By Joey Walter, Published Aug 06, 2020, 11:24am EDT
While ADT had an incredible start to the week, driven by the Google investment, ADT has since slid back, now disappointing investors plus poor commercial performance.
In this note, we examine why ADT's stock price has slid, including their reliance on residential and challenges to penetrate commercial, as well as their most important growth factor, recurring revenue, decreasing as well.
Now that Google is a major investor, they can put pressure on ADT leadership or potentially place someone in Google on ADT's board if things don't improve. Strike a deal to provide very low-cost advertising for ADT, etc. I think they are in good position long term.
Bigger Bond Offering as ADT Slides Back…. Which is the risk/reward of subscription type revenue, aka RMR. A one-time cost of sales produces many years of forward revenue and earnings. Conversely, one time cancellation can claw-back many years of projected revenue & earnings. ADT still refuses to tell us their true customer “unit” attrition (not skewed “revenue” attrition). For example, the ADT public peer in the residential space, Monitronics/SCTY, reports their customer unit attrition rate at or near 18%, a major contribution to their recent bankruptcy. ADT still refuses to report their true customer unit attrition, which we believe is above 16%, not the reported 13.1%. (industry average is 8-10%). Do the math, the very high cost of replacing this high margin RMR customer attrition can destroy most RMR subscription business models. >> Source: Lee Jones; Support Services Group