The home security market is becoming a difficult nut to crack as new entrants are making the industry more competitive. The recent purchase of LifeShield Home Security by DIRECTV (NASDAQ:DTV) marks yet another pay-TV distributor entering the home security business after Time Warner Inc (NYSE:TWX) and Comcast put ADT Corp (NYSE:ADT)’s stock on watch.
ADT’s first quarter results were announced recently. Net income for the quarter increased by 1.9% to $107 million and GAAP diluted EPS came in at $0.47 per share. I would say these were average results, keeping in mind that ADT Corp (NYSE:ADT) is still the nation’s top security services provider and commands a major chunk of the market share. The highlight of the call was improved performance of ADT Pulse, a revolutionary holistic security management program that allows customers to efficiently use remote security and other features.
Pulse of the business
Being counted upon as a major driver of ADT Corp (NYSE:ADT)’s business, its take rates reflect strong momentum in the consumer markets. In the direct residential sales channel, take rate was 32.7%, up 3 percentage points from the previous quarter. A unique feature embedded in Pulse enables customers to manage lighting of the home remotely, and is very popular with users. As for the small business sales channel, the take rate was over 25%, up 5 percentage points from the prior quarter.
An impressive thing about ADT Corp (NYSE:ADT) is that it is immensely focused on Pulse, a next-gen product and the main driver for its business. Constant efforts are necessary to innovate and provide customers with new features in order to sustain demand for the product. For instance, the company recently rolled out a new feature called Modes that allows a customer to pre-program certain recurring situations. In simple words, you can manage things like lighting and temperature with more ease and without programming every single time.
Price escalations accounted for 65% of the increase in average revenue per user (ARPU), whereas the remaining 35% came in due to a richer mix from new customer additions. Only 0.6% of the 5% growth in recurring revenue came from an increase in overall customer base. In my opinion, this is not a major area of worry, but that being said, the company should bear it in mind when making price changes to its products. As I mentioned, the home security market is becoming increasingly competitive, and that elevates the pressure of retaining and adding new customers.
Tyco International Ltd. (NYSE:TYC)’s specialization
Tyco International Ltd. (NYSE:TYC)’s shares saw bullish movement last month after the stock rallied because of strong quarterly results. ADT Corp (NYSE:ADT)’s spin-off from Tyco International Ltd. (NYSE:TYC) in 2012 was received well by the market, both then and now. Both companies have become behemoths in the markets they serve. Tyco specializes in fire protection equipment and serves huge markets across Europe, North America, Canada, Asia, and the Middle East. Earnings per share for the second quarter, before special items, was $0.42, up from $0.30 in the same quarter last year.