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Is Latch a Bargain After Earnings?

By Matthew Frankel, CFP® and Trevor Jennewine – Nov 24, 2021 at 8:08AM

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The smart home technology company reported strong numbers for the third quarter.

Latch (LTCH -0.34%) reported its third quarter earnings recently, and despite excellent numbers, the stock has fallen considerably. In this Fool Live video clip, recorded on Nov. 11, contributor Trevor Jennewine discusses the numbers and why he thinks Latch could be a great buy now. 

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Trevor Jennewine: Latch is is smart lock company, and its Software as a Service product LatchOS powers a range of hardware devices like access controls, intercoms, and cameras. Latch basically generates revenue in two different ways, hardware and software.

Jumping into the third quarter earnings, revenue came in at $11.2 million. That was up 116%. That was a beat on the topline. Adjusted EBITDA was a loss of about $26 million. It's a wider loss than the $14.6 million last year. However, total bookings was $96 million, that was up 181%. Total bookings refers to non-binding agreements to purchase hardware, software, but those agreements have not yet been recognized as revenue. Then total booked ARR, or total booked annual recurring revenue, was $59.8 million -- up 126%. This number hits at the cumulative value of software subscriptions on an annualized basis essentially.

Overall, earnings were strong. However, you can see on the chart that Latch has down quite a bit from its high. I think it's down about five percent today. Couple of things behind that. Back in mid-October, Goldman Sachs (GS 1.53%) downgraded Latch to neutral, citing supply shortages, residential construction is slowing down due to supply chain headwinds. Those headwinds are likely to persist through 2022. Goldman did mention that they have an attractive market opportunity over the long term, but those near-term headwinds warranted the downgrade and that caused the stock to sell off quite a bit.

All things considered, I think the company delivered some good results here. I think they're making progress. One thing I'd like to note is their cumulative booked home units more than doubled to 531,600. That's up from 265,000 in 2020. But Latch still has a plenty of room to grow. There are about 32 million apartment units in the United States based on census data from 2019. That figure represents less than 2% of its market opportunity.

Latch recently expanded into the commercial office space. They've already got partners there. They'll be putting their technology into the Empire State Building and few other iconic buildings in Manhattan. All things considered, I think it was a strong quarter. Looking at the quarter four, they're expecting revenue of $11.2-$15.2 million, and that would be up between 49% and 102%. So pretty wide range there.

Looking for bookings of $91.5 million to $101.5 million, up 102% to 124% and still expecting an adjusted EBITDA loss of $40 million at the midpoint. However, there is no debt on the balance sheet. They have about $328 million in cash and securities, so they can afford to lose money for a little while. All things considered with the stock down about 40% from its high, I think this is maybe a good opportunity to buy some shares.

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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