Release Date: February 27, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Arlo Technologies Inc (NYSE:ARLO) achieved significant growth in its subscription business, with annual recurring revenue (ARR) surpassing $250 million, growing over 20% year-over-year.
• The company reported a gross margin on service revenue above 80%, highlighting the efficiency and profitability of its subscription model.
• Arlo Technologies Inc (NYSE:ARLO) has nearly 11 million registered accounts and over 4.5 million paid subscribers, demonstrating strong customer acquisition and retention.
• The company is expanding its product lineup with the largest device launch in its history, expected to drive further growth and increase shelf space at major retailers.
• Arlo Technologies Inc (NYSE:ARLO) has formed strategic partnerships, such as with Rapid SOS and Origin Wireless, to enhance its service offerings and expand its market reach.

Negative Points

• The cost of customer acquisition increased from $100 to $200 in 2024, impacting profitability despite strong subscription growth.
• Product revenue declined by $22.1 million compared to the prior year, reflecting challenges in the hardware segment.
• Aggressive promotional activities in Q4 2024 led to decreased average selling prices (ASPs) and a decline in product gross margins.
• The company anticipates a potential temporary increase in churn due to the transition of subscribers to new service plans.
• Despite strong performance, Arlo Technologies Inc (NYSE:ARLO) trades at a lower revenue multiple compared to peers, suggesting that its market value may not fully reflect its growth potential.

Q & A Highlights

• Warning! GuruFocus has detected 2 Warning Sign with ARLO.

Q: Can you break down the factors contributing to the $300 million services revenue target for 2025? A: Kurt Binder, COO and CFO, explained that the target is driven by several factors, including ARPU expansion, increased subscriber volume, strategic partnerships, and favorable mix shifts. The company expects continued pricing increases and subscriber growth, supported by strategic partnerships and sales incentives.

Q: How will the transition to the new services platform affect existing subscribers, and how will you manage churn? A: Matt McCray, CEO, stated that the transition involves migrating existing subscribers to new plans based on consumer behavior data. The transition is expected to be completed by the end of February. While there might be a temporary increase in churn, the company expects it to stabilize within the historical range of 1.1% to 1.3%.

Q: With the largest device launch in company history coming up, how does this compare to previous launches, and why is product revenue growth expected to decline in 2025? A: Matt McCray highlighted that the launch will refresh nearly every camera in their lineup and expand into new segments. Kurt Binder added that despite the large launch, aggressive promotional activity and declining ASPs are expected to result in a decline in product revenue growth.

Q: How do you view the current customer acquisition cost (CAC) and its impact on the LTV/CAC ratio? A: Matt McCray noted that the current LTV/CAC ratio of 4 is considered world-class, and the company aims to maintain it between 3.5 and 5. The ratio may fluctuate as they optimize household formation and subscription growth.

Q: What is the expected rebound in product margins following the negative 12% in Q4? A: Kurt Binder indicated that while Q4 was heavily promotional, they expect product margins to rebound in Q1, potentially reaching neutral or positive levels, depending on market conditions.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.