ADT Shows Promise with Improvement in Customer Retention
On Sep 8, Zacks Investment Research updated the research report on security and protection services provider The ADT Corporation ADT.
With a wide array of products to cater to a broad spectrum of customer needs, ADT has a strong footprint in the large and growing residential and small business security market. The product portfolio of the company includes some of the most respected, trusted and well-known brands in the industry. As reputation and reliability serve as the two key elements in the decision-making process while purchasing home and small business security and automation services, ADT has a distinct advantage over rivals with its well-recognized and reliable brands.
Additionally, ADT continues to add new features and capabilities to its Pulse platform to ensure that the product continues to be the best home security and automation solution in the industry. The depth in product portfolio, strong brand identity and a well-diversified customer base offer an unrivalled competitive advantage to ADT.
A bulk of the monitoring and home/business automation services and a large portion of the maintenance services are governed by multi-year contracts with automatic renewal provisions, which generate significant recurring revenue for ADT. This insulates the company from the volatility in the market and enables it to invest for a healthy organic and inorganic growth. The company has also improved customer retention by heavily investing in its Pulse platform.
Moving forward, ADT envisions significant growth potential by leveraging on its efficient operating model and lower technology costs over time. These would then enable the company to considerably reduce the cost of basic installation and services, thereby making it affordable for a wider market acceptance by a larger portion of households and businesses.
However, ADT faces significant pricing pressure and competition as the security alarm industry is highly fragmented due to low barriers to entry. The company also witnesses significant competitive pricing pressures on installation, monitoring and service fees. In addition, cable and telecommunications companies are eroding its market share by expanding into the monitored security alarm industry and bundling their existing offerings with monitored security services. As such, ADT has to continually invest in R&D and similar other value drivers that act as a hedge against tough competition. This increases its operating costs and reduces its profitability to some extent.
Nevertheless, we remain encouraged with such inherent growth prospects of this Zacks Rank #3 (Hold) stock. Other stocks that look promising and are worth a look now in the industry include Nielsen Holdings plc NLSN, Verisk Analytics, Inc. VRSK and Accenture plc ACN, each carrying a Zacks Rank #2 (Buy).
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