Alarm.com Holdings, Inc. (ALRM) stock intrinsic value fair value estimate & owner earnings analysis

Alarm.com sells the cloud software behind smart-home and commercial security systems. It earns most of its profit from monthly software-as-a-service (SaaS) and license fees paid through security dealers and service providers such as ADT, plus lower-margin hardware (cameras, thermostats, panels, sensors). SaaS and license revenue was $689M in 2025 (up from $631M in 2024 and $569M in 2023) with a 94-95% renewal rate, and the dealers typically sign three-to-five-year contracts with end customers. Revenue reached $1.01B in 2025. How we measure earnings. We start from cash from operations, remove swings in working capital (receivables, inventory, payables), subtract stock-based compensation as a real cost, and subtract only the capital spending needed to maintain the business (roughly 2% of revenue; growth capex is small). On that basis, owner earnings per share were $0.47 to $3.49 over 2020-2025. 2025 (~$3.49) and 2024 (~$2.30) are flattered because we strip out working-capital outflows: in 2025 payables fell from $65.6M to $22.2M and income taxes payable from $28.0M to $1.8M, so cash from operations dropped to $153M from $206M. We do not treat the high 2025 figure as normal. Instead we use the median of 2020-2025, about $1.65 per share (~$97M), and exclude nothing. We start in 2020 because the business has been at roughly its current scale since the 2019-2020 acquisitions and hardware ramp. The 2022 dip (~$0.47) reflects heavy inventory build and cash taxes and is kept in the median. Bear case ($12.60). Alarm.com's largest partner, ADT, is 15-20% of revenue. Its master service agreement now renews year by year and can be ended on notice; a patent-license fallback would pay Alarm.com a lower per-subscriber fee than the SaaS service does, as the company itself discloses. Ten largest partners are about half of revenue. We assume a lower earnings base of about $1.24 per share (25% below the anchor), no growth for five years, then a 3% annual decline for ten years, then fade to zero. Leverage also weighs here: $500M of zero-coupon notes came due in 2026 and $500M of 2.25% notes are due in 2029, with a $110M revolver. Base case ($28.30). Growth is credited only where it is in the bag: the installed subscriber base renews at 94-95%, and SaaS revenue has compounded roughly 9-11% a year through recent years and through COVID, mostly from dealers adding subscribers. We credit 5% owner-earnings growth for five years and 3% for the next five, well below the SaaS record, and then hold earnings flat for ten years and fade to zero over another ten, since we cannot point to a named driver beyond that. New products, market expansion, margin gains and acquisitions (including the $113M spent in 2025) are left out. Year one growth of 5% compares with a trailing 2025 reported figure of +51%, which is working-capital noise, so the assumption is well under the trailing actual rate. Bull case ($36.40). The existing engine keeps running: 8% annual growth for ten years, still below the 9-11% SaaS growth rate already shown, then 3% for five years and a fade to zero. It starts from a slightly higher base ($1.75) reflecting the stronger 2024-2025 cash conversion. What would make this wrong. Loss of ADT or a large dealer, a sharp fall in the renewal rate, or hardware margin pressure would push toward the bear case. The main uncertainty in the base case is the earnings level: if the 2025 working-capital outflow is a real, recurring cost, cash earnings are nearer $1.3 per share and value is lower. We could not reconcile every 2025 working-capital movement from the filing beyond the payables and tax-payable declines above. The margin-of-safety price is about $15 per share, which leaves a wide margin below the base case for customer concentration, leverage and stock-compensation dilution.