Crazy Home Automation Stocks: Control4 is Tanking, Alarm.com is Volatile
Control4 (CTRL) hits all-time lows, while Alarm.com (ALRM) flounders. What’s going on with these home automation stocks, and what can be done to boost their IoT appeal?
There are now two public companies dedicated to home automation – Control4 (Nasdaq: CTRL) and Alarm.com (Nasdaq: ALRM). Both of them rely on independent integrators to sell and install their IoT products and services. And both of them are struggling to shine.
Too many institutional investors moving on to the next big thing? A disdain for professionally installed home automation in an era of DIY? Overall pessimism – confusion at the very least—about IoT? Poor company performance? Jupiter’s alignment with Mars?
As for performance, we won’t know that until Control4 reports Q2 earnings on July 30. Alarm.com, which went public on June 26, won’t report for a few months.
Control4 had a bad Q1 2015, which resulted in a steep drop in share price when earnings were announced at the end of April. A slight rally followed in mid-June on news of Alarm.com’s IPO terms and the potential exhaustion of a large amount of short positions.
Since then, however, the last couple of weeks have been dismal for the company, which continues to hit all-time lows day after day, trading as low as $7.28 today, down $5.27% from yesterday’s all-time low. The 52-week high is $20.
Since April 30, the day of the Q1 earnings reports, shares have fallen by about 41%.
Back then, Control4 assured us that Q1 was a fluke, apparently due to the inability to ship a slew of new products. We were told there were loads of back-orders that would be fulfilled in Q2. Knowing the company and the industry as well as I do, I’m inclined to believe it.
Several dealers tell me they have indeed been receiving their new products, some us many as 30 and 40 pieces.
Dealers universally really like the new products, which include much faster and better touchscreens, new handheld remote controls and more elegant software for such things as energy management.
My prescription? Engage more with the technically inclined consumer. Don’t be so afraid of the DIY market. Look at Lutron, which has been hugely successful with its new Caseta DIY system, while maintaining intense loyalty among custom-electronics dealers.
New software version 2.72 has been a success, as noted by Control4 dealers in the C4forums and elsewhere.
Also, Control4’s new programming platform, Composer Express, has been an unmitigated success, shaving countless hours of labor time off installations.
“It saves us tons of time,” says Mark Buzzard, principal of the high-volume integration firm Liberty Bell Alarm and Home Theater in Sacramento, Calif.
“We now send out entry-level installers with an app,” he says, allowing higher-level programmers to better utilize their skills.
You won’t find a Control4 dealer who doesn’t share that sentiment. All of the dealers I’ve spoken with also have been impressed with Control4’s progress over the last year in terms of product stability and customer service.
“They’ve gotten better and better,” says Bill Maronet of ETC, an $11 million (revenues) custom installation firm in West Palm Beach, Fla., which had 402 residential jobs in 2014. “I’ve been increasingly impressed.”
The biggest gripe from dealers has been that, even though the new touchpanels are “super-fast and the best-looking touchscreens” on the market, according to one dealer, they run on Android and don’t support Flash.
Since legacy touchpanels use Flash, some very popular applications – including Control4’s own, as well as those from third-party developers (poor them!) – won’t work. We have not heard about any efforts by Control4 to rewrite these applications for Android.
Until this happens, the shift to the new touchscreens – beautiful as they are – might not happen as quickly as Control4 might like.
Control4’s vaunted 4Store, from which dealers download apps, is notably smaller without the Flash-based programs.
From the Control4 FAQ:
Will 4Store apps run on all of my touch screens?
4Store apps will only run on apps-enabled touch screens, which all of the original Control4 touch screens [support]. However, the new Control4 T3 Series touch screens are not capable of running 4Store apps.
Don’t Be a DIY Hater and Other Advice for Control4
First, it would be really nice if Control4 hustled to replace the old flash apps for compatibility with the new touchscreens. But that issue will work itself out.
A more fundamental issue is this: Dealers still want Control4 to do more on the user experience. Nowadays, most good professionally installed home automation systems allow customers to create their own text alerts, configure their own scenes, and otherwise personalize their system on-the-fly via an app. Control4 isn’t there yet.
In fact, Control4 seems to be more anti-DIY than its competitors—CEO Martin Plaehn recently penned, “Why the DIY smart home revolution won’t work.”
Such proclamations probably don’t play well with investors, who adore the buzz and high valuations in the DIY smart-home sectors. Consumers may be put off by Control4’s position here, as well. Even those who want professional installation and support still want to know that their 4- or 5-figure automation system allows for some end-user self-help.
My prescription? Engage more with the technically inclined consumer. Don’t be so afraid of the DIY market. Yes, even your dealers will thank you. Look at Lutron, which has been hugely successful with its new Caseta DIY system, while maintaining intense loyalty among custom-electronics dealers.
At the same time, Control4 needs a better mechanism for dealers to profit from cloud services. They need a strong SHaaS (smart home as a service) platform with a monetization scheme for both itself and its dealers.
Dealers routinely charge $30 to $40 per month for remote monitoring and control, video recording and system diagnostics for such simple services as Alarm.com and ADT Pulse – and that’s without professional security monitoring, which can add $30 to the monthly take.
Why shouldn’t dealers do the same and more with Control4? Giving them such an incentive would encourage them to buy more hardware and possibly sell it at a loss.
Today, Control4 sells hardware. They need to do a better job of selling software and services.
All of this discussion presumes investors make decisions based on a company’s product development, dealer sentiment and strategic plans. That’s rarely the case.
Control4 sold itself on its growth potential, but Q1 still smarts and growth can never happen fast enough with investors. With little buzz from Control4 lately, especially in the super-hip DIY market, institutional investors may have gotten bored and put their money elsewhere—like Alarm.com, although that, too is losing momentum. With so much of CTRL held by insiders and institutions, it doesn’t take much to move the stock if a few folks divest.
Profit margins for Control4 are interesting: Gross margins of 40% with net of 3% means they’re either spending a lot with little return, or investing heavily in the next big thing.
The Control4 board recently authorized the repurchase of $20 million in stock. Now might be a good time.
On another note, short positions are 19% of the float, which is not insignificant for a small company.
There is one thing we know for certain: If Control4 disappoints in Q2, then its shares won’t be pretty. We already know that Q1 was so weak that Control4 had to reduce its year-end outlook. So even if Q2 is rosy, it will still take time for the stock market to respond in a positive direction.
And I do believe Q2 will look markedly better than last quarter.
Sadly, investors don’t understand our business, which continues to grow at a nice pace, without the benefit of DIY hysteria. I have every confidence that the market for professionally installed real home control systems will continue to grow, indeed thrive. Control4 is a major leader in the category and investors are often stupid and usually finicky. It is no fun being a public company!
Now, briefly on Alarm.com, which went public just a couple of weeks ago. IPO shares were priced at $14, opened at $16.05 and closed the day at $16.88, with more than 9 million shares trading hands that first day. The high reached $17.88 on the first day.
Since then, stock has been up and down in heavy trading all along – around 900,000 trades daily in the first week. Stock price has ranged from $15.38 (June 30) to $19.15 (July 7).
Right now, ALRM is trading at $16.10, down 2.13% from yesterday.
Alarm.com’s market cap was only revealed a few days ago. At yesterday’s close, ALRM was worth $731 million – not nearly high enough considering the $3.2 billion market value of Nest when it was just making thermostats, and $555 million value of Dropcam – a wildly uninteresting IP camera, then and now.
Alarm.com has a sound, scalable business, big profits, a DIY roadmap, and thousands of resellers pushing its SHaaS platform (mitigating the risks having just a handful of large customers like Comcast and ADT, a la Icontrol).
There’s no new interesting buzz on Alarm.com, and there won’t be until the lock-up period ends on Dec. 23, 2015, and the quiet period ends on August 5.
They do need to lower their wholesale price of service, launch a DIY offering, reduce (dramatically) the price of their inadequate cameras, and open the ecosystem to third-party cameras. Competitors like Greenwave Systems, Zonoff, Icontrol, Telguard and so many other SHaaS providers are moving in. Alarm.com is easily the most expensive.
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Julie Jacobson is founding editor of CE Pro, the leading media brand for the home-technology channel. She has covered the smart-home industry since 1994, long before there was much of an Internet, let alone an Internet of things. Currently she studies, speaks, writes and rabble-rouses in the areas of home automation, security, networked A/V, wellness-related technology, biophilic design, and the business of home technology. Julie majored in Economics at the University of Michigan, spent a year abroad at Cambridge University, and earned an MBA from the University of Texas at Austin. She is a recipient of the annual CTA TechHome Leadership Award, and a CEDIA Fellows honoree. A washed-up Ultimate Frisbee player, Julie currently resides in San Antonio, Texas and sometimes St. Paul, Minn. Follow on Twitter: @juliejacobson Email Julie at firstname.lastname@example.org
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