Early financial backers of ADT Inc. (NYSE:ADT), the home security firm that once had high hopes for the market, were left with sore wallets after the firm’s IPO proved to be a disappointing dud. The company’s share prices fell by more than an astonishing 10 percent during its market debut, and while executives are scrambling to recover what they can, many are wondering if the lackluster IPO could prove fatal to its long term financial prospects.
Insecurity In The Marketplace
After ADT saw its shares plummet once trading began, its early backers were justified when they started sweating. The company was able to offer shares at a meager $14 per unit, far below the lofty $17 to $19 range its most eager proponents had been expecting. While the company nonetheless raised almost one and a half billion dollars from the IPO, the whipping its received in the press and lower-than-expected valuation of some $9.56 billion will prove to be an albatross around its neck for some time.
After shares closed at $12.39 in their first day of trading, many began to reevaluate their analyses of the US consumer market surrounding electronic security systems. While the recent rise of tech-heavy smart cities and a new hyper-emphasis placed of digital devices in the smart home led to predictions that companies like ADT would soon be buoyed to the top of the market, it appears that consumer concerns will prove to be a large enough obstacle to stymy growth in the industry for the foreseeable future.
While revenue for the security systems industry reached an impressive $28 billion at certain points in the past decade, most American homes still don’t rely on such electronic systems, and no forthcoming consumer-led boom to the industry appears to be on the horizon. If ADT hopes to find future success in the marketplace after its disastrous IPO, it will likely need to convince analyst and would-be backers alike that it has a long-term future in American homes and businesses, and that imminent changes will be made to prevent such a disaster from repeating itself.
While ADT already has a sizable consumer market it can point potential investors to – the company has some 7.2 million customers currently – financial backers will want to know more about its future plans before putting their money behind it. As ADT’s share prices showed after Friday’s disastrous closing, the security company’s future will largely revolve not so much around its revenues as its plans to adapt to and thrive in the digital age.
Manufacturing A Brighter Future
Regardless of the woes it may currently be experiencing on the market, however, ADT still finds itself in a peculiar situation that it could exploit for future success. The company’s manufacturing of its own alarm systems, for instance, and its ability to manufacture smart home-connected gadgets like digital locks and surveillance equipment, could prove invaluable in the future if it plays its cards right.
As the largest manufacturer in the residential monitored security market, for instance, ADT could establish a foothold now in the fledgling smart home security market that could reap it financial rewards for years to come. As consumers across the globe become more familiar with digital devices and increasingly adopt their usage inside of their living rooms, companies like ADT could handle their password security concerns alongside of their physical security worries.
ADT’s financial figures, too, show that the company’s poor trading debut doesn’t necessarily spell out its immediate end in the market; the company saw a 69% increase in revenue compared to the year-ago quarter, for instance, showing investors that it still has a strong capacity to market itself to the security-concerned customer.
Similarly, while the company’s net expenses spiked upwards to an impressive $553 million, it also saw its net losses decline from a hefty $451 million to a much more manageable $295 million. If ADT can continue to cut down on the wasteful fat within the company’s corridors and prove to investors that its recent reductions in net losses are part of a broader pattern that will continue for some time, it may win back many of the backers it lost on Friday after its share prices plunged. ADT’s recent merging with Protection One and ASG, two competitors who were also bought out by Apollo Global Management like ADT, will also show investors that the security company is only just getting started. A new chapter is beginning in the era of home security, but it remains to be seen if ADT will remain a pivotal character in it given its stock debut. With a steady hand at the wheel, however, and with savvy investments to lure back investors scarred off by its initial share plunge, ADT could yet make 2018 the year where it turns its dreams into a reality.