Avigilon Growth Down, Expenses Up, Stock Slammed (Q1 2015)

By John Honovich, Published May 04, 2015, 08:00pm EDT

Avigilon growth rate continues to slow down sharply yet the company's aggressive spending continues.

Because of that, the stock market is punishing Avigilon yet.

In this note, we break down Avigilon's financial results, look at the causes of Avigilon's challenges and the future for the former high flier.

Growth **** ****

**** * **** *** a **** ***, *************** *** *******. **** * **** ago, ********'******** **** **%.

***, *** *** **** concluded ** **** *******, revenue ****** *** **%. Equally ***********, **** ******* / ***** ******** ****** was ****** ** *** 25% *****, ** ******** benefited **** ******** ******* currency ******* *** ** undisclosed ************ **** ****** Video ****** ********* (******** said ** *** '**********' but **** *** *** clarify ** **** ***** $0 ** $* *******, etc., ** ******** $*.* million******* *** ******* ** 2014).

******* ********* *** *** stock *****, ********'* ******* levels **** ** ***** the ************* ********(******** $**.*, ****** ******** $76.7, ********* ******** $**.*).

Comparative ******** ******

*** '****' **** *** Avigilon ** **** **** of *** ****** (********* established ******* ******) *** struggling ** ****, **** notably ******** ** ****'**** *% ******** ***** ********** *** the **** *******.

** *** ***** ****, Avigilon's **** ****** *********** have **** ********* ** far ***** ****** ***** for *** **** *** years. * **** ***, when ******** *** ***** at **%, **** *** at**% ******. * **** *** a **** ***, **** Avigilon ******* *******, **** was ****% ******, ***. ******* ** this, ********'* ****** ********* / ******* ** ********* overall.

*** *** *** ****** area ** ******* *** "$100 ** ****** ******". Whether ** ** ***-**** IP ** *** ***** really ***-****** ******, **** ** ***** the *** ****** ** within ***** ************ ***** now *** ** ** primarily ***** ** ******* companies (**** ***** *** Hikvision) *** ***** ****. Most ******* ****** *** not ************* ** **** at ***. **** **** and ********, ** **********, have ** *** ******* to ******* ****.

Avigilon ********* ******** *** **********

******** *** ************* **** in *** ******** *** in ********** *****; ***** internationally *** ** *** SMB.

** **********, ********** ***** now ******* *** **% of ***** *******, * portion **** ********* ** rise. *******, **** ***** that *** / ***-********** market ** ******* **** slower, ****** ** *** mid *****.

** ******* **** **** pattern ** **** ********* by ********'* ********* ****** competitive ******** ** *** higher ***, ******* ****** but **** ******** ** struggling **** *** ********* number ** **** ***** cost, '**** ******' ************ arising ** *** *** end ** *** ******.

******* **** ********'* *** said ***** ** *** conference **** **** **** are '*** ******* ***** pressure' *** ******** ** rationale *** ***** ****** rate ********* ** ******* so ******* *** ****** than *** ******* *********.

Expenses **

********* ******** **** ** sharply, ** **%, ************* higher **** *******. *******, Avigilon ***** **** **** 79 ****** ** ** and *** *** *** total *********.

** **********, ***** *** marketing ******** **** ** 72% *** *&* ******** were ** **%. *&* expenses ****** ********** ******** but *** **** ** 47%. *&* *********** ** now **% ** *******, which ** ** ************* from * *** ***** ago **** ******** ***** only *% ** ******* on *&*.

******** ******** **** *** continued ********** **** **** ****** growth *** *********.

Stock *******

********'* ***** ** **** ~25% ** *** ***** of ******* **** *******. Avigilon *** ** $**.** before *** ******* **** released, *** *** **** to $**.**.

********'* ***** ***** *** been ********* ********, **** repeated ***** ***** ***** peaking ~$** ** ***** 2014, ********* ***** ****** '***********' ************** ******* ***** ** 2014.

Avigilon ***********?

********'* **** ******* ** the **** ******* *** a *** ******** **** one ****** *** **** at **** **** **** results, **** ****** **** at ******** ****** ******. Either ***, ******, ******* at *** **** *** *****, the ****** ******* ** clearly ******* ****.

**********, ******** ******* ** that**% ** *** ****** was ******, *** **** **** just *** * **** portion ** *** ******, so ******* ****** *** easy. ***, **** **** shifted ** *** ******** that **** *** ******* much ****** **** ******** average. *** *****, ******, is **** *** *** between ********'* ****** **** and *** ******** ******* has ******** **** *************.

** *** ******** ****, Avigilon ** ******* ***** well **** ***** *********, which *** *** ************* as ***** '**********' *** 'fantastic' ****** **** ** numbers ****** **. *** challenge ** **** *** broad ********* *** ** sold. ** ******* **** in *** ****** *** market, ********* *** ***** valuable *** * $*** analytic ****** ** * $100 ****** ** ****** is * ***** *** most ** *** ***** end ******, ***** *** big ******* ****** ** now.

Background ******

**********: ******** ** **** ****** *** ******** ** **** call ********** [**** ** longer *********]

Comments (5)

Patents, trademarks, copyright, and trade secrets support a multi-faceted approach to protection and enforcement of Avigilon’s End-to-End Solutions and Avigilon’s competitive position. - Avigilon Q1 2015 Financials

Correct me if I'm wrong, but I believe Avigilon may be the only vendor offering fully enforced end-to-end solutions.

Good eye. I've never seen anyone tout enforced end-to-end solutions. We'll see when they start enforcing what that will consist of.

John,

it appears that for the first few years after the IPO, the Avigilon executive team always talked about "a goal of $500M in revenu in 2016", although that position seemed to shift last August to "a run-rate of $500M in sales by the end of 2016", meaning Q4 2016 would generate revenues of $125M or more, meaning the target of $500M in revenue over 4 quarters would most likely be reached by Q3 2017.

What is your opinion of this change? Are you surprised analysts have not picked up on this?

Good eye. Good question.

Yes, they did quietly but materially change their target. At first, I thought maybe people misread them at first (e.g., us) but it is definitely a change on their part.

At the end of 2013, in their Q3 2013 report, they state:

"In 2013 we are continuing our successful strategy of expanding our sales team, enhancing marketing and brand awareness, and increasing research and development activities, as we strive towards our goal of $500 million in revenue by 2016."

However, at the beginning of 2014, in their Q3 2014 report, they state:

"In 2014 we will continue our successful strategy of expanding our sales team, enhancing marketing and brand awareness, and increasing research and development activities, as we strive towards our goal of $500 million in run-rate revenue by the end of 2016"

On the other hand, this is a company with a track record of many spins and fabrications, so relatively speaking, I am not even sure how high this one ranks.

Instead of doing $500 million next year, they are effectively saying they will do $125 million in Q4 of next year (2016).

In Q4 of 2014, they did just shy of $80 million. They need to grow at 25% year over year in 2015 and 2016 to hit. That is achievable to the silently revised target.

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