ARLO TECHNOLOGIES, INC. (ARLO): what the price requires
At today's price, ARLO TECHNOLOGIES, INC. (ARLO) is priced for today's economics sustained for ~10.3 years. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-19 · Source: https://boothcheck.com/report/ARLO
Headline
| Field | Value |
|---|---|
| Ticker | ARLO |
| Company | ARLO TECHNOLOGIES, INC. |
| Current price | $13.09/sh |
| Composition | Subscriptions and services 60% / Products 40% |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin today | 1.7% |
| Must persist for | 10.3y |
| Multiple paid | 143x operating income |
Solve inputs: computed at a 12.5% cost of capital; growth searched up to the 48.7% self-funding ceiling; each 1pp moves the implied horizon ~0.8 years.
Reconcile: at the x-ray's 9.3% required return this reads ~7.7 years; the models below use their own rates.
How unusual the bet is: elevated (limited comparison data)
| Reference | Value |
|---|---|
| sustained it ~10 years at this level | 8% |
| implied end-window share | 0% |
Valuation X-Ray
Asset, earnings-power and peer-multiple models all land far below the price; ONLY the growth-DCF reaches it. The bet is durable compounding the static frames structurally cannot price (a moat/durability premium).
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 3.86x | 5 | expensive |
| Earnings | 2.93x | 4 | expensive |
| Relative | 1.85x | 5 | expensive |
| Growth | 0.81x | 3 | justifies |
Families that justify the price: Growth Families that call it expensive: Asset, Earnings, Relative
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 9.2%); the inversion above states its own rate.
Per-Model Detail (n=17)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $18.90 | 0.69x | yes | FCF base $0.1B, growth 11% (input: historical growth), terminal g 4.0%, WACC 9.2%, 6yr projection |
| DCF Exit Multiple | Growth | $16.22 | 0.81x | yes | Exit EV/EBITDA: 64.5x / 66.5x / 68.5x (bear / base = today's held flat / bull), 6yr |
| Relative Valuation | Relative | $7.09 | 1.85x | yes | P/E 26.76x (blended: static sector reference 18x + trailing (TTM) 47x), scenarios: 22.1x / 26.8x / 31.4x (bear / base = reference held flat / bull), EV/EBITDA 26.4x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $3.00 | 4.36x | yes | BV/sh $1.44, ROE (TTM) 19.2%, ke 9.3% |
| Two-Stage Excess Return | Asset | $4.27 | 3.07x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $11.90 | 1.10x | yes | Rev $0.6B, growth 11% (input: historical growth; tapered), Terminal P/S: 2.1x / 2.6x / 3.0x (bear / base = today's held flat / bull, cap 8x) |
| Peter Lynch Fair Value | Relative | $3.36 | 3.90x | yes | EPS $0.28, growth 2% (input: historical EPS growth), PEG=23.61 (Overvalued) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | — | — | no | — |
| Residual Income | Asset | $4.18 | 3.13x | yes | BV $1.44 + 5yr PV of (ROE (TTM) 19.2% − Kₑ 9.3%) × BV; BV grows 8.8%/yr |
| Graham Number | Asset | $3.01 | 4.35x | yes | √(22.5 × EPS $0.28 × BVPS $1.44) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $3.29 | 3.98x | yes | EBITDA $0.02B × sector EV/EBITDA 12.0x |
| FCF Yield | Earnings | $8.54 | 1.53x | yes | FCF $75.7M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | $2.17 | 6.03x | yes | SBC-adj FCF $0.01B (FCF $0.08B − SBC $0.07B) capitalized at Kₑ |
| Ben Graham Formula | Earnings | $9.03 | 1.45x | yes | EPS $0.28 × (8.5 + 2×15.0%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | $3.39 | 3.86x | yes | BV $1.44 × (ROIC 21.6% / WACC 9.2%) |
| P/Sales Sector | Relative | $12.68 | 1.03x | yes | Revenue $0.56B × sector P/S 2.5x |
| PEG Fair Value | Relative | $10.50 | 1.25x | yes | EPS $0.28 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x |
| Earnings Yield | Earnings | $3.03 | 4.32x | yes | EPS $0.28 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net cash | $152.6m |
| Net debt / NOPAT (after-tax) | -17.60x (net cash) |
| Net debt / operating income (pre-tax) | -17.13x (net cash) |
| Share count CAGR (dilution) | 6.7% |
| Burning cash | no |
Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.
Bullet Takeaways
- Arlo has flipped from a camera hardware maker into a subscription business: services now make up 60% of revenue, annual recurring revenue reached $356.9 million growing about 29%, and paid accounts crossed 6 million with monthly churn under 1%.
- The price already pays for the success: at roughly $13 a share the market is valuing the company at about 143 times its current operating income, a level only the most durable compounders ever grow into.
- The catch is what the cash flow hides: stock-based compensation consumes nearly all of reported free cash flow, and the share count has been rising about 7% a year, so the headline cash generation overstates what reaches existing owners.
Bull Case
The market is paying for a recurring-revenue business, and for once the fundamentals are actually delivering one. Annual recurring revenue reached $356.9 million in Q1 2026, up about 29% year over year, and services now account for 60% of total revenue. The filing shows the trajectory directly: "Annual recurring revenue (\"ARR\") $ 330,489 28.4 %" at the prior year-end, with cumulative paid accounts up 23.7%. This is the rare hardware-to-subscription pivot that has worked. The cameras are now the on-ramp; the recurring service fee is the destination.
The stickiness is what makes the recurring revenue valuable rather than just present. Monthly churn runs below 1%, which means the subscriber base compounds rather than leaks, and paid accounts crossed 6 million in the quarter, up 23% year over year. A subscriber who renews month after month at that retention rate is worth far more than the one-time margin on a camera, because the cost to acquire them is already sunk and the gross margin on the service is high. Gross margin expanded to 50.1% in the quarter as the service mix climbed. That margin expansion is the mechanical result of selling more software-like revenue against the same installed base.
The economics behind the multiple are what the bull leans on. Returns on the capital actually invested in the business are high, with a return on equity near 19% and a return on invested capital above 21%, because the subscription model needs little incremental capital to grow. The balance sheet carries about $153 million of cash and no debt, which funds the expansion into new monitoring categories without a raise. The market is paying a steep price, but it is paying for a genuine recurring-revenue engine that is growing its high-margin service line at close to thirty percent with a base that does not churn. The contrast with what the fundamentals show is not the usual gap between hope and reality; here the recurring revenue is real and accelerating.
Bear Case
Look at how the company pays its people before you look at the growth. Stock-based compensation consumes nearly all of Arlo's reported free cash flow: of roughly $76 million in free cash flow, about $67 million goes back out as stock compensation, leaving only a sliver of cash that is not effectively being handed to employees in shares. The result shows up in the share count, which has been rising about 7% a year. A holder watching the headline cash flow is watching a number that mostly funds dilution, not returns. For a business the market values on its cash generation, that is the central governance problem: the cash is real, but most of it is not the owner's.
The valuation makes that problem expensive. At about $13 a share the stock trades at roughly 143 times company-wide operating income, because the operating margin is still thin at about 2.7% on a GAAP basis even as the service mix grows. The methods that anchor on what the business has demonstrated land far below: the asset and earnings-power approaches cluster between $3 and $9, and only the methods that extrapolate years of high growth reach the price. Inverted, today's price implies growth held near the firm's self-funding ceiling for about a decade, and historically only about 8% of comparable fast-growers sustained that pace that long. The price is underwriting the subscription story continuing almost flawlessly for ten years.
The competitive and concentration risks make flawless execution far from guaranteed. The 10-K is blunt that "some of our competitors have substantially greater resources than we do" and that "current and potential competitors will also intensify their efforts to penetrate our target markets". The competitors in smart-home security are the largest technology companies on earth, several of which bundle cameras and monitoring into broader ecosystems and can subsidize hardware to win the subscription. The filing also flags customer concentration on the product side: product revenue fell "$54.9 million, or 20.5%" in 2025, "primarily due to the timing of device shipments from our largest customer in the EMEA". A 143-times multiple leaves no room for a churn uptick, a price war, or a single large customer pulling back, and the bear case is simply that the price has priced out all three.
Valuation
The cleanest way to see what the price is betting is to invert it. At about $13 a share, Arlo trades at roughly 143 times company-wide operating income, because the GAAP operating margin is still only about 2.7% even as the business shifts toward services. That multiple implies operating growth held near the firm's self-funding ceiling for about a decade. Keep the figure approximate; it is one solve under fixed assumptions. The bet is unambiguous: the price requires the subscription engine to keep compounding at close to its maximum sustainable rate for ten years, a pace only about 8% of comparable fast-growers have historically sustained.
The methods split sharply, which is the signature of an optionality premium rather than a value gap. The asset-value family, built on a tiny book value of $1.44 a share, lands between $3 and $4. The earnings-power and relative-multiple families, anchored on current GAAP earnings of about $0.28 a share, land between $3 and $9. Only the forward-growth family reaches the price: the cash-flow projections and the future-market-cap model land in the $12 to $19 range by crediting continued growth and holding today's multiple. When every backward-looking method says richly valued and only the growth methods reach the price, the price is a durability premium on the subscription transition, the kind the static frames structurally cannot price.
The balance sheet is clean and not the issue: about $153 million of cash, no debt. The issue the valuation has to confront is the quality of the cash flow that justifies the multiple. Reported free cash flow looks healthy, but once stock compensation is subtracted, the cash that actually accrues to owners shrinks to a fraction, and the share count grows about 7% a year to fund it. The decisive question the price poses is whether a recurring-revenue base growing near thirty percent, with sub-1% churn, can keep widening its margin fast enough to grow into a multiple this rich before competition or dilution erodes the per-share math.
Catalysts
The first quarter of 2026 was the strongest evidence yet that the subscription pivot is working. Revenue was $150.4 million, up 26% year over year, with services and subscriptions revenue of $90 million, up about 30% and now 60% of the total. Annual recurring revenue reached $356.9 million, up 29.2%, paid accounts crossed 6 million, up 23%, and gross margin expanded to 50.1%. The company reported adjusted EBITDA of $30 million and non-GAAP earnings per share of $0.28, both up over 85% year over year; these are company-defined measures, and the underlying driver is the rising mix of high-margin service revenue.
The forward catalysts center on widening the subscription base into new categories. Management has signaled expansion beyond home security into adjacent monitoring markets, including senior and health monitoring, which would extend the recurring-revenue model to a larger addressable population. The metrics to watch in upcoming quarters are the same ones that justify the multiple: whether ARR keeps compounding near thirty percent, whether churn stays below 1% as the base scales, and whether the service mix keeps lifting gross margin. The next earnings print is the cleanest test of whether the recurring engine is still accelerating or beginning to mature.
Peer Cohorts (Per Segment, With Filing Citations)
Arlo Technologies (consolidated) (reported)
- ADT (ADT Inc.)
- FY2025 10-K: …respect to shares of our Common Stock owned by State Farm. State Farm's contractual lock-up period restricting the transfer of the shares of Common Stock owned by State Farm terminated on October 13, 2025. Refer to Note 16 "Related Party Transactions" in the Notes to Consolidated Financial Statements. SEGMENT AND…
- FY2025 10-K: …information based on the manner in which the chief operating decision maker ("CODM") evaluates performance and allocates resources. The CODM manages the business on a consolidated basis, and as such, the Company reports results in a single operating and reportable segment. Refer to Note 3 "Segment Information."…
- ALLE (Allegion plc)
- FY2025 10-K: …Company Inc., Allegion plc and Wells Fargo Bank, National Association. Incorporated by reference to Exhibit 4.2 of the Company's Form 8-K filed October 2, 2017 (File No. 001-35971). 4.3 Second Supplemental Indenture, dated as of October 2, 2017, among Allegion US Holding Company Inc., Allegion plc and Wells Fargo…
- FY2025 10-K: …with channel partners. The aggregate consideration, inclusive of contingent consideration and net of cash acquired, for all acquisitions completed in 2025 and 2024 was approximately $631.6 million and $147.2 million, respectively. Businesses acquired in 2025 generated $93.0 million of Net revenues since the…
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.
Sources
Q1 2026 results, May 7 2026 · FY2025 10-K