The Next Smart Home IPO

Whenever I have to explain the Internet of Things — and believe me, I have to do this a lot — I use the home Wi-Fi network as an introduction.

I start with the modem, the wireless router, and all the common devices connected to it such as computers, tablets, phones, and set-top boxes. Then I move into the next stage — things the average consumer doesn’t necessarily have experience with: network printers, NAS, smart thermostats, security systems, lighting control networks.

Then I move into the final stage of things only early adopters have: connected appliances, biometric monitors, and resource management systems.

The “smart home” provides the perfect explanation of the Internet of Things because it is going to be the primary way most people interact with it. It’s also one of the more mature segments within the broader category of IoT investing.

A new smart home stock is about to make its debut on the NASDAQ exchange, adding another potential property to our Internet of Things portfolio: Virginia-based security company Alarm.com Holdings Inc.

The Outlook

With a target of $98 million, Alarm.com will be offering 7 million shares at a price range of $13 to $15 per share. Compared to the dozen most recently priced IPOs on the NASDAQ, it’s a smaller float with a higher-range price. It will be listed under the symbol ALRM.

The company has been in business since 2000, and it currently has 2.3 million subscribers. In the year that ended at the beginning of April, the company had booked $176 million in sales. This, according to the company, represented an annual growth of 28%.

But what, exactly, is it selling?

It might not look like it at first glance, but Alarm.com is a software-as-a-service (SaaS) vendor. Its platform unifies approximately 5,000 different connected home services and makes them accessible to consumers on their smartphones, PCs, or other connected devices.

This platform includes in-home security systems, video monitoring, connected garage doors and locks, lights, thermostats and energy efficiency systems, electrical appliances, environmental sensors, and other connected devices.

The Alarm.com mobile app keeps homeowners connected to their house when they’re away. They can lock doors, turn lights on and off, and watch for unusual activity.

Now, I’ve been covering “smart homes” for years…

I knew something was up six years ago when I was sitting in a Cisco (NASDAQ: CSCO) press conference, and the networking hardware company announced two of its three major growth initiatives would focus on the connected home. This is a big market that’s expected to be worth $14.9 billion by 2018.

That being said, the features offered in Alarm.com’s portfolio actually aren’t dramatically new or different. Similar controls are offered by other companies.

However, many of these competitors work as a closed ecosystem. In other words, you can only have the features offered to you by a particular vendor, and a third-party addition is not guaranteed to work harmoniously with the system.

Since Alarm.com is a platform, it can merge the functionality of a wider range of connected home devices with the service providers who then offer them to consumers.

This is important to note because the connected home isn’t a complete system yet. There is so much more room for disruption.

The most common systems include security, entertainment, lighting, and HVAC.

Now think about the bills you pay every month. What’s missing?

That’s right. It’s Water.

This is missing from most smart home offerings for a couple of reasons…

First, water is a totally different infrastructure from electricity and communications. It has different stakeholders and different regulations.

Second, despite the fact that America’s technology springs from the state with the biggest problem with water availability, this is an area that’s had only a few major tech innovations in the connected home era.

There are a few big ones. For example, the Water Hero sensor detects leaks and water usage and can control shutoff from a smartphone app. The EvaDrop smart shower tracks shower usage (length of shower, temperature, etc.) to maximize water conservation.

There’s also Valor Water Analytics and the Driblet conservation meter, but these all come from start-ups that don’t have the money or the power to disrupt the space.

Once a company comes up with the equivalent of the Nest thermostat for water services, it’s going to meet up with other smart home technology on platforms that allow service providers to work with one another.

Alarm.com already has that functionality covered.

Good Investing,

Tim Conneally

 @TimConneally on Twitter

For the last seven years, Tim Conneally has covered the world of mobile and wireless technology, enterprise software, network hardware, and next generation consumer technology. Tim has previously written for long-running software news outlet Betanews and for financial media powerhouse Forbes.