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

Imperial Capital Security Investor Conference 2018 Review - ADT, Resideo, Alarm.com, Arlo, Eagle Eye, ACRE, More on Dec 14, 2018
Imperial Capital Security Investor Conference is an event matching industry executives with financiers that frequently leads to future funding...
SS&Si Claims To Be "The New Face of Security Distribution" on Dec 03, 2018
Can 27-year-old Jake Voll disrupt the security distribution giants? He has positioned his company SS&Si as the 'NEW FACE' of...
Longse USA Profile on Nov 30, 2018
In September 2017, Longse bought and opened their USA office. As one of the largest South China surveillance manufacturers, they have previously...
Security Sales Course 2019 on Nov 29, 2018
The next IPVM Security Sales Course starts in January 2019. This sales course is customized for the needs and challenges specific to...
Vintra "AI-Powered" Video Analytics Startup Profile on Nov 27, 2018
Vintra is a Silicon Valley startup focused on AI-based video analytics. They had booths at IACP and ISC West demonstrating their hosted or...
Openpath Access Control Tested on Nov 20, 2018
Big investment in access startups is uncommon, but Openpath has recently attracted $20 million doing just that. The company has limited security...
Milestone Disrupts Milestone With Arcules on Nov 19, 2018
Milestone is now competing against... Milestone's own spinout Arcules. New IPVM testing shows that Arcules has incorporated a substantial amount...
ASIS Offering Custom Research For Manufacturers on Nov 15, 2018
Manufacturers often want to know what industry people think about trends and, in particular, the segments and product they offer.  ASIS and its...
Haven Targets School Security with Lockdown Lineup on Nov 08, 2018
Haven, a US startup founded in 2014 as a residential-focused company, has now raised funding and is offering a lineup of commercial grade locks for...
Ubiquiti Protect Video Surveillance Profile on Nov 07, 2018
Ubiquiti has now been in the video surveillance market for 7 years (see our first coverage back in 2011). In that time, the company's revenue has...

Most Recent Industry Reports

Imperial Capital Security Investor Conference 2018 Review - ADT, Resideo, Alarm.com, Arlo, Eagle Eye, ACRE, More on Dec 14, 2018
Imperial Capital Security Investor Conference is an event matching industry executives with financiers that frequently leads to future funding...
Cisco Meraki New Cameras and AI Analytics on Dec 14, 2018
Meraki has released their second generation of video surveillance with 3 new cameras, AI-based video analytics, and 2 cloud-based storage...
Foolish Strategy: OEMing Facial Recognition on Dec 13, 2018
Almost as 'hot' as face recognition marketing right now is OEMing facial recognition. Last year, they were a who's who of company's with...
DVR Examiner - Video Recovery from Recorder Hard Drives on Dec 13, 2018
Bypassing passwords and long download times on-site, DVR Examiner collects and organizes video evidence directly from a hard drive extracted from...
2019 Access Control Book Released on Dec 12, 2018
This is the best, most comprehensive access control book in the world, based on our unprecedented research and testing has been significantly...
Huawei Hisilicon Quietly Powering Tens of Millions of Western IoT Devices on Dec 12, 2018
Huawei Hisilicon chips are powering, at least, tens of millions of Western IoT devices, such as IP cameras and surveillance recorders, a fact that...
FLIR Launches Body Cameras Unified With VMS (TruWitness) on Dec 11, 2018
While FLIR is best known for their thermal cameras, now they have expanded into body cameras, launching TruWITNESS, a public safety focused body...
Startup Sunflower Labs' Autonomous Drone Security System on Dec 11, 2018
Startup Sunflower Labs is claiming a unique design on a home security system, combining autonomous drones and 'Sunflower' sensors. Imagine an...
The 2019 Video Surveillance Industry Guide on Dec 10, 2018
The 300 page, 2019 Video Surveillance Industry Guide, covers the key events and the future of the video surveillance market, is now available,...
Multi-Factor Access Control Authentication Guide on Dec 10, 2018
Can a stranger use your credentials? One of the oldest problems facing access control is making credentials as easy to use as keys, but restricting...

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