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Why Alarm.com Stock Plummeted Today

By Evan Niu, CFA - Aug 3, 2020 at 1:44PM

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Google is partnering with ADT in a deal that will strengthen Alarm.com's competition.

What happened

Shares of Alarm.com (ALRM -0.23%) have plummeted today, down by 19% as of 1:15 p.m. EDT, after Alphabet (GOOG -0.55%) (GOOGL -0.61%) subsidiary Google announced that it would invest in rival ADT (ADT 4.16%) as part of a strategic partnership. The deal will make one of Alarm.com's biggest home security competitors much stronger.

So what

Google will invest $450 million in ADT, which will get it a 6.6% stake in the company as part of the long-term partnership. ADT will issue newly created Class B shares that will have limited voting rights. Both Google and ADT will also invest $150 million into several initiatives around co-marketing, product development, and employee training. As part of the agreement, ADT will integrate with Google's Nest brand, which encompasses the tech giant's smart home and home security offerings.

Using Alarm.com's video doorbell and app to see a delivery driver

Image source: Alarm.com.

"We are thrilled to partner with Google to provide the smart home market with a strong, differentiated product and service offering that integrates the best technology, hardware and smart home security expertise from our two brands," ADT CEO Jim DeVries said in a statement. "Google's partnership and financial investment in ADT underscores the depth of our joint commitment to the smart home and security markets."

Now what

The news represents a potential setback for Alarm.com, which will face even stiffer competition just as the company has been making progress in growing its subscription business. Alarm.com already listed Google's Nest, which entered the home security market in 2017 with the Nest Secure alarm system, as a competitor. Having two rivals combine their efforts is bad news for Alarm.com.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool recommends Alarm.com Holdings. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Alarm.Com Holdings, Inc. Stock Quote
Alarm.Com Holdings, Inc.
ALRM
$72.70 (-0.23%) $0.17
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$117.47 (-0.61%) $0.72
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$118.22 (-0.55%) $0.65
ADT Stock Quote
ADT
ADT
$8.02 (4.16%) $0.32

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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