5. Alarm.com Holdings, Inc. (NASDAQ:ALRM)
Analyst Upside Potential: 19.90%
Alarm.com Holdings, Inc. (NASDAQ:ALRM) provides commercial and residential security systems including sensors and video cameras for surveillance. Their technologies can be monitored through onsite panels and mobile phones making the company a critical player in the Internet of Things industry. According to The Brown Capital Management Small Company Fund, there are around 29 million professionally monitored residential alarm systems in the US and around 8 million of these use Alarm.com Holdings, Inc. (NASDAQ:ALRM), thereby making a 28% market share for the company.
The company generates revenue through monthly subscription fees and other service fees from premium features. It has been enhancing its products and services using artificial intelligence. For instance, AI-powered capability cameras can distinguish animals from humans and also differentiate owners’ cars from unknown vehicles in the garage, thereby reducing the instances of false alarms. The fund in its third quarter investor letter noted that Alarm.com Holdings, Inc. (NASDAQ:ALRM) has already established its market leadership in the US and is now penetrating other growth areas that now account for over 25% of its revenue. Its interactive security services along with its advancement in the use of AI make it one of the best Internet of Things stocks to buy according to analysts.
The Brown Capital Management Small Company Fund stated the following regarding Alarm.com Holdings, Inc. (NASDAQ:ALRM) in its Q3 2024 investor letter:
“Alarm.com Holdings, Inc. (NASDAQ:ALRM) is a provider of residential and commercial security systems. The company provides interactive alarm systems including sensors and video cameras that can be monitored and operated from a panel on-site or remotely from mobile devices. Alarm.com also offers productivity tools for the alarm dealers who sell and install the company’s products. There are roughly 29 million professionally monitored residential alarm systems in the U.S., 8 million of whom use Alarm.com, resulting in a 28% market share. The company receives a monthly subscription fee from customers for the system, as well as additional fees for the use of video cameras and other premium features. Alarm.com continues to develop new products and is introducing artificial intelligence (AI)-powered capabilities to provide contextual information about alarm-related events, which can optimize responses. For example, a camera can identify movement as human vs. animal, or distinguish a homeowner’s car in the driveway from an unknown car, thereby minimizing false alarms. The company’s growth initiatives include increasing the adoption of video cameras, as well as value-added video-AI capabilities.
During the quarter, Alarm.com reported revenue that was above expectations and raised revenue guidance for the upcoming quarter and for the full year. SaaS and license revenue increased 11% but was partially offset by hardware revenue which declined by 7%. However, profitability expectations were decreased primarily due to the company recently undertaking a debt offering. Having already established a leadership position in the U.S. residential alarm market, Alarm.com has been increasing its penetration into other growth areas that now account for over 25% of its revenue. These include the U.S. commercial alarm market, EnergyHub (smart thermostat/connected home) applications, as well as initiatives in international markets. Alarm.com remains the dominant provider in the interactive security market, and we believe its continued strength and innovation can support its growth for years into the future.”
