Vivint Property Management
Vivint Property Management – Vivint Smart Home (NYSE: VVNT) is one of the largest smart home providers, offering state-of-the-art hardware and software. Although it has quality products, poor execution has contributed to issues of low scalability, slow growth, and a deteriorating balance sheet. While the smart home trend is likely to continue and Vivint is likely to benefit from the trend as well, peers have more effective strategies that could dethrone Vivint as the market leader in the smart home market. As a result, investors should stay away from Vivint.
Vivint is considered the leading smart home platform company offering a vertically integrated smart home solution including hardware, software, sales, installation, support, and professional monitoring.
Vivint Property Management
The company’s name, Vivint, means “intelligent living,” and its mission is to “redefine the home experience through intelligently designed cloud computing solutions, delivered to every home by people who care .”
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The company sells internet-of-things devices like smart locks, lights, and sensors that are designed to work as an integrated system, rather than stand-alone purchases.
According to REVIEWS.org, Vivint’s starter package costs $599, which includes a touchscreen panel, two door or window sensors, a water sensor, and a motion sensor. However, the starter package is usually not enough to cover an individual’s entire home, which is why customers are more likely to add more devices on top of the starter kit. As a result, Vivint customers had an average of 15 security and smart home devices in their homes, as of December 31, 2020. In total, Vivint manages more than 23 million home devices as of the end of 2020.
In addition to equipment costs, Vivint charges customers monthly subscription fees of $30 to $45 for using its software and monitoring services. There is also a $49 installation fee. That said, Vivint’s products and services aren’t cheap by any means, but the quality of its value proposition to its customers is well-deserved, resulting in an average subscriber lifetime of around eight years.
Vivint calls its business model “Smart Home as a Service”, or SHaaS, and aims to provide homeowners with an all-in-one smart home solution, without relying on third-party devices. It seems that customers are very happy with the company’s offerings, as shown by the app’s stellar ratings of 4.4 / 5.0 for Android users and 4.6 / 5.0 for iOS users.
What Is Vivint’s Business Model?
Despite its high-quality products, Vivint doesn’t look so good from an investor’s perspective. In this article, we will cover the qualitative and quantitative reasons why this may be the case.
First, Vivint has a poor distribution strategy, causing the company to operate on a capital-heavy, non-scalable business model.
In terms of customer acquisition, Vivint targets end customers through two main channels: direct to home and inside sales. Direct to Home represents the door-to-door sales method in which a Vivint salesperson provides in-house consultations to help and educate each homeowner about the benefits of smart homes and ultimately its products. The inside sales channel provides consultations to prospects who contact Vivint directly.
The problem here is not that door-to-door selling is effective or ineffective. The problem is that each consumer must be dealt with individually. There is no automation. There are no bulk purchases. There is no DIY option. One consumer, one consultation, at a time. As you can imagine, this distribution strategy is laborious and time consuming.
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Let’s compare that to Latch (LTCH) and SmartRent (FWAA), which also offer “SHaaS” but for apartment communities. What they do differently than Vivint is that they target property managers rather than individual residents. Instead of knocking on the doors of each apartment unit, Latch and SmartRent go directly to the property manager’s office. Therefore, Latch and SmartRent would only have to deal with one apartment manager/operator, who probably has an average of 200 units per apartment complex. 200 units, one consultation. We can see how inefficient Vivint can be.
Furthermore, Vivint’s poor distribution strategy does not end with customer purchases. Once Vivint finds a customer, it will ship its “Smart Home Pros” for installation. At the same time, they will also provide customers with an in-house adaptation service, recommending the most effective installation plan.
Again, the problem is inefficiency. Smart Home Pros must consult and install one home at a time. Latch and SmartRent, on the other hand, can hire a single contractor (or use their own dedicated technicians) to install hundreds of devices in one go, usually in roughly the same way per apartment unit.
Vivint’s weak distribution strategy is the only reason its business model is built to be labor intensive. As of December 31, 2020, Vivint has 12,100 employees including seasonal sales and installation professionals. According to GrowJo, Latch and SmartRent have 271 and 215 employees, respectively. All three companies have roughly the same market cap.
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Simply put, Vivint’s poor distribution strategy leads to two major issues: unenforceability and inertia. An inefficient sales process means Vivint is unlikely to gain market share quickly, falling behind peers such as Latch and SmartRent. A large employee base also means that it will be extremely challenging for Vivint to push its business model forward. Such inertia only allows other asset-light companies to expand aggressively and distribute their products even faster. As Peter Thiel said:
With such an inefficient distribution strategy, Vivint has high Net Subscriber Acquisition Costs per New Subscriber. On the other hand, we can see from the slide below that there is a sharp drop in the Net SAC from $960 in Q1 2020 to just $66 in Q1 2021. On the surface, this may seem like one of the Best unit economics at Vivint. of any company. However, there are some financial tricks that investors should be aware of.
Net Subscriber Acquisition Costs per New Subscriber is the net cash cost to create new smart home and security subscribers during a given 12 month period divided by New Subscribers for that period. These costs include commissions, Products, installation, marketing, sales support and other allocations (general and administrative and overhead); less upfront payments received from the sale of Products related to the initial installation, and installation fees. Upfront payments represent gross receipts before deducting fees associated with consumer financing of Products. These costs do not include capitalized contractual costs and upfront receipts related to contract modifications. (Source: VVNT 2021 Q1 Earnings, authors’ emphasis)
According to Vivint, prepaid payments for the twelve months ending March 31, 2021 increased to $2,067 per New Subscriber compared to $1,174 for the same period in 2020. Subtracting these two numbers, there is an increase of $893 on advance payments per subscriber, which if you add it to the $66 Net SAC recorded in Q1 2021, a figure that is just $1 shy of the $960 Net SAC recorded in Q1 2020. Essentially, there has been no improvement acquisition costs at all, but an increase in initial payments makes it so.
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The company is able to achieve such a favorable increase in prepaid payments because of their partnership with third party financiers. Currently, Vivint offers three payment methods:
The first two options are under Vivint Flex Pay (launched in 2017), which enables subscribers to purchase with unsecured financing at a zero percent annual percentage rate, also known as Buy Now Pay Later. The difference between the first two options is that Vivint is paid in full immediately under the CFP … from the cashier, even though the customer has yet to pay in full:
When a subscriber signs up under the CBI program, we receive cash from the third-party financing provider for the purchase of products and the installation costs associated with the subscriber. For certain third-party provider loans, we pay a monthly fee based on the average daily outstanding loan balance or the number of outstanding loans, depending on the third-party financing provider. In addition, we share liabilities for credit losses depending on the credit quality of the customer. (Source: VVNT 10-K, authors’ emphasis)
In contrast, Vivint receives monthly installments under the RIC, which is less favorable from a cash flow perspective. Here is the funding mix for New Subscribers over the past few years:
Vivint Smart Home
In 2018, 23% of New Subscribers purchased through RICs, which means cash flow is minimal. By the end of 2020, that figure had dropped to 2%, meaning Vivint received cash up front for 98% of New Subscriber purchases. This is good for cash flow, enabling Vivint to reinvest heavily in the business or acquire additional customers. However, this business model can mislead investors as it misleads that Vivint is delivering superior financial performance as seen by its huge improvement in Net SAC. But fundamentally, the company has changed little.
Therefore, while customer acquisition costs appeared to be trending downward, keep in mind that this is due to the company’s shift to a Buy Now Pay Later model, which gives Vivint access to cash flow early on. However, marketing costs are still high, so the customer acquisition cost metric is quite misleading in my opinion.
In addition, Vivint may be in a riskier financial position because Vivint is selling to customers who may not be able to afford its products in the first place. Why else
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