Arlo Technologies (ARLO)

Smart security company Arlo (NYSE:ARLO) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 1.4% year on year to $139.5 million. The company expects next quarter’s revenue to be around $136 million, close to analysts’ estimates. Its non-GAAP profit of $0.16 per share was 8% above analysts’ consensus estimates.

Company Overview

Originally spun off from networking equipment maker Netgear in 2018, Arlo Technologies (NYSE:ARLO) provides cloud-based smart security devices and subscription services that help consumers and businesses monitor and protect their homes, properties, and loved ones.

Companies in this sector, especially if they invest wisely, could see demand tailwinds as the world moves towards more IoT (Internet of Things), automation, and analytics. Enterprises across most industries will balk at taking these journeys solo and will enlist companies with expertise and scale in these areas. However, headwinds could include rising competition from larger technology firms, as digitization lowers barriers to entry in the space. Additionally, companies in the space will likely face evolving regulatory scrutiny over data privacy, particularly for surveillance and security technologies. This could make companies have to continually pivot and invest.

Arlo Technologies competes with other smart security providers including Ring (owned by Amazon), Google Nest, SimpliSafe, ADT (NYSE:ADT), and Wyze, as well as traditional security companies and telecommunications providers that offer security services.

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $509.6 million in revenue over the past 12 months, Arlo Technologies is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels. On the bright side, it can grow faster because it has more room to expand.

As you can see below, Arlo Technologies’s 6.9% annualized revenue growth over the last five years was decent. This shows its offerings generated slightly more demand than the average business services company, a helpful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. Arlo Technologies’s recent performance shows its demand has slowed as its annualized revenue growth of 3.6% over the last two years was below its five-year trend.

This quarter, Arlo Technologies reported modest year-on-year revenue growth of 1.4% but beat Wall Street’s estimates by 0.6%. Company management is currently guiding for a 11.9% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 8.3% over the next 12 months, an improvement versus the last two years. This projection is commendable and indicates its newer products and services will fuel better top-line performance.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Although Arlo Technologies broke even this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 7.3% over the last five years. Unprofitable business services companies require extra attention because they could get caught swimming naked when the tide goes out.

On the plus side, Arlo Technologies’s operating margin rose by 13.5 percentage points over the last five years, as its sales growth gave it operating leverage. Still, it will take much more for the company to reach long-term profitability.

In Q3, Arlo Technologies’s breakeven margin was up 4.1 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Arlo Technologies’s full-year EPS flipped from negative to positive over the last five years. This is a good sign and shows it’s at an inflection point.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

Arlo Technologies’s EPS grew at an astounding 120% compounded annual growth rate over the last two years, higher than its 3.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into Arlo Technologies’s quality of earnings can give us a better understanding of its performance. Arlo Technologies’s operating margin has expanded over the last two years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q3, Arlo Technologies reported adjusted EPS of $0.16, up from $0.11 in the same quarter last year. This print beat analysts’ estimates by 8%. Over the next 12 months, Wall Street expects Arlo Technologies’s full-year EPS of $0.58 to grow 25.6%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Arlo Technologies has shown weak cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.9%, subpar for a business services business.

Taking a step back, an encouraging sign is that Arlo Technologies’s margin expanded by 16.5 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

Arlo Technologies’s free cash flow clocked in at $14.98 million in Q3, equivalent to a 10.7% margin. The company’s cash profitability regressed as it was 1.9 percentage points lower than in the same quarter last year, but it’s still above its five-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, causing short-term swings. Long-term trends trump temporary fluctuations.

Companies with more cash than debt have lower bankruptcy risk.

Arlo Technologies is a well-capitalized company with $165.5 million of cash and $7.21 million of debt on its balance sheet. This $158.3 million net cash position is 8.6% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly Arlo Technologies's EPS guidance for next quarter blew past analysts’ expectations. We were also glad its revenue, EPS, and EBITDA outperformed Wall Street’s estimates. Overall, we think this was a decent quarter with some key metrics above expectations. Investors were likely hoping for more, and shares traded down 2% to $16.59 immediately following the results.

Updated: December 4, 2025 at 10:10 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Arlo Technologies is a fine business. To begin with, the its revenue growth was good over the last five years, and analysts believe it can continue growing at these levels. And while its operating margins reveal poor profitability compared to other business services companies, its rising cash profitability gives it more optionality. On top of that, its expanding operating margin shows the business has become more efficient.

Arlo Technologies’s P/E ratio based on the next 12 months is 19.3x. When scanning the business services space, Arlo Technologies trades at a fair valuation. For those confident in the business and its management team, this is a good time to invest.

Wall Street analysts have a consensus one-year price target of $23.20 on the company (compared to the current share price of $14.37), implying they see 61.5% upside in buying Arlo Technologies in the short term.