ShotSpotter Stock: Fighting Crime in Smart Cities
They say you should never discuss religion, sex, or politics on a first date. If you’re on a date with an American, add three more things to that list – abortion, gay marriage, and gun control. As for the latter, about half of Americans fall into the camp that believes there will be far fewer daily drive-bys in Chicago if we controlled guns more. And the other half fall into the “cold dead hands” camp who (probably correctly) assume that the only way anyone in their right mind would live in Chiraq is if they were armed to the teeth.
Regardless of what camp you pitch your tent in, gun crime isn’t going anywhere. One company that’s making some decent coin off gun-related crime is ShotSpotter (SSTI).
About ShotSpotter Stock
Founded in 1996, Newark, California company ShotSpotter became publicly traded in 2017 and currently sports a market cap of around $550 million. As the company’s name implies, their core product offering is a proprietary gunshot detection technology – ShotSpotter Respond – that’s been adopted by law enforcement agencies around the globe. More than 80% of gunshots aren’t reported to police, so there’s a clear use case for a technology that detects gunfire.
When a gunshot happens, acoustic sensors pick up the sound with AI algorithms authenticating the sound as being an actual gunshot, while using triangulation to identify the precise location.
The data is relayed to an incident review center which then sends alerts to dispatch centers and patrol officers’ smartphones. The entire process takes less than 60 seconds.
Over 115 cities and municipalities (nearly all of which are in America) are covered by ShotSpotter’s 18,000 sensors that have alerted on more than 230,000 gunshots. All that data is being used to add additional value such as “data driven patrol planning” which helps under-resourced police departments figure out the best places to be and at what times. Best of all, the whole thing is available via a software-as-a–service (SaaS) business model which is showing rapid growth and the potential for strong profitability in the future with a 100% retention rate recorded for the past three years running.
For 2020, their two largest customers, City of Chicago and City of New York, accounted for 18% and 15% of their revenues, respectively.
The market for what ShotSpotter refers to as “precision policing” isn’t all that big – a $2 billion total addressable market (TAM).
That’s where ShotSpotter needs to look beyond their core platform for additional opportunities to expand their product offering.
ShotSpotter has put themselves in somewhat of a bind by naming their firm after their core product. This makes it more difficult to brand themselves as a company that offers public safety solutions outside of just a gunshot detection platform. Surprisingly, the company doesn’t articulate these aspirations very strongly in their investor deck, and they certainly should. Once you have your hands in the pockets of law enforcement communities around the globe, especially ones that love your product, selling them more things becomes easier.
At least in America, police departments could use the help. For reasons unknown, there’s a contingent of people who think that the way to reduce crime is to reduce police department budgets. That goes against at least one comprehensive study of U.S. policing from 1960 to 2010 that found every $1 spent on police generates $1.63 in social benefits, primarily by reducing homicides. Late last year, ShotSpotter acquired the CrimeCenter line of investigative case management software, which ShotSpotter estimates will increase the company’s U.S. law enforcement total addressable market by over 45%. But that’s just the tip of the iceberg. We’ve previously looked at 8 Companies Using AI for Law Enforcement, and 11 Public Safety Solutions for Smart Cities Using IoT. In addition to those 19 examples of companies using tech to fight crime, we had our crack team of MBAs identify a few more interesting companies ShotSpotter could get into bed with.
Flock Safety Fights Vehicle Crime
Founded in 2017, Atlanta startup Flock Safety has taken in just over $230 million in funding to develop a solution that tracks vehicles. Over 70% of crime occurs with a vehicle, and Flock Safety is able to capture vehicles traveling up to 100 mph and up to 75 ft. away – day and night – and even vehicles without visible plates.
The ability to monitor the movement of vehicles is remarkably effective in preventing crime, and consequently, adoption is growing like mad. Flock Safety now serves over 1,200 communities in 40 states across the U.S. and works with over 700 law enforcement agencies. Based on that reach, Flock’s tools now assist in nearly 1% of total crime reported in America. The company’s stated goal is to reduce crime by 25% over the next three years. It may not have the same feel-good elements as keeping turtles from eating plastic, but this investment should be a no-brainer for all the ESG types.
SmartWater – Nanotech Thwarts Burglars
Don’t let their 1980s website fool you. London’s own SmartWater is doing some high-tech stuff. The company has been around since 1993, but is only now making traction with a remarkable product that uses the power of nanotechnology to track people and objects. It’s a liquid called “SmartWater” that contains a unique signature which can be viewed using ultraviolet (UV) lights. For example, you might mark all your most valuable items with a dab of the product, and if they’re ever stolen, you may be able to track down who did it. Here’s a real-world example of an actual thief caught using SmartWater.
Last week in Virginia, the first instance of a burglar being caught using SmartWater was recorded. Says the Richmond Times-Dispatch:
The Sheriff’s Office, which operates the Chesterfield Jail, installed a SmartWater detection camera in a small vestibule where all new prisoners pass through before they are booked on charges.Credit: Richmond Times-Dispatch,
After being deployed in 70 Florida neighborhoods, police saw a 38% reduction in burglaries. Around 98% of businesses that openly advertise the use of SmartWater to protect their valuable possessions are not burgled. Perhaps someday, every police station will have UV lights installed in this manner.
To Buy or Not to Buy
Being a $550 million company puts ShotSpotter well under our minimum market cap requirement of $1 billion. That being said, we like the business model they’ve put together so far, and see lots of potential for the company to expand into other areas of public safety. A lack of liquidity implies that the stock may be flying under the radar, and a simple valuation ratio of around 9 shows that the stock would be hardly considered richly valued. We also need to consider they’re overly exposed to one country with nearly all revenues coming from America, not to mention the customer concentration risk coming from New Yawk and Chicago. We’ll add the company to our stock catalog as a “like” and try to keep an eye on what they get up to.
Smart cities don’t just fight crime by adding more technology. Crime is also a cultural problem that results from poverty and a lack of positive male role models for today’s youth. The Americans need to address things that are uncomfortable to talk about, like the prevalence of “no snitching” culture, or the glorification of gun violence in certain music genres. Until we address the root causes of gun violence, the next best thing is to address the symptoms using technology platforms like ShotSpotter.
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