Which Tech Giant Tops the Smart Home Race?
- By Nicholas Kitonyi
The smart home race is heating up as more technology companies move to capitalize on the next evolution of the housing industry. Like everything else, the housing market has turned to new technology to try to create a better value proposition for investors.
The smart home is now a key component of home improvement. As a result, technology companies have positioned themselves to capitalize on the expected growth.
Google parent Alphabet Inc. (GOOG) (GOOGL), e-commerce company Amazon.com Inc. (AMZN) and smartphone leader Apple Inc. (AAPL) are currently topping the list of global players that are tapping into this market.
Amazon was first to hit the market back in 2014 when it launched Alexa, a virtual assistant originally designed for home entertainment purposes.
It has since grown to become a handy assistant across a variety of home appliances, including one of its most popular products, Alexa smart blinds , as well as controlling light bulbs and thermostats.
The online retail giant has also partnered with third parties to connect Alexa with more products, most notably Ford Motor Co.' s (NYSE:F) vehicle infotainment system and Kohler's smart toilet. This illustrates the diversity of Alexa's addressable market in a world that is becoming highly connected.
Statistically, Amazon's Alexa has been the market leader in the smart home market, but its position is being strongly challenged by Alphabet's Google Home. The Google Assistant Ride (highly marketed ahead of the 2019 Consumer Electronics Show earlier this year) is Alexa's primary competitor, with Apple's Siri falling behind in the race.
Alphabet joined the smart devices market in 2014 when it acquired NestLabs, but had to wait two years to launch Google Home. The company's grand plan in the smart home market includes integrating its services with third-party products from Nest, Phillip Hue and Logitech. Based on the CES presentations, it appears to be closing in on Amazon more quickly than any other player.
South Korea's Samsung (005930.KS) has also entered the fray with its array of prototype products that target the consumer robotics segment of the smart home market. Bot Care, a full-service home health assistant, is already gaining popularity among consumers in Asia.
So just how big is the opportunity these technology giants are competing for? Current r eports indicate voice-powered commerce will be worth about $40 billion within the next three years.
Another report forecasted the number of smart speaker devices in circulation will hit 225 million by 2020, which would be more than double 2018 levels. But more importantly, the market for intelligent voice-powered commerce and smart speakers is becoming more diverse. As noted earlier, Amazon has teamed up with Ford for the automaker's infotainment system. With the self-driving vehicles market also expected to grow rapidly in the coming years, the opportunity in this section of the market is enormous.
Investors will be assessing ways to capitalize on these trends before the market peaks, and the three technology giants will likely be the primary targets. Amazon appears to be at the top of that list, but Google is catching up quickly while Apple is looking to build momentum by using third-party hardware.
Apple teamed up with LG Electronics Inc. (066575.KS), Sony Corp (SNE) and Vizio Inc., one of the biggest home electronics manufacturer in the U.S., to try to bridge the gap.With Samsung taking a different approach through home robotics, the competition in the smart home market could get even more exciting.
F rom an investment perspective, Amazon appears slightly expensive in terms of price-earnings ratio. It has a price-earnings ratio of 74 compared to Apple's ratio of 13 and Alphabet's ratio of 23. Given the company's overall growth prospects, however, the story changes completely.
Shares of Amazon are currently trading with a price-earnings to growth ratio of 0.72. This is incredibly inexpensive when compared to Apple's PEG ratio of 1.37 and Alphabet's PEG ratio of 1.56.
Therefore, Amazon tops the list of technology companies investing in the smart home market. It also stands out in terms of valuation when growth prospects are factored in.
Disclosure: No position in the stocks mentioned.
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This article first appeared on GuruFocus.
