a managed service and home gateway start-up. Even so, neither player has made significant or clear strides into Alarm.com’s market. 

Closer to home, key rival iControl, a managed smart home player like Alarm.com but one that has built its user base by supporting cable companies’ smart home offerings, is increasingly looking to draw in security installers. Other players such as Telular are also expanding their offerings to compete against Alarm.com directly. Meanwhile, the value of bringing smart home platforms in-house within service rovider operations has been underlined with the launch of AT&T Digital Life offerings and Vivint’s recent shift from Alarm.com to its own platform.

As these competitors gather momentum, we are likely to see greater nuance and understanding in the landscape of the smart home market. For good or bad, Alarm.com’s listing will offer a new level of scrutiny and a new key yardstick for the wider view of the smart home market.