Any discussion around the trials and tribulations of sharing a home includes a universal theme: finding common ground when it comes to differences in habits and pet peeves that spark frustration between spouses, partners, roommates, parents, and children. In households across the country and around the world, certain refrains can be heard again and again:
- Don’t touch the thermostat!
- Turn off the lights!
- Lock the door!
- Check the stove!
When digital technology began to change how individuals and businesses work, learn, and play, consumers were thrilled.
On-demand entertainment? Absolutely.
Video conferencing? Yes, please.
Online financial transactions? Of course.
As more tools and resources rolled out, it seemed like anything was possible through the magic of mobile devices. But even then, no one believed that technology could put an end to household spats over tasks left undone—until now.
The Internet of Things (IoT) takes everyday objects online through embedded software, sensors, and other types of technology so they can send and receive data through the internet. Developers immediately saw opportunities to create smart homes, which would allow residents to control various elements of their environment through their mobile devices.
Dozens of companies started producing smart appliances, smart routers, smart home security systems, smart thermostats, and smart everything else. The only problem? Finding a way to control all of that smart home technology at once. After all, no one wants to sort through dozens of apps when they forget which controls the lights versus the one that controls the temperature.
Enter SmartRent, the platform that permits residents to control all of their smart devices from a single dashboard. Better still, the company created a comprehensive virtual property management solution that simplifies and automates nearly every major task associated with owning and maintaining rental units.
Considering the fact that smart home technology is in its earliest stages, SmartRent seems to have limitless growth potential. Investors are intrigued. Their frequently asked questions include what does SmartRent do exactly? How does SmartRent make money? Will SmartRent stock go up? Does SmartRent have a moat? What are the risks of SmartRent stock? And finally, the biggest question of all, is SmartRent stock a buy?
Here’s what you need to know.
SmartRent Has 75% of Top 20 Multifamily Rental Firms
The idea for SmartRent was born of necessity. Co-founders Lucas Haldeman and Mitch Karren were frustrated. Haldeman was the Chief Technology Officer for a single-family rental company, and he simply couldn’t find a solution for managing multiple smart home devices from the many brands and manufacturers producing them. He wanted a platform that would give him the ability to monitor all of the devices at once, whether as an individual renter or a massive management company responsible for hundreds of properties.
Haldeman decided that if he wanted the project done right, he would have to lead it himself. He took on a partner, hired a team, and launched SmartRent in 2017. The goal was to build an operating system capable of integrating hardware regardless of who manufactured it—and they wanted their platform to meet the needs of large enterprises.
It took years to get the software just right, but by 2020 it was ready. And it worked for any type of property, from single-family homes to senior housing complexes.
Today, the SmartRent platform offers a dashboard-style view of smart home devices regardless of brand. Examples of supported manufacturers include Bosch, Google Nest, Honeywell, Inovelli, Kwikset, Lutron, Resideo, Ring, and Schlage, and devices range from doorbells and plugs to thermostats, switches, and refrigerator sensors.
In what turned out to be a masterful move, SmartRent acquired the smart home manufacturing company Zipato in 2020 and began manufacturing its own devices under the brand name Alloy. The acquisition paid for itself within a year, and venture investors took notice. In short order, SmartRent raised more than $100 million in new capital and got large new clients along the way.
With the company growing rapidly in a market that has huge long-term potential, SmartRent began to consider options for public trading. Ultimately, the decision was made to join forces with Fifth Wall, an important player in the property technology market. SmartRent and Fifth Wall’s special purpose acquisition company (SPAC) merged, and SmartRent started trading on the New York Stock Exchange under the ticker symbol SMRT.
Today, SmartRent has signed up more than 75 percent of the 20 largest multifamily rental companies in the United States. Clients include MAA, Morgan Properties, Starwood Capital Group, AvalonBay Communities, and Equity Residential—and SmartRent has barely scratched the surface when it comes to the addressable market.
Haldeman, who serves as SmartRent’s CEO, said that the company’s goals are to “accelerate our growth in the multifamily market, expand our reach into global markets, boost our best-in-class product suite and supercharge our M&A strategy.”
How SmartRent Makes Money
Understanding how SmartRent makes money begins with an overview of the benefits SmartRent technology offers its clients.
The most obvious advantage is that properties outfitted with smart technology command higher rent, which drives revenue for property owners and managers. Tenants are happy to pay more when they gain access to the built-in convenience of automated locks, thermostats, doorbell cameras, intercoms, security systems, and so forth. However, that’s not the system’s biggest selling point.
The SmartRent platform allows management to control every aspect of the smart ecosystem, from parking to energy utilization, through a single, user-friendly dashboard.
More importantly, smart home devices have moved beyond conveniences like seeing who is at the door or setting the thermostat. There are sensors capable of identifying small issues before they get big (and expensive)—for example, alerting to water leaks as soon as they start before they cause any significant damage.
With all of those benefits in mind, it is easy to see why property owners and managers are willing to pay for SmartRent technology. The most popular features are specifically designed to reduce the expenses associated with owning and managing rental properties. SmartRent generates revenue through its subscription software fees, as well as the up-front payments made for smart home hardware and professional installation of smart home devices.
For now, hardware and installation don’t contribute much to SmartRent’s profitability. The two divisions have margins that range between 10 percent and 20 percent. It’s the software that promises to create shareholder value, with margins coming in between 70 percent and 80 percent.
Nonetheless, the hardware and installation business is a necessary component of the overall business because it gets clients set up with smart home technology. They can then begin utilizing SmartRent software and—if all goes as planned—become long-term subscribers. For the moment, SmartRent contracts run between five and seven years, and most clients pay their subscription fees up front. That means SmartRent’s revenue is fairly predictable, which is particularly appealing for investors.
There is another point that has investors sitting up and taking notice. To date, SmartRent has had no churn. None. Zero. There’s no equivalent alternative on the market—a nice moat to have.
Considering SmartRent’s business model appears to be easily scaled, the company can continue its growth on what seems to be an unusually predictable trajectory. That’s quite unusual for tech startups.
SmartRent Fourth Quarter and Full-Year 2021 Financial Results
SmartRent announced its Q4 and full-year 2021 results on March 24, 2022. Though not obvious from the fact that its stock price dropped almost immediately, the news was nearly all good. Highlights from the report include the following:
Fourth Quarter 2021
- Total revenue increased 155 percent year-over-year ($34.7 million as compared to Q4 2020’s $13.6 million)
- Total annual recurring revenue (ARR) for Software-as-a-Service (SaaS) products increased 114 percent year-over-year ($10.6 million as compared to Q4 2020’s $4.9 million)
- Average revenue per user (ARPU) for Hosted Services increased two percent year-over-year ($6.86 as compared to Q4 2020’s $6.75)
- Net loss came in at ($26.0) million as compared to Q4 2020’s ($10.7) million
- Adjusted EBITDA totaled ($21.8) million as compared to Q4 2020’s ($6.8) million
- Deferred revenue increased 79 percent year-over-year ($95.6 million as compared to $53.5 million as recorded on December 31, 2020)
- Total units deployed increased 72 percent (52,076 organic units as compared to Q4 2020’s 30,220 units)
- Total units booked increased 42 percent (84,052 as compared to Q4 2020’s 59,067)
- Total organic committed units increased 5 percent (736,461 as recorded December 31, 2021, over the 704,242 recorded September 30, 2021)
- Total organic deployed and committed units reached 1,059,309 as of December 31, 2021
- Total revenue increased 111 percent ($110.6 million as compared to 2020’s $52.5 million)
- Net loss came in at ($72.0) million as compared to 2020’s net loss of ($37.1) million
- Adjusted EBITDA totaled ($55.6) million as compared to 2020’s ($26.7) million
- Total units deployed increased 101 percent (167,743 units as compared to 2020’s 83,293)
- Units booked increased 94 percent (218,106 as compared to 2020’s 112,555)
- Cash balance as of December 31, 2021 – $432.1 million
- Debt – none
Increased revenue, cash on hand, and no debt are all positive signs that the company is on the right financial track. The main issue is the fact that it is not yet profitable—and its net losses are growing. Will that continue, or does the company expect profitability in 2022?
Will SmartRent Stock Go Up?
SmartRent’s leadership team has confidence in the upcoming quarter and the upcoming year, though it does not appear that the company will achieve profitability in 2022. Demand remains strong for SmartRent’s more profitable division—the enterprise software platform—and it is expected to grow steadily through the next 12 months and beyond.
For the first quarter of 2022, SmartRent projects that it will deploy between 46,000 and 48,000 units—a slight drop quarter-over-quarter. Nonetheless, the company expects revenue to grow, with the total coming in between $35 and $37 million.
For the full year, SmartRent expects units deployed to total between 280,000 and 320,000. At the high end, that’s nearly double 2021’s units deployed. Total revenue is projected between $220 and $250 million—more than twice that of 2021. EBITA will still be a loss, ranging between ($50) and ($35) million, but it’s an improvement.
Though this guidance didn’t particularly impress investors when it was announced, their position may change if and when SmartRent delivers. After all, nearly every tech startup operates at a loss for a period, and few have the advantages that SmartRent enjoys. In other words, SmartRent stock is likely to go up over the long term.
Competitive Threats Loom On The Horizon
The biggest risks facing SmartRent aren’t from competitors or loss of demand. Instead, they are related to the sorts of obstacles many companies face in the current environment.
There are still snarls in the supply chain that are likely to be exacerbated by the Russian invasion of Ukraine and subsequent economic sanctions. SmartRent is taking steps to eliminate supply chain risk, but with so much volatility, it could be impacted in ways that can’t currently be predicted.
Financial results may also be impacted by merger and acquisition activity—a key component of SmartRent’s strategic growth plan. For example, the December 2021 acquisition of iQuue created expenses for the company without contributing revenue for the quarter. Similar moves, though good for the company’s long-term profitability, could affect short-term profitability.
The Bottom Line: Is SmartRent Stock a Buy?
The bottom line is that SmartRent is a startup tech firm that hasn’t yet hit its one-year anniversary as a publicly traded company. That makes SmartRent stock inherently risky. However, investors interested in adding these types of shares to their portfolios will find SmartRent stock a better long-term bet than most.
SmartRent has a unique product in an emerging market—one that is expected to be in high demand. Though there will certainly be ups and downs along the way, there is every reason to believe that the company will eventually deliver profits and give shareholders a return on their investment. In short, SmartRent stock is a buy.