On Tuesday, Lake Street Capital Markets maintained a positive outlook on shares of Arlo Technologies (NYSE:ARLO), reiterating a Buy rating with a $17.00 price target. The firm's stance is rooted in the belief that the market has yet to fully recognize Arlo's evolution into a subscription-based model with recurring revenue. According to the firm, there is potential for the company's valuation multiples to expand as it continues to grow its service revenue, which is expected to account for 50% of total revenue.
The company has reportedly navigated the difficult consumer market of 2023 effectively, which bodes well for its future performance. The extension and enhancement of the Verisure contract, along with a strategic focus on partnerships, are anticipated to drive growth in paid subscriptions for Arlo. The target is to reach 10 million paid subscribers, positioning the company for success in the competitive do-it-yourself (DIY) security market.
Lake Street Capital Markets highlights Arlo's favorable position to become a leading player in the high-growth DIY security market. The firm's reiterated price target of $17.00 reflects confidence in Arlo's strategy and its potential for a revaluation catalyst driven by an increasing share of service revenue in its business model.
Arlo Technologies' progress towards its goals, including the significant milestone of reaching 10 million paid subscribers, is seen as a key factor in the company's favorable prospects. The emphasis on strategic partnerships and the renewed Verisure contract are expected to contribute to the company's growth trajectory in 2024 and beyond.
In other recent news, Arlo Technologies reported significant growth for the second quarter of 2024. The company's total revenue reached $127 million, an 11% increase from the previous year, bolstered by a 74% surge in paid accounts, now totaling 4 million. The emphasis on service offerings yielded a 21% increase in annual recurring revenue, which climbed to $235 million. Non-GAAP earnings per share also saw a remarkable 171% year-over-year increase, reaching $0.10.
Arlo Technologies anticipates the latter half of 2024 to mirror the performance of the same period in 2023. The company plans to engage in aggressive promotions during the holiday season and aims to expand its market influence through strategic partnerships with Verisure and Allstate (NYSE:ALL), while exploring additional collaborations.
Among recent developments, Arlo Technologies expects Q3 revenue to range between $132 million and $142 million. The company is also aiming to expand retail partnerships and foresees a 20% year-over-year growth in service revenue. Non-GAAP service gross margins are projected to be at or slightly above 75% for the entire year of 2024.
Despite facing macroeconomic headwinds and lower average selling prices, the company's strategic partnership with Allstate and strong international revenue, which accounted for 50% of total revenue, support its increasing market share.
InvestingPro Insights
Arlo Technologies (NYSE:ARLO) is currently navigating a transformative phase, shifting towards a subscription-based model that promises more stable, recurring revenue. With a market capitalization of $1.18 billion, the company's financial health is underpinned by holding more cash than debt on its balance sheet, an InvestingPro Tip that aligns with Lake Street Capital Markets' optimistic view. Another InvestingPro Tip highlights that Arlo's net income is expected to grow this year, which supports the firm's assertion of potential valuation multiple expansion as the service revenue becomes a larger part of the business.
InvestingPro Data reveals a 9.3% revenue growth over the last twelve months as of Q2 2024, indicating a steady upward trajectory. Despite not being profitable over the last twelve months and trading at a high Price / Book multiple of 11.93, analysts are predicting profitability for the current year. The company's stock price movements have been quite volatile, which could be seen as a reflection of the market's anticipation of Arlo's strategic moves, including the expansion of paid subscriptions. Moreover, Arlo's strong return over the past five years suggests resilience and a capacity for growth, even as it does not currently pay a dividend to shareholders.
For readers seeking a deeper dive into Arlo's financials and future outlook, there are additional InvestingPro Tips available, which provide more nuanced insights into the company's performance and potential. These tips can be found at: https://www.investing.com/pro/ARLO
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