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Frontdoor Acquires Streem For Consumer Repair Collaboration Tech – Seeking Alpha


Quick Take

Frontdoor (FTDR) announced it has acquired Streem for an undisclosed combination of cash and equity.

Streem operates as a home services technology startup that has created a mobile video system for contractor collaboration.

FTDR is likely acquiring the company on a technology basis as part of providing its network of home consumer service providers with greater capabilities.

The stock has seen a great run in the past 12 months but may be fully valued at its current level.

Target Company

Portland, Oregon-based Streem was founded in 2017 to enhance real-time communication and collaboration by creating an intelligent camera.

Management is headed by CEO and Co-Founder Ryan Fink, who has been with the firm since the beginning and was previously VP of Business Development at Antheer, and CEO and Founder of ONtheGO Platforms. Source: LinkedIn

Below is an overview video of Streem’s Team Collaboration:

Source: Streem

Streem’s app is a platform that includes an intelligent camera using spatial mapping, object recognition, and artificial intelligence.

Investors have invested at least $10.5 million in the company and include General Catalyst, GGV Capital, Greycroft, Portland Seed Fund, Oregon Venture Fund, among others. Source: Crunchbase

Market & Competition

According to a market research report by Verified Market Research, the global home services market was valued at $281.65 billion in 2018 and is projected to reach $1,133.40 billion by 2026.

This represents a forecast CAGR of 18.91% between 2019 and 2026.

The main driver for this expected growth is the increased adoption of smartphones.

Major vendors that provide global home services technologies include:

  • Siemens (ETR:SIE)

  • United Technologies Corporation (NYSE:UTX)

  • General Electric (NYSE:GE)

  • Schneider Electric (EPA:SU)

  • Honeywell (NYSE:HON)

  • Ingersoll Rand (NYSE:IR)

  • Johnson Controls (NYSE:JCI)

  • ABB (SWX:ABBN)

  • JCDecaux (EPA:DEC)

  • NEC (TYO:6701)

  • DaKTronics (DAKT)

  • Oh!Media (ASX:OML)

Source: Sentieo

Acquisition Terms and Financial

FTDR didn’t disclose the acquisition price or terms and didn’t file a form 8-K or provide a change in financial guidance, so the deal was likely for a financially non-material amount.

A review of the firm’s most recent published financial results indicate that as of September 30, 2019, FTDR had $432 million in cash and marketable securities and $1.4 billion in total liabilities of which $974 million was long-term debt.

Free cash flow for the nine months ended September 30, 2019, was $139 million.

In the past 12 months, FTDR’s stock price has risen 96.9% vs. the U.S. Consumer Services industry’s growth of 26.9% and the overall U.S. Market’s rise of 18.2%, as the chart and corporate events graphic indicates below:

Source: Simply Wall Street

Earnings surprises versus analyst consensus estimates have been positive in five of the last five quarters, as the chart shows below:

Source: Seeking Alpha

Analyst sentiment in recent earnings calls has dipped markedly from Q1 2019, as the linguistic analysis shows here:

Source: Sentieo

Valuation Metrics

Below is a table of relevant capitalization and valuation figures for the company:

Measure

Amount

Market Capitalization

$3,690,000,000

Enterprise Value

$4,300,000,000

Price / Sales

2.74

Enterprise Value / Sales

3.20

Enterprise Value / EBITDA

14.92

Earnings Per Share

$1.77

Free Cash Flow [TTM]

$17,630,000

Revenue Growth Rate

8.65%

Source: Company Financials, Seeking Alpha, Yahoo Finance

Below is an estimated DCF (Discounted Cash Flow) analysis of the firm’s projected growth and earnings:

Assuming the above general DCF parameters, the firm’s shares would be valued at approximately $33.85 versus the current price of $45.12, indicating the stock is currently potentially overvalued, with the given assumptions of the DCF.

Commentary

Frontdoor has acquired Streem likely as a ‘team and technology’ deal rather than on a revenue basis.

As FTDR CEO Rex Tibbens stated in the deal announcement,

This technology is a perfect fit for our core home service plan business and for our future On Demand customers. Over time, we will use Streem’s in-home augmented reality across our platform to deliver a superior experience to our more than 2 million customers and our network of over 16,000 contractor firms.

The technology promises to make contractors more efficient by providing them with pre-call information about the scope of work.

By acquiring Streem’s existing technology, FTDR can more quickly roll out a working solution as it seeks to reignite growth in its business, so the technology acquisition looks like a smart move to reduce time-to-market and technology risk.

FTDR’s stock price is another matter, as it has come of a rapid appreciation period over the last 12 months.

From the generous DCF analysis, FTDR looks pricey at its current level.

Additionally, according to an NYU Stern School basket of Business & Consumer Services public companies in January 2019, they sported an EV/Sales multiple of 1.93x versus FTDR’s current 3.2x, also indicating a very full valuation for FTDR.

Given those two reference points and FTDR’s run over the past year, management will need to generate new and significant sources of revenue growth to power the stock higher from here, so my bias on the stock at this juncture is NEUTRAL.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.





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