Arlo Technologies Stock Forecast - Financhill

Arlo Technologies Stock Forecast

Arlo Stock Forecast: The Internet of Things (IoT) has gone from being a tech buzzword to a full-fledged phenomenon. According to projections by Energias Market Research, the global IoT market will reach $6.5 trillion in 2024, with a healthy annual growth rate of 27 percent.

In particular, the “smart home” is one of the most popular use cases of IoT. Consumers are increasingly captivated by the potential to create an interconnected network of electronic devices and appliances that can be remotely controlled and monitored.

There were an estimated 640 million smart home devices sold in 2018, and market research firm IDC projects that the industry may grow by 20 percent annually over the next several years.

While the best-known smart home devices are virtual assistants such as the Amazon Echo and Google Home, there are a wide array of home IoT products on the market.

Arlo Technologies [NYSE: ARLO] is a relative newcomer in the field of smart homes, only launching its IPO in 2018. What’s the current state of Arlo Technologies stock, and how are shares of Arlo expected to perform in the future?

What Does Arlo Technologies Do?

Arlo Technologies [NYSE: ARLO] is a home automation company that produces “smart” security products, including cameras, baby monitors, doorbells, and security lights. It was founded in 2014 as a division of the computer networking company NETGEAR, and then spun off into its own independent company in 2018, with an IPO in August of last year.

Specifically, Arlo’s flagship products are its fleet of security cameras: the Arlo, Arlo Pro, Arlo Pro 2, and Arlo Ultra. The cameras are differentiated by the resolution of their video feeds, as well as additional security features. The company outsources its manufacturing to Chinese firms such as Foxconn.

Matthew McRae is the current CEO of Arlo, after joining NETGEAR in 2017 as senior vice president of strategy. The company is headquartered in San Jose, California and employs roughly 300 people.

The main competitors of Arlo Technologies [NYSE: ARLO] include other manufacturers of security products and smart home devices, such as Nest (a division of Alphabet, better known as Google), Ring, Tend Insights, Ecobee, and Netatmo.

What are the Risks of Buying Arlo Technologies?

Like other IoT companies, Arlo has good reason to worry about the security of its products. IoT security has been a highly discussed topic, especially for smart home devices. In 2018, for example, a benevolent hacker started speaking to an Arizona man through his Nest security camera, warning him that he could take control of the device.

For its part, Arlo recently patched two similar vulnerabilities in its products that would allow a local attacker to seize control of a security camera. News of a critical vulnerability in Arlo’s products could easily send share prices plunging downwards.

Another risk for Arlo investors is the stiff competition that the company faces in the IoT smart home industry. Google’s acquisition of Nest in 2014 means that at least one major tech player is interested in the smart security camera space.

Unfortunately, Arlo has been a serious disappointment for investors ever since the IPO. Shares debuted at the price of $16 in August 2018, but rapidly sank below it beginning in September. After starting off 2019 with a price of $9, shares of Arlo plunged to less than half of this figure by halfway through the year.

In Q2 2019, Arlo reported revenue of $84 million, a 25 percent decrease year over year. Still, there was some good news for the company: paid Arlo subscribers grew by 83 percent in the second quarter.

Is Arlo Technologies a Buy?

With the risks above in mind, what are some good reasons to purchase Arlo stock?

For one, the company has ambitious plans for the second half of 2019. Before the end of the year, Arlo currently expects to launch its all-in-one security system that will integrate with its existing suite of cameras. This system will include four components: a security hub, a multi-purpose sensor, a remote control, and a siren.

In addition, Arlo Technologies [NYSE: ARLO] is also launching a new “Works with Arlo” program in H2 2019 that will allow third-party connections to other smart devices such as locks, speakers, and lights. IoT smart home products that use the Zigbee or Z-Wave protocols will be able to connect to Arlo’s SmartHub for easier monitoring and management.

While Arlo’s Q2 2019 results were underwhelming for investors, Q1 results offered a brighter picture. According to CEO McRae, in the first quarter Arlo “exceeded guidance for all metrics, delivered 89 percent paid subscriber growth year over year, and maintained our market leadership position.” Q1 2019 revenue was $58 million, improving on estimates of $50 million.

Arlo Technologies Stock Forecast: Summary

Since the company’s IPO, Arlo Technologies [NYSE: ARLO] has struggled to transform impressive growth in the IoT smart home market into success for the company itself.

Arlo’s choice to offer a smart home hub that extends beyond its flagship suite of cameras indicates that the company likely plans to compete against smart home titans such as Amazon and Google.

While it’s a risky move, it could pay off big for Arlo if the company can offer a high-quality product and user experience.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.