This Company Wants To Secure Your Home With Phones And Drones

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When you leave home, do you worry that you left a door unlocked or forgot to set the alarm, and subsequently wasted large portions of your life driving all the way back to double-check? ( ALRM ) thinks it has a fix for you.

[ibd-display-video id=2078045 width=50 float=right autostart=true] The company, which develops cloud-based security and automation technology for homes and businesses, has brought in a lot of sales taking on the anxieties and the obsessive-compulsive urges that have worn on homeowners' minds since, well, homeownership was a thing. So shares of the company, which analysts say was an early adopter of smart-home technology, have risen roughly 150% since they began trading in 2015.

The stock's charge also has been helped by a deal, announced last year and closed this year, that has made home-security giant ADT among's biggest clients. And as the business of alarm service moves to the cloud from the phone line, analysts say has gotten more revenue from existing customers by offering them an increasing number of ways to monitor their properties, many with the tap of a smartphone.

"It's not a new problem that you just drove down to Florida and realized, 'Oh man, I may have left my garage door open,'" Raymond James analyst Tavis McCourt said. "People were stupid 30 years ago, too, but now we have the technology to fix it."

Along with closing a garage door remotely, customers, through the company's apps, can lock and unlock doors, view who comes to their home's front door and adjust its lights or thermostats. They can adjust devices according to preset or customizable "scenes" to increase comfort when they go to bed or want to save energy when they leave the house. A drone that watches over your property? That's also in the works through a collaboration with Qualcomm ( QCOM ).

"Consumers today view home security as a technology solution that's far more useful and valued than traditional systems," the company said in an email.

16 Million By 2021

The market research firm Parks Associates estimates that as many as 16 million North American households will have smart-home security by 2021, compared with 10 million forecast for traditional security platforms. As security gets smarter, analysts also see a greater opportunity for to take share in small to medium-sized businesses, vacation homes and medical monitoring - and eventually in overseas markets.

"Any type of sensor-based application you can think of, these guys have gotten involved in and they are increasing their capabilities now toward (security of) family, wellness protection, health care, things that the alarm guys didn't think about years ago," Imperial Capital analyst Jeff Kessler said.

Customers usually are one of the many smaller security-system providers in the country. When one signs on, provides the sensors and software that bring the thermostats, water meters and other parts of a property online. The security company pays a portion of the revenue it gets from customers back to

That approach, in which the provider can use the panels and smart devices they want on top of's software, has proved advantageous. As the company grows and incorporates new features into its system, it has kept support services abundant and operations easy for installers, service staff and users who might not be tech-savvy, Kessler said.

In a recent research note, Kessler described a visit to a smart-home demonstration house in Falls Church, Va., noting how easily a "new associate" at the company was able to outline the technology's functionality. And he noted its potential compatibility with other existing smart devices.

[ibdchart symbol="ALRM" type="daily" size="threequarter" position="rightchart" /]

He said that with the touch of a button or a simple command to a virtual assistant, such features could be used to adjust the lighting, temperature and other functions to create ideal environments for sleeping, dinner or watching sports.

Earnings Help

Shares of also bounded higher this month after it reported second-quarter earnings, helped by 40% growth in its licensing and software-as-a-service sales. Gains in the hardware it sells - including cameras and video-camera doorbells - helped too.

Acquisitions have also played an important role for the company. The company in March said it closed the acquisition of a part of Icontrol Networks. That purchase gave it Connect, a company that offers a home-security and automation platform used by ADT Pulse, ADT's own smart security system.

"When the company announced the acquisition of Icontrol (last year) the valuation really improved materially," McCourt said.

Nearly all of's business is in the U.S., but it has expanded its offerings to Latin America, Australia, Turkey, South Africa and elsewhere. Its wellness business, Kessler said, has the potential to become massive. In that segment, the company's services help family members remotely monitor the conditions and activity of loved ones - whether daily routines have changed or if they've been in bed for an abnormally long period - and respond quickly if there's an emergency.

IBD'S finished in a buy zone Aug. 4 and has kept climbing ever since. The company has a best-possible Composite Rating of 99. To learn more about where the stock and its industry group stand, visit IBD Stock Checkup .

However, Kessler said, more established procedures between health insurers, end users and others - among them, who pays for what - would be needed before's wellness business can further take off. And even as the company churns out earnings growth, McCourt said the company is still focused on investing in growth. Analysts see earnings-per-share growth slowing in the next two quarters and declining into the first half of next year before picking back up.

But a bigger threat to is, in part, the nature of home security itself, which easily lends itself to do-it-yourself projects. Consumers can buy security cameras, thermostats and lights themselves at a store.

"In other words, there are plenty of ways to get home automation in your home," McCourt said. "You don't need to subscribe from an alarm-monitoring company."

Other Threats

However, even amid increased advertising for DIY security setups, property security dealers that work with hadn't seen a major dent in demand during the second quarter, William Blair analyst Bhavan Suri wrote in a research note.

"Some of the advertising has actually helped through educating the market about functionality, including video doorbells, which have been a driver of new activations and have had better traction than anticipated," he said.

Also looming over's prospects are Apple ( AAPL ), Amazon ( AMZN ) and Alphabet's ( GOOGL ) Google. already allows someone to control home functions in their home via an Apple Watch, and its technology also integrates with the Google's Nest thermostats. But the tech giants' plans for their smart-home technology remain unclear.

More directly, the company also faces competition from Honeywell (HON), which has a smart-home service, and bigger threats from telecom giants like Comcast (CMCSA) and AT&T (T). Comcast's XFinity and AT&T's security services allow people to manage their home security via mobile device. says it sees "a lot of partnership opportunities" with the telecom and tech giants in the near-term. Still, those far bigger companies have more ability to drop into a market and cut prices to draw customers.

But amid a broader cord-cutting movement, attrition rates for the cable companies remain high. Building a network that can work with police and paramedics also isn't easy, and false alarms can kill emergency responders' confidence, Kessler said.

"Police and medical people and responders are overstressed to begin with, with all these new systems out there," he said.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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