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Wall Street Is Underestimating This Tech Stock

By Trevor Jennewine and Matthew Frankel, CFP® – Oct 25, 2021 at 4:39PM

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This innovative company is building the future of technology.

Latch (LTCH 3.45%) specializes in smart lock technology. Its platform modernizes the entry experience across a range of real estate, creating a connected ecosystem that simplifies access and security for tenants and property managers alike.

In this Backstage Pass video, recorded on Oct. 14, 2021, Motley Fool contributors Trevor Jennewine and Matthew Frankel, CFP, explain what differentiates Latch from other players in the industry. And they discuss what investors should watch when Latch delivers its third-quarter earnings report, expected on Nov. 9.

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Trevor Jennewine: Latch is a smart lock company, for anybody that's not familiar. It really started with apartment buildings and has recently expanded into commercial office spaces. And at the core of its ecosystem is LatchOS, which is the operating system that powers a variety of first-party devices like door-mounted access controls, intercoms, cameras. LatchOS also integrates with third-party smart home devices, so the company really has a full building end-to-end solution for smart buildings. That includes software and hardware, which I think differentiates it from a lot of the other players in the space.

I'm pretty excited about this company. On the resident side, you can use your mobile app to unlock doors, manage visitors, control connected devices like smart thermostats and lights switches. Then, on the other side of the equation, property managers benefit by being able to remotely control access permissions. And having this technology creates a premium experience, so management mentioned in the SEC filings that Latch technology tends to boost revenue by $200 to $500 per apartment per year; and it reduces maintenance expenses by $100 to $300 per apartment per year.

You can see a picture over on the right-hand side of the slide. Just one of their smart locks looks like. They're these sleek little devices.

Taking a look at quarter two. Latch just went public by way of SPAC just a few months ago. Since going public, the share price has dropped about nine percent or so, and they are expected to report their earnings on the 12th of November.

Last quarter revenue was nine million dollars, that was up 227%. Total bookings was almost $96 million and I was up over 100%. Total bookings just refers to non-binding agreements that haven't been recognized as revenue. Then one other highlight from the second quarter was management announced that they now have partnerships with the top three electronic property management software vendors. This really streamlines things for building staff and property managers. It allows them to pull data like resident names, contact information, lease start dates from that system and it automatically updates it in Latch manager, which is the company's Cloud-based software that allows staff to control access remotely.

Looking at the next quarter, management's expecting revenue of $10 million to $11 million, and that would be up 116% at the high-end. Total bookings, $90 million, up over 164%. Still operating at a loss. Adjusted EBITDA, negative $32 million. But the company has plenty of cash on its balance sheet and no long-term debt, and so it can't afford to burn cash for a while.

Then, as far as management's commentary, I mentioned they just expanded their ecosystem into the commercial office space and they've had a lot of success in the apartment spaces. I think about 10% of new apartments in the United States are built with Latch technology. So, they're entering a new market. I want to see if management has any updates on how that process is going. You guys have any thoughts on Latch?


Matt Frankel: I love they're pivot office because when last one public, first of all, they were really residential company. They still are. The company that took them public by SPAC is Tishman Speyer, which is one of the biggest office landlords in the country. They're in charge of Rockefeller Center, for example. Latch just got its products into the empire state building, so I know they're having some success on that front.

The revenue numbers really minuscule, but the bookings are the more important one. You're not going to see profitability until more of the bookings, which represent the software revenue, turn into actual revenue, which right now is mostly hardware, which Latch is losing money from. I'm excited about that one too.

Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Latch, Inc. The Motley Fool has a disclosure policy.

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