Investor speculates on Monitronics outlook

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04/23/2014

Greater visibility, broader market acceptance and (for some central stations) more wholesale monitoring accounts are just some of the benefits often mentioned in connection with the entrance of cablecos and telecoms into security.

A recent Wholesale Monitoring study by the Barnes Associates (co-sponsored by the CSAA and SSN) largely attributed the 19 percent growth the segment enjoyed in 2013 to the influence of the new entrants. To be sure, there seems to be a prevailing belief that the rangy, big-money advertising campaigns of such companies can be the proverbial “rising tide that lifts all boats.”

That’s not to say there’s no ambivalence. That was apparent enough in a recent SSN News Poll that dealt with the topic. A number of readers expressed concern about the long-term viability of smaller players in the home security space, given the influx of these major corporations who have already made inroads into the home through Internet and cable, and thus have that previously established “stickiness.”

That ambivalence was also reflected in a recent analysis by Rajiv Bhatia on Seeking Alpha, a crowdsourced platform for investment-based ideas, who discussed what the new market players could mean for Ascent Capital, the holding company of Monitronics. Bhatia acknowledged that the company faces “increased competition” from the large new cableco/telecom entrants, which he says are gaining traction despite unsuccessful forays into the market in the past.

Regarding Monitronics’ business model, Bhatia offered a mixture of encouraging and somewhat cautionary words:

“While management and sell-side analysts believe that Ascent is better insulated from competition via its dealer-only business model, Ascent faces upward pressure on the multiple it pays for its dealer contracts from competitors. Additionally, its growth through its internal channels is weakening.”

Those multiples, he noted earlier, are based on an RMR multiple of 50. Ascent faces “upward pressure on the multiple it pays to acquire contracts,” he said.

With more than 1 million subscribers, Monitronics trails only ADT in terms of marketshare in the alarm monitoring space. It will be interesting to watch what happens to the market presence of both companies as the cableco/telecom ads continue to appear on our television screens.