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Arlo: A Growth Stock Underappreciated By The Investment Community

Mar. 01, 2021 5:08 PM ETArlo Technologies, Inc. (ARLO)28 Comments


  • Arlo’s new business model is transforming the company into a SaaS business with 50%+ service gross margins expected in 2021.
  • Based on management guidance of 1M+ paying subscriber accounts by the Q4 2021 earnings call, Arlo is on track for break-even (sustained profitability) in the Q4 2022–Q2 2023 range.
  • The stock may be underappreciated as comparative analysis to sector and industry average TTM P/Es implies a potential 94% to 272% return by end of 2025.


Arlo Technologies (ARLO) is a compelling DIY security spin-off and growth investment opportunity in an expanding and modernizing safety and security industry. The company reported Q4 2020 earnings on 23-Feb-2021 with GAAP EPS of -$0.19 beating by $0.10 and revenue of $114.8M (-6.2% YoY) beating by $3.23M.

The most significant development was management substantiation of the success of the new business model, as evidenced by 3 quarters of results and accelerating total paid accounts reaching 435,000, representing 89% YoY growth. Arlo’s CEO and CFO confidently guided for 1M paying subscriber accounts by the Q4 2021 earnings call. The implications of this milestone, if achieved, are profound for both the company and the investment community.

Source: Arlo’s Q4 2020 Earnings Call Presentation

New Business Model

Arlo’s shift to and focus on paid subscriber accounts yields much appreciated visibility to recurring software revenues. On the Q4 2020 earnings call, Arlo’s management guided for $400M in revenue for fiscal year 2021, with $300M in product sales with mid-teen digit product gross margins and $100M in software revenue with 50%+ services gross margins. In order to reach the 1M paying subscriber accounts milestone by the Q4 2021 earnings call, the company would need to see an addition of 565K accounts throughout 2021, with most of the accounts likely being gained in Q3 & Q4 2021 due to seasonality.

Prudently, Arlo already has 5.05M registered accounts (only 425K are currently paid subscriber accounts), and as such the quarterly rate of 141K added paying accounts appears sustainable beyond 2021. Per the earnings call, there is a 50% conversion rate after the initial 90 day free trial expires, and for cohorts followed over a 6-month period, this conversion rate reaches 65%. This provides the company with plenty of opportunities to capture subscribers from both new purchasers of Arlo’s cameras or from existing non-paying registered users

This article was written by

Avid long term oriented investor with an interest in value, growth, and special opportunity (spin-offs, insider trading) investing styles. Strong believer in identifying companies with competitive advantages in order to avoid stock investment losses. Self-educated.My expertise and unique investing style has arisen as a result of nearly a decade of professional experience in three highly regulated industries (aerospace and defense, medical devices, and pharmaceuticals) inclusive of work experience within the telecommunications and customer service industries. An engineer by education, a project director at work, and a writer at home, I am meticulous and apt at both the qualitative and quantitative aspects of investment. Income statements, balance sheets, and cashflow statements are for me a pleasant read.

Analyst’s Disclosure: I am/we are long ARLO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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