(NAS:ALRM) Alarm.com: Quietly Powering the Smart Security Boom

Thesis

The U.S. residential security market is evolving from basic intrusion detection toward integrated smart home ecosystems that offer enhanced convenience, control, and proactive safety features. The residential security industry landscape is also in a state of flux, with numerous incumbents and new entrants at varying stages of integration and product offerings. We have identified Alarm.com (NAS:ALRM) as a long-term winner in this space; it currently dominates the high-end market segment. Alarm.com is considered the gold standard in home security and is leveraging its technological leadership to expand into adjacent commercial and international markets. We believe its innovation leadership and the growing interconnectedness of IOT devices and AI provide it with significant runways for future growth and see at least 50% upside from today’s levels.

Company Background

Residential Home Security

There are approximately 130 million homes in the United States. Of these, about 30 million have a professionally monitored security system, meaning that service professionals actively monitor alarms and camera feeds. Roughly half of these systems are interactive, allowing homeowners to remotely access and control their systems through smartphones or other devices. The market includes a significant number of legacy wired solutions, typically referring to older systems that rely on hardwired connections rather than wireless technology. These systems often require professional installation and are less flexible compared to modern wireless alternatives.

Homeowners today generally can choose between a DIY solution, such as Ring or Nest, or a professionally installed and monitored system offering a more comprehensive and high-end setup. While DIY solutions tend to receive more media attention, professionally installed systems still dominate in the higher-end segment. DIY solutions are significantly cheaper with install costs generally less than three hundred dollars and with monthly costs less than thirty dollars. Professional install costs vary greatly but could be in the thousands for install costs and up to one hundred dollars per month for monitoring and professional services. Professionally monitored solutions are more reliable and have faster response times than DIY solutions. Over the last several years, there has been an ever-increasing shift toward smart home integration, increasing demand for mobile app control, the rise of AI-powered video analytics.

Alarm.com

Unlike its competitors, Alarm.com focuses exclusively on the service professional/dealer channel. Roughly the top 100 security professionals control 50% of the market with a very long tail controlling the other 50%. In total, there are about 14k total security dealers (the top ones include ADT etc while the other 14k are local mom and pop shops).

Service professionals use Alarm.com as the operating system for the security systems they install – over 10k service providers rely on Alarm.com’s platform. Alarm.com supplies the technology backbone—the software, mobile app, cloud infrastructure, and system integrations—while service professionals contribute local market expertise, installation capabilities, existing customer relationships, and monitoring services. This structure allows Alarm.com to focus on R&D while the service professionals effectively act as Alarm.com’s marketing and service arm. Alarm.com make up 10-25% of the COGS those service professionals then charge end customers (homeowners). End customers on the Alarm.com platform have grown from 2mm in 2014 to over 10mm today.

Alarm.com employs over 2,000 people, with more than 60% of them dedicated to R&D. As a result, it offers the most robust features in the market and is widely regarded as the gold standard for home security systems. In addition, Alarm.com provides CRM and other software solutions to help service professionals operate more effectively. Alarm.com boasts strong homeowner retention, with rates around 94%. While many competitors in the industry focus their spending on sales and customer service, Alarm.com prioritizes product development, as reflected in the chart below. Its R&D investment of nearly 30% of revenue is on par with some of the world’s most tech-forward companies.

In addition to supporting independent service providers, Alarm.com also powers the backend for several major security brands, including ADT, Brinks, and Securitas. Most end customers are unaware of this, as Alarm.com’s technology is often white-labeled under its partners’ branding.

Competitive Landscape

The competitive landscape in the residential home industry is varied. There are vertically integrated players such as ADT, Resideo, and Vivint who have their own hardware, software, service arm, and monitoring stations. Then there are DIY solutions such as Ring, Simplisafe, and Nest.  In terms of subscribers ADT has about 7 mm while Alarm.com has over 10 mm. In aggregate, DIY solutions cover about 30mm households. While ADT was a former customer of Alarm.com, they have since partnered with Google to form their own tech solutions.

ADT and Google

ADT is the largest vertically integrated player in the residential security market, built through the aggressive acquisition of hundreds of small, local alarm companies and the centralization of monitoring and branding under a single national identity. In 2019, ADT and Alarm.com entered a major partnership in which Alarm.com provided the backend technology for approximately 2 million ADT customers. However, two years later, Google invested $450 million in ADT, acquiring a ~7% stake and initiating a strategic partnership to integrate Google’s smart home technology with ADT’s professional security services. Following this move, Google discontinued its Nest Secure product line in October 2020. As legacy contracts with Alarm.com expire, ADT is gradually transitioning customers to its own platform. While this represents a near-term headwind for Alarm.com, the broader service professional market remains highly fragmented, with smaller players continuing to drive significant growth.

Competitive Advantages

Product Focus

Alarm.com is highly focused on serving the professional installer channel by developing products that ultimately deliver the best experience for the end customer. By creating tools that help service professionals perform their jobs more effectively, the customer experience is directly improved. An added benefit is that many service professionals have standardized on Alarm.com’s ecosystem, ensuring more consistent and reliable installations. These professionals are trained at Alarm.com academies and rely on proprietary tools such as CRM software and advanced analytics. A clear example of the company’s forward-thinking approach is its early adoption of deep learning: in 2018, Alarm.com developed, trained, and deployed convolutional neural networks (CNNs) to enhance video analytics — a sister architecture to the transformers used in ChatGPT. Another area of innovation they have developed is enabling these high-compute workloads to run efficiently on edge devices.This emphasis on deep technical infrastructure stands in stark contrast to companies like ADT, whose primary expenses remain in sales and customer service. ADT has also begun rolling out their own DIY offerings. In contrast, over  half of Alarm.com’s employees are software or hardware engineers. Alarm.com is scaling R&D at a level that competitors are not matching.

Open Source

Another key strategic priority for Alarm.com is maintaining open compatibility with a broad and growing ecosystem of hardware components, positioning its platform as effectively hardware-agnostic. This flexibility allows service providers and end customers to choose whatever control panels, sensors, cameras, locks, thermostats, and other devices that best meet their specific needs. While Alarm.com does manufacture some hardware, it does so selectively — primarily to fill gaps in the market or reduce dependency on third parties. The company is also willing to forgo hardware margins in order to better support its service professionals. This open approach stands in contrast to competitors like Resideo, which emphasize ecosystem lock-in. In a world of rapidly expanding IoT device options, we believe Alarm.com’s open architecture is a strategically superior position.

Privacy and Cybersecurity

One of Alarm.com’s core value propositions is its security-first approach. As a company whose reputation depends on system integrity, it has maintained a strong track record of avoiding breaches , a contrast to DIY and other growth focused competitors that have faced high profile security lapses. As device and software infiltration becomes more common, Alarm.com’s focus on secure architecture will become increasingly important. Incidents like Ring’s mishandling of video footage and Nest’s undisclosed embedded microphones highlight the reputational risk faced by competitors. This gap will likely widen as security systems become more deeply integrated with broader home automation ecosystems.

Opportunities

Commercial and International Expansion

The commercial security industry remains more outdated than residential, largely due to long-term contracts and entrenched customer lock-in. However, Alarm.com’s sustained investment of hundreds of millions in R&D has resulted in a technology stack that surpasses that of many incumbents in the commercial space. Their primary obstacle is not capability, but inertia. A strategic advantage of focusing on professional installers is that roughly 10% of them also serve small and medium-sized businesses (SMBs), enabling Alarm.com to expand organically into commercial accounts. As a result, the commercial segment now accounts for more than 10% of the company’s SaaS revenue and is growing at over 30% annually. With average revenue per user as much as 6x higher than residential customers, this segment could soon overtake residential in size. International expansion is another growth vector—currently contributing about 6% of total revenue, well below peer benchmarks.

Artificial Intelligence and IOT

The arrival of AI has significantly advanced video surveillance and analytics, with Alarm.com emerging as an early adopter. For example, the company recently launched Perimeter Guard, a proactive deterrence solution that uses audible warnings and strobe lights to respond to suspicious activity. As IoT device adoption accelerates and smart home penetration deepens, Alarm.com stands at the center of a positive feedback loop, benefiting from the expansion of connected home ecosystems. One key offering is EnergyHub, which enables utilities to manage distributed energy resources—such as smart thermostats, EV chargers, and solar inverters—to help balance grid demand and improve overall reliability. Looking ahead, solutions like Alarm.com’s could help transform elderly care by allowing seniors to remain in their homes with the support of video analytics and IoT-enabled monitoring, offering a cheaper and more comfortable alternative to institutional care.

“I think the reality here is that the IoT is getting broader every day, and we’re in sort of a race to keep up. Each month, I wake up and there’s another device that we need to integrate, we need to support.” Stephen Trundle, CEO of Alarm.com

Risks

Not owning the relationship with the end customer

Because Alarm.com operates through a network of service provider partners rather than engaging directly with end-users, its brand perception and customer experience are heavily influenced by the quality of those partners. Challenges such as poor sales practices, subpar installations, or weak customer support from a partner can negatively impact how end-users perceive Alarm.com. Unlike ADT or SimpliSafe, Alarm.com does not benefit from direct consumer brand recognition.

Mitigating Factor:  Alarm.com carefully selects its partners and maintains high standards of service through comprehensive training programs, installer certification, and by equipping professionals with robust software tools, including CRM platforms and analytics, to support efficient and consistent service delivery.

The Specter of DIY

DIY solutions have gained traction across a range of industries, from robo-advisors in finance to website builders and even home construction, by offering low-cost alternatives to traditional services. While DIY often begins by targeting cost-conscious consumers, its biggest long-term threat lies in its potential to move upstream and compete with premium, higher-tier offerings.

Mitigating Factor: While DIY solutions tend to impact the middle tier of the market, Alarm.com remains focused on higher-tier offerings. DIY systems often rely on lower-quality hardware and standardized monitoring services, keeping costs low through centralized support. In contrast, Alarm.com emphasizes customization and professional-grade performance (faster and more reliable response times). Insurance policies further reinforce this distinction, as professional installation and monitoring typically qualify homeowners for the most favorable rates. Notably, Alarm.com also allows for self-installation, enabling a makeshift DIY approach while still leveraging its robust platform.

Valuation

As the smart home ecosystem continues to evolve, end users are increasingly relying on centralized apps to manage and control their environments—with security remaining the most essential component. As a result, the lifetime value of each subscriber is poised to rise. Currently at $270 per subscriber, we believe this figure will grow meaningfully over time. Alarm.com presents a compelling investment opportunity, with over 50% upside from current levels. This is supported by durable high single-digit to low double-digit revenue growth, expanding margins, and meaningful upside in adjacent markets such as commercial security and AI-driven ARPU expansion. With operating leverage continuing to scale, we estimate Alarm.com currently trades at approximately 8x 2028 free cash flow, a valuation understates the company’s long-term growth potential.

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