Arlo (ARLO) Q2 Revenue Beats Up 1.6%

Key Points

• Arlo Technologies (NYSE:ARLO) surpassed expectations on both revenue and non-GAAP EPS, driven by record subscription and services growth in Q2 2025.

• Subscriptions and services now make up 60.4% of total revenue, with annual recurring revenue up 34% year over year.

• Product gross margins remained slightly negative, with management noting that refreshing the device portfolio in the second half of 2025 will reduce costs per unit by up to 35%.

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Arlo Technologies (NYSE:ARLO), a leader in smart home security and connected services, reported results for Q2 2025 on August 7, 2025. It posted better-than-expected revenue and non-GAAP earnings per share, citing strong momentum in its subscription and services segment. GAAP revenue reached $129.4 million, outpacing analyst estimates of $123.5 million, while non-GAAP earnings per share landed at $0.17 compared to forecasts of $0.15. Management highlighted sustained growth in recurring revenue and improved gross margins, offering a positive assessment for the quarter.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Business Overview and Key Focus Areas

Arlo Technologies designs and sells smart security cameras, video doorbells, and security systems for home and business use. Its platform connects devices to the cloud, allowing customers to monitor, record, and interact with their environments from anywhere. The company’s strategy revolves around making its subscription-based services, such as Arlo Secure and Arlo Safe, the main engine of growth, shifting away from a hardware-only sales model.

In recent periods, Arlo Technologies has concentrated on expanding its subscription offerings. By bundling artificial intelligence features and professional monitoring into its plans, it delivers recurring revenue and aims to boost customer retention. Its key success factors include broadening its user base, increasing average revenue per user (ARPU), and innovating within its connected device lineup. Strategic partnerships—especially with established security firms—also help it reach new customers and markets.

Quarterly Highlights: Performance and Milestones

Subscription and services revenue stood out as the main growth driver. This segment generated $78.2 million in GAAP revenue, up 29.7% from the same quarter last year. Subscriptions now represent 60.4% of the company's total revenue, up considerably from 47.3% in Q2 2024. The annual recurring revenue, a key measure of predictable future income, grew 34.3% year over year to reach $315.7 million. Notably, the number of paid accounts rose 28.5%, ending the period at 5.1 million cumulative subscribers.

Management credits the launch of the Arlo Secure 6 platform earlier in 2025 for helping expand the capabilities and appeal of its subscription offering. New service plans and a streamlined plan structure contributed to higher average revenue per user and stronger conversion rates for paid plans in the first quarter. Churn, which measures the rate at which customers leave the service, temporarily rose after price and plan updates but quickly returned to normal levels and is trending favorably, as discussed by management for the first and second quarters of FY2025.

On the hardware side, product revenue accounted for just under 40% of total revenue (GAAP). The shift is part of a wider industry trend and company strategy to focus on recurring cash flow from services, with hardware sales being used primarily to add new users to Arlo's ecosystem. However, gross margins on hardware remained negative at –13.8% (non-GAAP). Management explained that this is a result of ongoing promotions and competitive pricing, with the expectation that upcoming product launches for the 2025 holiday season—featuring over 100 new device models—will reduce unit costs by up to 35% and ease margin pressure.

Operationally, the company continues to invest significantly in research and development, spending $18.5 million. Partnerships also remain central, with Arlo adding ADT (NYSE:ADT) as a strategic partner. It also maintained its key channel relationship with Verisure in Europe, though EMEA (Europe, Middle East, and Africa) revenue fell by 23.8% year over year.

Arlo’s push into cloud and artificial intelligence helps differentiate it from hardware-only competitors. Its intellectual property portfolio and ongoing investment in new platforms and features are designed to create differentiated products and recurring revenue. Management did not report any one-time events that materially impacted results this quarter, and there are no dividend payments in place.

Looking Ahead: Guidance and Trends

Management issued GAAP guidance for Q3 2025, expecting revenue between $133 million and $143 million. with non-GAAP earnings per share anticipated in the $0.12 to $0.18 range. The company signaled continued momentum in subscriptions and recurring services, while projecting that hardware profitability may improve as the refreshed product line with reduced manufacturing costs becomes widely available for the holiday period.

For future periods, investors will likely focus on subscription growth, ARPU trends, and the effectiveness of cost reductions in hardware. Management also encouraged close monitoring of international performance, particularly in Europe, where inventory changes and regulations have recently suppressed results. No dividend is currently paid by Arlo Technologies (NYSE:ARLO).

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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