Arlo Technologies (NYSE:ARLO) reported higher third-quarter revenue and profitability as its subscription business expanded, and management said it expects to target roughly 30% growth in annual recurring revenue in 2027.
Total revenue rose 7% from a year earlier to $149.2 million, including $96 million from subscriptions and services, up 20%. Paid accounts increased 23% to 6.6 million, while annual recurring revenue, or ARR, rose 14% to $370 million.
Chief Executive Officer Matthew McRae said the company’s 2027 ARR target is based on expected growth from strategic accounts, its Arlo Secure 7 offering and its Aloe Care business. He said the target does not include substantial revenue from new partnerships that have yet to be announced.
Subscriptions Drive Margin Expansion
Subscriptions and services accounted for almost two-thirds of third-quarter revenue, marking the fourth consecutive quarter in which they represented at least 60% of the total, Chief Operating Officer and Chief Financial Officer Kurt Binder said.
Product revenue was $53.1 million, down from both the preceding quarter and the year-earlier period. Binder attributed the decline to the timing of Amazon Prime Day and related promotional activity affecting industrywide average selling prices.
Arlo’s non-GAAP gross margin increased 760 basis points year over year to 49%, helped by the greater share of subscription and services revenue. Adjusted EBITDA rose 58% to $26.9 million, with an 18% margin. Non-GAAP earnings per diluted share were $0.24, up 50% from a year earlier, according to McRae.
Non-GAAP operating expenses increased 13% to $46.5 million. Binder said the increase reflected additional staff to support strategic partners, along with research, development and marketing investments.
For the first nine months of 2026, adjusted EBITDA rose 71% to $88 million, while free cash flow was $51 million. Arlo ended the quarter with $144 million in available cash, cash equivalents and short-term investments.
Partnerships and New Plans Underpin 2027 Target
McRae said Arlo’s integration with Comcast remains on schedule for a mid-2027 launch and could make Comcast its largest strategic partner. He said the rollout is expected to expand by region, with the full-year impact likely to come in 2028.
Arlo’s partnership with ADT is also progressing as planned, McRae said, with ADT expanding the assortment of its do-it-yourself ADT Blu solution ahead of a broader push in 2027. He said the company was in discussions or negotiations with several potential new partners and was reasonably confident it could announce some within the next two or three quarters. Most of their impact would more likely come in 2028, he added.
The company has rolled out Arlo Secure 7, including an artificial intelligence-powered threat assessment feature and a $50-per-month plan that includes continuous video recording for up to three cameras. McRae said approximately 6% of new users were selecting the new tier without marketing support.
McRae also expects a strong ramp in Aloe Care, which focuses on aging in place. He said strategic accounts, Arlo Secure 7 and Aloe Care are the three main components behind the 2027 ARR growth target. The CEO said Arlo plans to provide more detail on its 2027 operating plan during its year-end earnings call.
Management’s confidence in future growth also contributed to its decision to approve a substantially larger stock buyback program, McRae said. He did not specify the program’s size on the call.
Holiday Promotions and Fourth-Quarter Outlook
Arlo is emphasizing doorbells and multi-camera kits in its holiday promotions because its customer data shows those products have a greater likelihood of leading to subscriptions, McRae said. During the recent Amazon Prime event, overall units grew 7% year over year and multi-camera kit units rose 41%, he said.
Binder said the company had built inventory ahead of an aggressive fourth-quarter promotional period and had planned shipments to make greater use of ocean freight. Inventory ended the third quarter at $52.3 million, up from $44.4 million a year earlier.
For the fourth quarter, Arlo forecast revenue of $137 million to $147 million, with subscriptions and services contributing more than 70% of the total. It projected non-GAAP net income per diluted share of $0.17 to $0.23.
About Arlo Technologies (NYSE:ARLO)
Arlo Technologies, Inc is a smart home security company that develops connected devices and cloud-based services designed to help consumers monitor and protect their homes, businesses and other properties. Its product portfolio includes wire-free and wired security cameras, video doorbells, floodlight cameras, home security systems and related accessories.
Arlo’s products typically connect through mobile applications and cloud services, providing features such as live video, motion detection, two-way audio, night vision and notifications.
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