ADT Pops 96% On Google’s $450M Investment For Smart Home Venture

Shares in ADT are spiking 96% in pre-market trading after the company said that Google (GOOGL) will buy a 6.6% stake as part of a long-term partnership to create the next generation of smart home security devices.

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The stock is soaring to $16.90 in Monday’s pre-market trading. As part of the partnership, Google has agreed to pay $450 million for a 6.6% stake in ADT (ADT). The search giant will get ADT shares of a newly created Class B common stock that will not have right to vote. The equity investment, which is subject to customary closing conditions, is expected to close in the third quarter of 2020. Proceeds will be used to fuel growth and reduce leverage over time, ADT said.

The partnership will combine Google’s Nest home hardware and services such as cameras with ADT’s installation, service and professional monitoring network to provide smart security solutions for millions of homes and small businesses in the US. In addition, each company will commit another $150 million, subject to the achievement of certain milestones, to be used for co-marketing, product development, technology and employee training to advance the multi-year partnership

“The goal is to give customers fewer false alarms, more ways to receive alarm events, and better detection of potential incidents inside and around the home,” said Google Nest’s Rishi Chandra. “It will also provide people with more helpful notifications that make everyday life more convenient, like package detection.”

The integrated smart home technology will be available in both DIY and professionally installed security products. ADT expects to offer certain Google devices to its customers beginning this year and to expand the integration in 2021. The combined home security solution will utilize a secure platform that prioritizes privacy and interoperability for greater customer peace of mind and choice, the two companies said in a statement.

Google shares have been on a steep recovery path since dropping to a low in March and are now trading 11% higher than at the start of the year. After the search giant beat 2Q earnings last week, analysts still see some upside potential in the shares from current levels. The $1,727.48 average analyst price target indicates shares have room to advance another 16% over the coming year. (See Alphabet’s stock analysis on TipRanks)

Following the financial results, five-star analyst Brian Fitzgerald at Wells Fargo reiterated a Buy rating on the stock with a $1,750 price target.

“While GOOGL’s 2Q perhaps argues for a more modest allocation in a “bug-out-basket” of stocks aimed for the darkest days of a global pandemic (good to know for next time), we believe Google should be well positioned for the next stage of the pandemic (as suggested by improving 2Q trends), as an array of advertisers, including major online retailers, step back into key variable demand channels and brands return to online video advertising,” Fitzgerald wrote in a note to investors.

Overall, the Wall Street outlook on the stock remains bullish. The Strong Buy analyst consensus boasts 29 Buys versus 3 Holds.