Why Shares of ADT Plunged Tuesday Morning

Lou Whiteman, The Motley Fool
Updated

What happened

Shares of ADT (NYSE: ADT) fell by more than 12% Tuesday morning after the home security systems provider reported a fourth-quarter loss and predicted 2019 earnings would come in below expectations.

So what

ADT reported fourth-quarter revenue of $1.19 billion, up 7% year over year and ahead of the $1.16 billion consensus estimate, but the company's adjusted loss of $0.04 per share was significantly below the expected profit of $0.12 per share. The company also said it expects full-year 2019 EBITDA of between $2.46 billion and $2.5 billion, short of the $2.56 billion expectation.

A man in despair in front of a falling stock chart.
A man in despair in front of a falling stock chart.

Image source: Getty Images.

The company also said it expects free cash flow to grow by 6% to 13% this year, well below the 33% growth it reported in 2018, as ADT ramps up spending on hiring and marketing. CFO Jeffrey Likosar on a call with investors said, "[W]e will make selective brand investments as we continue to solidify ADT's position as the leader in home automation and in security."

With the drop, ADT is now down 46% since its January 2018 initial public offering.

Now what

ADT's bread-and-butter home monitoring system has come under pressure from a new generation of self-installed security products, including Alphabet's Nest, available at a lower monthly fee.

The company has a competing product, called Pulse, and is working on a partnership with Amazon.com. It also has acquired do-it-yourself home security provider Lifeshield for $25 million to bolster its offering. But these investments will take time to pan out, and investors on Tuesday were in no mood to hold tight and wait for that improvement.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Amazon. The Motley Fool has a disclosure policy.