Why Google And Apple's Smarthome Issues Are Good For ADT

In a new report this week, Citi Research analyst Jason Bazinet looks at the increasing complexity in the home security market. As homes become more and more connected, a new segment of “smart home” security solutions has been born.

Competition Heating Up

In recent years, traditional home security service providers, such as ADT Corp (NYSE: ADT), have faced a wave of new competition in the market. First, telco companies AT&T Inc. (NYSE: T) and Comcast Corporation (NASDAQ: CMCSA) began entering the home security space. However, the most recent threat to traditional security providers has come from tech companies such as Google Inc (NASDAQ: GOOG)(NASDAQ: GOOGL) and Apple Inc. (NASDAQ: AAPL) that are looking to incorporate security technology into their “smart home” platforms.

3 Business Models

Bazinet sees three distinct approaches to modern home security. First, there is the traditional approach to home security that involves professionally-installed and monitored services provided by ADT, AT&T Comcast and others. Second, there are self-installed but professionally monitored systems provided by companies such as Frontpoint and Protect America. Finally, there are self-installed systems that can be self-monitored using Canary, Piper, Scout, Google’s Dropcam and Apple’s HomeKit.

Citi’s Take

According to Bazinet, Silicon Valley and Venture Capital firms are backing the self-installed and self-monitored model of home security. However, the model has yet to catch on among consumers.

“This far, the emerging self-installed, self-monitored solutions (Google, Apple) are seeing limited adoption given the cost and complexity of converting a legacy home into a ‘smart home,’” Bazinet explained.

While this conversion will certainly continue to develop in coming years, Citi sees plenty of opportunity remaining for traditional providers. Citi considers the recent selloff in ADT’s stock as a buying opportunity, and the firm upgraded the stock in the report from Hold to Buy with a $39 price target.