1 Current Tech IPO to Placed on Your Radar

Property technology company Latch (NASDAQ:LTCH) recently went public via a special purpose acquisition company (SPAC) merger, and quite frankly, some people are apprehensive about investing in a company with a $1.7 billion market cap that did just $6.6 million in revenue last quarter. However, in this Motley Fool Live clip, recorded on June 10, Motley Fool contributors Matt Frankel, CFP, and Brian Withers discuss why Latch could be such a tremendous opportunity as commercial real estate upgrades to 21st century technology. 

Matt Frankel: Latch’s market cap is about $1.7 billion at the current market cap. Just to give you a little rundown of the business, the name Latch comes from locks, like latches on a building. Latch is a smart home technology company. They work on both sides of the business, hardware and software. Their core product is what they call a whole building operating system for apartment buildings, things like that. They partner with companies like AvalonBay (NYSE:AVB), which is one of the biggest apartment real estate companies in the country. The fact that they have proprietary hardware that works with their operating system, they make their own smart locks, for example. The fact that they have their own proprietary hardware makes customer retention much better than it otherwise would’ve been. There are other players in the smart home space that have operating systems for buildings, but they’ll integrate with stuff made by Ring, they’ll integrate with stuff made by Nest. All these other smart home technology companies. Latch’s systems work with Latch’s products, which makes customer retention better. Since 2014, Latch has not churned the customer. That’s a pretty impressive statistic. They have over 368,000 apartment units on its platform right now, and they have not churned the customer, that’s pretty impressive. They are expanding their company into Europe and office buildings right now. The reason they are able to do that is because they just completed a SPAC merger because it’s 2021, why not? We’re going public through SPAC. They got about $450 million in cash by going public through SPAC. Some of that was from the SPAC itself, some of that was from a PIPE which is the funding round that usually happen with SPACs. Latch’s PIPE was led by Chamath Palihapitiya, his job is to promote his investments a little bit. But he called Latch the best Software-as-a-Service company he’s ever seen. That’s pretty high praise from a well-respected investor. It’s a small company right now by revenue, they did $6.6 million of revenue, not billion, million, in the most recent quarter. That doesn’t tell the whole story. The number you want to look is bookings. Latch books customers while the building is being built. For example, a high-rise apartment building might take two years from planning till when people are moving in. Latch will book a customer at the time it’s in the planning phase. Won’t actually start getting revenue until people start moving in two years later or however long it takes. Bookings tells you how much they’re doing. Latch booked $71 million of revenue in the most recent quarter, which is a much more palatable number. That’s what tells really the full story. It sees a $54 billion market opportunity in the building operating system market in the United States alone. Renting is a lot more common in Europe than here, they see a $90 billion market opportunity just expanding. I had CEO, Luke Schoenfelder on Industry Focus not long ago. He is a former Apple (NASDAQ:AAPL) executive. I don’t about you Brian, but I’ve listened to probably 1,000 CEO interviews in my time. A lot of them are great. They know their numbers, they know what they’re going to do in the businesses, they know what should grow revenue. Then you have some CEOs where you just get that vibe that the company is their baby, that they are all in on this, and that’s the vibe you get when you’re talking to Latch’s management team. That’s an intangible factor that really is important when you’re looking at investments. Have you looked at Latch at all Brian?

Brian Withers: Yeah. I got introduced when we did the Chamath Show and we covered all of the 14 different PIPEs and SPACs that he had on the burner, and Latch was one of my favorite of those 14. I really liked the recurring revenue stream, I really liked the predictability of revenue. When they book stuff in advance, that’s tremendous visibility, and then they are able smartly control their spending and how they’re investing. They are tremendously innovative. The batteries on their locks, I think last two or three years. It’s amazing some of the technology if you look into it.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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