Arlo Technologies Shows Strong Margin Growth Amid New Product Releases

Arlo Technologies has demonstrated impressive margin progression despite a slew of product releases. The company's stock market outcome has been a top-heavy market, with investors favoring popular trades like Microsoft. The small/mid-cap space has seen less investor attention, but Arlo's margin growth is a positive sign for the company.

Title: Arlo Technologies' Margin Progression: A Positive Sign for the Small/Mid-Cap Space

Arlo Technologies has shown impressive margin progression despite a series of new product releases. The company's stock market performance has been noteworthy, with investors increasingly favoring popular trades like Microsoft. This has left the small/mid-cap space with less attention, but Arlo's margin growth is a positive sign for the company.

In its Q2 2025 earnings report, Arlo Technologies reported a significant increase in its subscription and services revenue, which now accounts for 60% of total revenue [1]. This shift towards a services-first model has been a key driver of the company's profitability. Arlo achieved a record non-GAAP service gross margin of 85% and expanded its consolidated margins by 800 basis points to 46% [1].

The company's ability to maintain and expand margins despite product releases and challenges like tariffs underscores its operational discipline. This margin expansion is rare in a sector historically plagued by price competition and thin hardware margins. Arlo's focus on high-margin services has driven this impressive growth.

The partnership with ADT, announced in Q2, is expected to drive material revenue growth starting in 2026. This strategic alliance positions Arlo to capture a significant share of the $100 billion smart home market through recurring revenue scalability [1]. The company's free cash flow of $34 million in the first half of 2025 demonstrates its ability to convert growth into liquidity, further bolstering its financial position.

Despite the competitive nature of the smart home sector, Arlo's 85% service gross margin and strategic partnerships provide a buffer against potential headwinds. The company's 14% EBITDA margins and $335 million ARR target reinforce its transition from a speculative play to a proven scalable business [1].

For long-term investors, Arlo's Q2 results present a rare alignment of financial strength, strategic clarity, and market potential. The company's full-year service revenue guidance of $310 million and ARR target of $335 million by year-end signal confidence in its trajectory [1]. While the stock may still trade at a discount to its intrinsic value, the improving fundamentals and market momentum suggest that patience will be rewarded.

References:
[1] https://www.ainvest.com/news/arlo-technologies-strong-q2-earnings-signal-strategic-buy-opportunity-2508/