When bigger companies invest in a smaller one, traders tend to take notice. Since well-known insurer State Farm is making a major investment in ADT (NYSE: ADT), this should garner attention for the latter company among enterprising investors. Search engine innovator Google, which is owned by Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), is also taking a financial position in ADT, so there must be something promising about this security specialist that retail traders aren’t seeing. In light of these developments, I am bullish on ADT stock.
ADT is a security system provider for homes and businesses, as well as an installer of smart-home technology. On most days, it’s not a company that’s on many investors’ radars. If you feel that the demand for home and business security will persist in these uncertain times, though, then ADT stock is worth considering for a long-term hold.
Don’t just take my word for it, though. There are at least two famous companies that are standing by ADT, and not just with words. They’re taking decisive action with multi-million-dollar investments in ADT, which speaks to their confidence and conviction.
This doesn’t mean that you have to own ADT stock, of course. Still, it’s worthwhile to learn how much is being invested in ADT and how those funds might be deployed. After delving into the details, you might decide to make your own small-scale investment in ADT.
Companies Might Invest in ADT Because It’s a Revenue Grower
Why would big businesses target ADT for big-money investments? Probably, they’re looking for companies that are profitable and are growing their revenue. As the data will show, ADT checks both of these boxes.
During the second quarter of 2022, ADT grew its revenue by 23% year-over-year to $1.6 billion. Moreover, ADT swung from a $0.07 per-share adjusted loss in the year-earlier quarter to an adjusted profit of $0.06 per share in Q2 2022.
If adjusted EBITDA is your preferred metric, then ADT reported $597 million in 2022’s second quarter, up 10% year-over-year. ADT President and CEO Jim DeVries envisions ADT “meaningfully” growing its “revenue, earnings, and cash flows through 2025.”
However, there was something else worth noting in the company’s earnings press release, even beyond the encouraging data points. Specifically, ADT reported a partnership with Google in which ADT sells, installs, and services Google Nest products nationally, including doorbells, cameras, and thermostats. This has already proven to be a lucrative business collaboration, as during Q2 2022, “the attachment rate for the Google doorbell was 48%, helping drive a 23% increase in residential installation revenue per unit in the quarter.”
Google is Pouring Millions of Dollars into ADT
So, now we’re starting to see why a company like Google would choose to invest heavily in ADT. After all, ADT is a profitable business that has a value-added partnership with Google. Yet, investors might not realize just how much conviction Google has in ADT, as the former is reportedly taking a multi-million-dollar stake in ADT.
According to an article from the Wall Street Journal, Google previously invested a whopping $450 million in ADT, representing a 6.6% stake in the company. Plus, Google “committed $150 million toward engineering, designing and marketing of new products,” the Journal reports.
That’s already a major commitment, but apparently, Google sought to up the ante as it just pledged as much as $150 million more for those areas. As ADT’s press release describes it, this is an “incremental” $150 million that Google is investing in a “success fund” to “expand access for more customers to smart home innovation and technologies via new sales programs and other related activities.”
When we add it all up, we get a total of $750 million that Alphabet’s Google has invested or pledged to invest in ADT and its leading-edge technology. It certainly sounds like Google believes in the future of security and smart home tech – or at least ADT’s ability to take that technology to the next level and commercialize it profitably.
State Farm is Also Committing Big-Time Capital to ADT
State Farm is also making a sizable financial commitment that represents a firm belief in ADT’s future prospects. According to ADT and the Journal, State Farm plans to invest as much as $300 million in what the press release refers to as an “opportunity fund.”
The purpose of this fund is to “support product innovation, technology, and marketing that seeks to differentiate and improve the customer experience for homeowners.” Now, you might be thinking that State Farm’s financial commitment isn’t nearly as large as Google’s. Wait until you hear the rest of the story, though.
Believe it or not, State Farm has also agreed to invest $1.2 billion in ADT (133.3 million common shares) at a price of $9 per share. This stake, according to the Journal, represents 15% of ADT. So, if you couldn’t imagine any company taking a bigger position in ADT than Google did, State Farm actually managed to achieve this.
Is ADT a Good Stock to Buy?
Turning to Wall Street, ADT stock comes in as a Hold based on two unanimous Hold ratings. The average ADT stock price forecast is $8, implying 4.7% downside potential.
Conclusion: Should You Consider ADT Stock?
ADT stock rallied today as traders heard about the massive recent investments that Google and State Farm made in the company. Clearly, investors are feeling bullish due to these developments. However, ADT was already an outstanding revenue grower and deserved investors’ attention even before this news. Thus, whether it’s because Google and State Farm are taking financial positions or because you expect ADT to continue posting positive results, now’s a great time to consider adding ADT to your portfolio.
