Why this smart home company is seeing sales doubling year after year
The smart home industry is just starting to emerge. For investors, this is already emerging as one of the best potential applications for the Internet of Things.
There are a number of different hardware vendors in the market like that of Amazon Ring smart doorbell and AlphabetThe smart thermostat from Google Nest. In the category of smart home software, there is Latch and Smart annuity (NYSE: SMRT), two actions that recently went public through Special Purpose Acquisition Companies (SPAC).
SmartRent has just released its first report on earnings as a state-owned company. Before digging into the numbers, let’s take a step back and take a closer look at SmartRent.
What is SmartRent
Founded in 2017, SmartRent is a smart home technology company that serves homeowners, home builders, institutional buyers and others targeting the residential real estate market. Its main product is the SmartHub, a central connected device that both alerts homeowners of problems in their buildings, such as a leak, and offers tenants the benefits of a smart home, including granting remote access to visitors ( like a dog walker).
CEO Lucas Haldeman previously served as Chief Technology and Marketing Officer for Colony Starwood Homes, which is now part of Houses Invitation. He recognized a gap in the market, as there was no product like the SmartHub, a brand-independent system that would allow owners to deal with only one technical interface rather than multiple.
The SmartHub device helps to make the management process much more efficient for a company managing tens or hundreds of units. As Haldeman said in an interview with The Motley Fool, the market “lacked a layer of corporate control,” and SmartRent found an enthusiastic customer base for its systems.
At the end of the third quarter, the company’s systems had nearly 271,000 units and its customers own 4.1 million units, including 15 of the top 20 owners of multi-family dwellings. This gives SmartRent a way to penetrate, as these operators update more of their buildings to accommodate smart home technology.
Haldeman also noted that the United States has 43 million rental units, giving the company a huge market in which to expand. SmartRent has started to expand into Canada and the UK, and its hardware-independent product should easily adapt to international territories.
A solid quarter
SmartRent’s revenue more than doubled in the third quarter, continuing its recent sizzling growth rate. Sales jumped 112% to $ 35.1 million and units deployed during the period rose 111% to 59,437. New reserved units rose 134% to nearly 50,000, an indicator growth, as the company records revenue once its SmartHubs are installed. Deferred revenue also doubled to $ 84.7 million, and it now has over 700,000 units committed, representing units the company plans to add over the next two years. This indicates that the company is expected to see its installed base almost quadruple over the next two years, based solely on the units committed.
In its guidance, management noted that supply chain headwinds and shipping delays had caused it to reduce its revenue forecast from $ 119 million to $ 100 million to $ 105 million, which implies a sequential deceleration in fourth quarter revenue to $ 25-30 million. Nevertheless, demand for its products remains strong.
A question mark
SmartRent is experiencing phenomenal growth and has a significant market to enter. Considering its rate of growth, the stock also looks reasonably priced at a price-to-sell ratio of around 20 based on expected earnings this year.
However, the business is still deeply unprofitable. In the third quarter, it posted adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $ 16.1 million, nearly 50% negative margin and free cash flow loss of 42.6 million dollars, exceeding his income.
More worryingly, the company reported negative gross profit, indicating that it does not make GAAP profit before overheads such as sales and marketing, research and development, and executive salaries. A $ 5.7 million warranty provision on defective batteries made gross profit worse than it would have been otherwise, although it would always have been negative. Management has said it expects positive EBITDA by 2022.
In the long run, the company expects cloud software subscriptions to generate its profits, and investors should pay attention to the annual recurring revenue, which has reached $ 8.7 million. Currently, the hosted services segment, which represents software subscription, is the smallest contributor to company revenue, behind hardware and professional services like system installations.
Overall, the company’s rapid growth is impressive, as is the large rental housing market that awaits it. If it can meet its profitability targets, the stock might have a lot of wiggle room.
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