06 Dec ShotSpotter Inc : A Long Shot Investment!
ShotSpotter, Inc. (NASDAQ: SSTI) manufacturers ShotSpotter® Flex™, a gun detection location and forensic analyses system, which use acoustic sensors with audio triangulation capability, to pinpoint where shots are fired. The Company offers an end-to-end precision policing platform that enables law enforcement to pre-empt and provide swift responses to violent situations where guns are discharged.
The Company has been in the news recently owing to reports questioning the cost, efficacy and social implications of its gunshot detection technology.
ShotSpotter, Inc. (NASDAQ: SSTI)
Market Cap: $388.57M; Current Share Price: 33.28 USD
Data by YCharts
Strength
The system can provide information on the type of weapon used, based on a machine learning based sound analysis. These incidents are reported to the review centre, which makes further analyses about the nature of weapons and the number of shooters, resulting in faster response time and a more calculated approach to tackling a volatile situation. The system sends notifications to dispatch centres and officer smartphones, and reduces alert time from shots fired to notification, to less than 60 seconds. The location information also provides access to the exact place so that evidence collection becomes easier.
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The Company is establishing strategic collaborations with schools, colleges and even hospitals to improve patient outcomes by alerting hospitals of possible gunshot victims, thereby providing quicker access to critical healthcare and improving their chances of survival. Shot Spotter recently signed a three-year, $4.27 million contract with the Puerto Rico Public Housing Authority to deploy its gunshot detection technology, making it its fifth-largest ShotSpotter customer, after completion of deployment. The technology has already been installed in over One hundred U.S. cities including Chicago, New York, Las Vegas and Miami-Dade County.
In April 2021, the technology was adopted by the Memphis Police Department, across 3 square miles in the Orange Mound area, to tackle a rise in gun violence. The Company has added three new cities, scored seven expansion contracts and landed two new campus customers as per its Q3,2021 financial results.
As per its Q3,2021 financial results, the Company’s revenues increased by 28 percent to $14.5 million from $11.4 million for the same period last year. The gross profit increased by 25% to $8.0 million (55% of revenues) from $6.4 million (57% of revenues) for the same quarter of 2020. The Company had $13.1 million in cash and cash equivalents, in addition to a $20 million available line of credit.
The Company’s financial outlook for full year 2021 pegs the revenue at $60 million to $61 million, a 32% year-over-year growth, while it estimates the revenues for 2022 to be in the range of $71.0 million to $73.0 million.
Weakness
In October 2021, the Company filed a $300 million defamation lawsuit against Vice Media, a news agency which has levelled charges of data manipulation and ineffective gunshot detection system against ShotSpotter.
The lawsuit, which has been filed in the Superior Court of Delaware, states that Vice intentionally misrepresented court records and accused the company of illegal behavior such as changing data from the Company’s microphone sensors to support criminal prosecutions. Vice alleged that in one instance, ShotSpotter had changed the location of gunfire by more than a mile, which the Company strongly refutes.
In August 2021, the Associated Press identified critical flaws in using ShotSpotter as evidentiary support. Issues raised include instances when the system misses live gunfire, raising false alarms for fireworks and cars backfiring. The Company’s claim that the technology is virtually foolproof has been disputed repeatedly, as there is a very big chance for human bias as analysts can change the source of the sound picked up by a sensor. There have been instances when employees have modified the source and the number of shots fired at the request of the police as per the report.
There are also questions raised about racial bias as these systems are generally installed in neighborhoods that are at a high risk for gun violence that are majorly Black and Latino communities. A study published in the peer-reviewed Journal of Urban Health reviewed data from 68 large metropolitan counties, from 1999 to 2016, which were using Shot Spotter and found that neither was there any reduction in gun violence nor were the communities any safer for the investment.
In addition, there are questions raised about the efficacy of the technology, the lack of transparency with respect to the systems and algorithms and allegations of data manipulation against the Company.
Opportunity
According to a report by Gun Violence Archive, there have been over 599 mass shootings in 2021 so far, with 611 in 2020 and 417 in 2019. The COVID-19 pandemic and the subsequent social and economic difficulties have led to an increase of these incidents. Lenient gun laws that allow easy access to weaponry and increased unrest and anti-social activities are driving the growth in the gunshot detection systems market, which is expected to be worth over USD 1,041 million by 2026 growing at a CAGR of 8%, from USD 650 million in 2020.
A Gunshot detection system uses sensors and advanced analytical tools to detect the location of a gunshot being fired. These typically use acoustic or optical sensors that can detect both indoor and outdoor discharge of weapons.
North America and Europe are facing increased terror threats due to the rise of militant organizations such as ISIS and even domestic mass shooting incidents. A study by economists Jillian Carr and Jennifer Doleac that studied ShotSpotter data suggests that only 12 percent of gunfire incidents were reported to 911. Even though the data may also include false positives and the accuracy may be less than desired, it still shows the level of underreporting that occurs in cases where there was no injury, death or accidental discharge by minors. However, these cases need to be detected and reported to control violence and crime in the society.
The present-day systems for weapons and explosives detection rely on explosive trace detectors, Tomographic EDS, X-Ray Screening systems and metal detectors. However, they are limited by their lack of convenience. They are usually cumbersome and time-consuming and slow down the functioning of a place such as airports or hospitals.
Security forces are ill-equipped to preempt and prevent these deadly attacks due to a lack of advanced detection systems. There is an urgent need for the development of cutting-edge technology that can help detect any such threats, but in an unobtrusive manner. Increasing adoption of advanced technologies such as artificial intelligence and big data has the potential to transform and drive the growth in the market.
Threat
Technology is a constantly evolving field. A breakthrough innovation of today can easily become outdated in a matter of years. To sustain in such a highly competitive environment, companies need to constantly be one step ahead of the competitors in research and development and delivering highly differentiated experiences for their customers.
There is a possibility of a new and better technology emerging in the market, which may render the Company’s technology obsolete. Customers may opt to go with its competitors for their business needs and the Company may fail to acquire new customers or not be able to achieve its targeted growth.
Shot Spotter has been facing increasing criticism and questions are being raised about the efficacy of its technology. A report published by the City of Chicago’s Inspector General (IG) raises questions about the “operational value” of the technology and its negative impact on communities of color. Other reports that raise similar concerns include one from the Northwestern School of Law’s MacArthur Justice Center.
Key Takeaways
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References
https://www.mordorintelligence.com/industry-reports/gunshot-detection-system-market
https://edition.cnn.com/2021/11/01/us/mass-shootings-halloween-weekend/index.html
https://hwnews.in/international/halloween-violence-12-dead-and-52-injured-in-us/171618
https://www.vox.com/2016/4/28/11520950/gun-violence-america-shotspotter
https://www.govtech.com/biz/shotspotter-sues-vice-media-over-gunshot-detection-claims
https://www.shotspotter.com/system/content-uploads/ShotSpotter_Fact_Sheet_-_final_draft_12.13.pdf
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