Avigilon CEO Looks To Rebuild Investor ConfidenceBy John Honovich, Published Jul 02, 2014, 12:00am EDT
Avigilon's CEO has been making the circuits seeking to rebuild investor confidence following their shock CFO departure.
Here he is on Canadian business TV:
Inside this note, we break down the 3 main claims:
- Market price pressure impacting (or not) Avigilon
- Unmotivated rich employees
- Phenomenal market growth (or not)
The interview is primarily led by Patrick Horan, who is an Avigilon bull and whose firm is an Avigilon stockholder. This is important to understand the context and the type of interview being done. It is a friendly, most likely well coordinated dialogue.
No Price Pressure?
Avigilon's CEO declared that they are not feeling any price pressure. Indeed, he said that Avigilon is 'driving the price of surveillance solutions down" due to a lower total cost of ownership. By contrast, he suggested that Axis is being hurt by Asian manufacturers offering similar cameras at lower prices.
However, Avigilon's price competitiveness has diminished substantially in the past 3 years, primarily because their pricing has stayed relatively constant (see our IP Camera costs study) while rivals have become much more aggressive. This manifests itself in more Avigilon dealers looking to pair up 3rd party cameras (like Hikvision) to reduce total costs as a substitute to Avigilon ones. Additionally, this also makes it easier to rivals to offer lower cost solutions.
Unmotivated Rich Employees Claim
Horan observes that Avigilon has "made a lot of people internally rich and they may not have the same motivation to drive 100% company growth," a claim that Avigilon's CEO does not dispute it at all.
This is unsurprising given the analyst theory we recently shared about Avigilon ex-execs essentially being greedy and lazy. However, having this said on TV with the Avigilon CEO discussing it shows how central this has become in Avigilon's campaign to counter investor concerns about management turnover.
However, this is a risky internal strategy. How will current or potential employees look at their CEO publicly disparaging former co-workers? Some, especially on the sales side will support it, for sure. But it is a risky proposition for the rest of the company, especially the Vancouver headquarters employees whose work ethic and talent have been questioned.
Finally, Avigilon's CEO talked about 'phenomenal growth' and a $15 billion US market, growing ~20% per year.
However, the IHS / IMS numbers are almost half that growth rate and being revised downward. The only firm we know making such a wild projection is Transparency Market Research (2013 VSaaS report), which is an unknown and unrespected player in this industry.
The overall market growth rate is certainly far lower than 20%, especially in Avigilon core's markets of North America and Europe, where it is much closer to 5% annually.
Next Quarter - Expect Huge Growth
That said, we expect huge growth for Q2 2014 (the just finished April - June timeframe). Avigilon has shown it can beat its numbers and that its sales team is driven and capable of doing so. Plus, Avigilon's CEO knows he needs this to end the management turnover concerns and the new COO will want to show he can deliver in his first full quarter. As such, we suspect they pulled out all the stops to beat their number.
We expect Avigilon to report at least 80% year over year growth and the stock to break through $30 by the end of July 2014.
Long Term Issues
However, Avigilon's longer term issues are mounting. Their price advantage is diminishing. Their internal pressure cooker tactics are likely to cause more issues as they grow. The market is slowing down. And they appear to focus on beating their number every time, which makes it harder and harder each year to repeat as the business scales.
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