Avigilon IPO Plan Analyzed

Author: John Honovich, Published on Sep 20, 2011

Megapixel surveillance manufacturer Avigilon announced plans to IPO. This is a major and rare move for video surveillance companies, riding on the explosive revenue growth of Avigilon for the past few years. In this note, we examine the details and the potential impact of Avigilon's IP0. Update: We examine potential concerns and strategic issues from reviewing their detailed financial reports.

Let's start with a review of key data points from Avigilon's preliminary IPO prospectus:

  • 2010 revenue was $32 Million CAD
  • 2011 revenue for first 6 months was $26 Million CAD, up 88% year over year and putting them on track for nearly $60 Million CAD revenue for 2011
  • International revenue has been exploding, tripling between 2009 and 2010 from ~$4 Million to ~$12 Million
  • The company has 129 employees total with 49 in manufacturing, 25 in sales, 26 in R&D

With the proceeds of the IPO, the company intends to significantly expand product development (hiring 30-40 people in the next 2 years) and expand sales offices in Brazil, China, India, Eastern Europe and South Africa.

Avigilon has not yet disclosed how much it is looking to raise nor the target valuation.

Below is a graph of revenue growth showing how fast it has been. Note it does not include 2011 where Avigilon's near 100% growth rate has continued:

The continued growth rate, especially in 2011, and the approaching of $60 Million in annual revenue is quite impressive. While still below companies like Mobotix (~$100 Million), they are catching up to Genetec, Milestone, Arecont Vision, IndigoVision who had a huge head start on Avigilon.

Concerns

On the negative side, a number of Avigilon's detailed financial metrics point to potential concerns. These are specifically:

  • Low Gross Margins: Avigilon's gross margins are only in the 42-44% range. This is notably lower than Axis (50-51%)and significantly lower than Mobotix (~70%).
  • Low Net Margins: Avigilon's net margins are in the low single digits. By contrast, most IP camera manufacturers are in the 10%-20% range.
  • Low and Flat R&D Expenditures: Avigilon is spending about $2 - $2.5 Million CAD on R&D with almost no increase year over year. For a company that will generate over $50 Million in revenue this year, only about 5% of revenue will go to R&D. More typically with competitors this is over 10%.

Of these three metrics, the one that raises the greatest concern/interest is the low gross margins. Low gross margins generally mean one of two things: (1) the company has a difficult time selling so it needs to drop price to get buyers or (2) the company has explicitly decided to set agressive price points to gain market share. Avigilon obviously has no problem increasing sales and their prices are very attractive (people regularly talk about how 'cheap' Avigilon's encoders and MP cameras are). Our suspicion is that Avigilon has set low prices and is accepting below market gross margins as a company strategy. [Note: Because of the IPO plan, Avigilon is in a dark period and cannot comment on this topic.]

So long as Avigilon can manage such fast growth, we think this is a promising strategy. As fast overall IP camera market growth is still likely for a number of years to come, giving up short term profits is likely a good tradeoff to establish long term greater dominance.

The second and final concern we have is the relative low spend on R&D. Over the last year, Avigilon's new product announcements have been relatively minor (especially compared to their growth rate). While the 29MP camera announcement generated buzz, it is an incremental update of a 4 year old product line - not a radical new innovation. We suspect, though are not certain, that the extremely fast growth has limited free cash flow. Once the company IPO occurs, we anticipate that the proceeds will be used to ramp up R&D expenditure (as stated in the prospectus) and new product development. This should be watched.

2 reports cite this report:

Mobotix Partner Program Changes Examined on Oct 02, 2011
In September 2011, Mobotix announced a new partner program that shifts the company's channel approach in favor of stronger protection of...
Winners and Losers Fall 2011 on Sep 25, 2011
Now that the dust has settled from the new announcements of the last month, we can better understand the impact on the overall video surveillance...
Comments : PRO Members only. Login. or Join.

Related Reports

Security Sales Course Summer 2018 on Jun 14, 2018
Based on member's interest, IPVM is offering a security sales course this summer. Register Now - IPVM Security Sales Course Summer...
Buy Arecont: Top Bid $10 Million Cash on May 22, 2018
Last year, Arecont had a deal for a purchase price of $170 million (see Failed Arecont China Acquisition). This year, Arecont has a deal for a...
Stealth / UCIT - Remote Video Monitoring Provider Profile on May 18, 2018
Can 2 remote video monitoring companies, Stealth Monitoring from the US and UCIT from Canada combine to impact the market and compete in a changing...
Worst Manufacturer Technical Support 2018 on May 16, 2018
5 manufacturers stood out as providing the worst technical support to 190+ integrators in new IPVM results. These integrators answered: In the...
March Networks Targets Cannabis Market on May 10, 2018
Will the next March Networks customer appreciation event be held a steakhouse or at a Taco Bell at 2 am? Can March sell the types of systems to the...
Canon Acquires Briefcam, Now Owns Briefcam, Milestone and Axis on May 09, 2018
Canon already owns two of the biggest names in video surveillance, Axis (acquired in 2015) and Milestone (acquired in 2014). Now, Canon...
Integrators Divided On Website Importance to Business (Statistics) on May 04, 2018
Are websites important? Still quite a number of integrators have no websites.  New IPVM statistics show that nearly half of all integrators find a...
Correcting Hikvision USA's False Accusations on May 01, 2018
Hikvision USA has falsely accused IPVM's DeepInMind test. The truth, which Hikvision USA knows, despite their statements to the contrary, is...
Netwatch / NMC Mega Deal Targets Global Remote Video Monitoring on Apr 27, 2018
Big money has entered the remote video monitoring market. While remote video monitoring has been done for more than a decade, the market has...
Rare Video Surveillance Fundraising - Verkada $15 Million on Apr 19, 2018
Fundraising in video surveillance (and the broader physical security market) has been poor recently. Highlights are few and far in between...

Most Recent Industry Reports

IFSEC Show Report - Live From London on Jun 19, 2018
IPVM is live from London reporting on the IFSEC show. The Chinese have taken over the UK, centered on Hikvision, flanked by Dahua, Huawei and a...
Axis Guardian - Cloud VMS for Alarm Companies on Jun 19, 2018
Axis has struggled to deliver a cloud-based managed service video platform. Video service providers have utilized AVHS for over a decade, and have...
IPVM Vulnerability Scanner Released on Jun 18, 2018
IPVM is proud to announce video surveillance's first and only cybersecurity vulnerability scanner. This tool allows quickly and simply...
Hikvision Corrects False Cybersecurity Announcement on Jun 18, 2018
Hikvision has corrected a false cybersecurity announcement that claimed a British government-sponsored program endorsed the cybersecurity of...
July 2018 IP Networking Course on Jun 16, 2018
The last chance to save $50 on registration is this Thursday, June 21st. Register now and save. This is the only networking course designed...
The Dumb Ones: PSA's Bozeman On Cybersecurity on Jun 15, 2018
The smart ones are the hundred people who flew to Denver and spent $500+ on a 1.5-day conference featuring Dahua as a 'cyber responsible partner',...
Amazon Ring Launches $10 Monthly Professional Alarm Monitoring on Jun 15, 2018
Amazon's Ring has announced an alarm system with 24/7 professional alarm monitoring for $10 per month, a fraction of the $30+ per month traditional...
Axis Releases First New Access Controller In 5 Years (A1601) on Jun 15, 2018
It has been 5 years since Axis 2013 entry in the physical access control market, with the A1001 (IPVM test). Now, Axis has released its second...
Hikvision 12MP Fisheye Camera Tested (DS-2CD63C2F-IV) on Jun 14, 2018
Hikvision's DS-2CD63C2F-IV is their flagship panoramic camera, with a 12MP imager, 15m integrated IR, smart codec, and more. We tested the 63C2 in...
Four Major Outdoor Camera Install Problems on Jun 14, 2018
Over 140 integrators told us the top four camera installation mistakes that lead to unexpected problems and failures. Their comments often...

The world's leading video surveillance information source, IPVM provides the best reporting, testing and training for 10,000+ members globally. Dedicated to independent and objective information, we uniquely refuse any and all advertisements, sponsorship and consulting from manufacturers.

About | FAQ | Contact