Arlo Technologies at Piper Sandler Conference: Transition to Services Gains Momentum

On Wednesday, 10 September 2025, Arlo Technologies (NYSE:ARLO) presented at the Piper Sandler 4th Annual Growth Frontiers Conference, outlining its strategic shift from hardware to a services-based business model. The company reported robust growth in Annual Recurring Revenue (ARR) and a significant increase in its subscriber base, while also addressing challenges in reaching long-term goals.

Key Takeaways

• Arlo achieved $316 million in ARR, marking a 34% increase year-over-year.
• The company surpassed 5 million paid subscribers, aiming for 10 million by 2028 or 2029.
• Arlo plans to double ARR to $700 million and achieve over a 25% operating margin.
• Strategic partnerships are expected to drive 60% of new subscriber growth.
• The company’s ARPU increased by over 50% to more than $15, with minimal churn impact.

Financial Results

• ARR: $316 million, up 34% year-over-year
• Subscriber Base: Over 5 million, with a target of 10 million before 2030
• Target ARR: $700 million
• Current Operating Margin: 13%, with a goal of over 25%
• ARPU: Increased by over 50% to more than $15
• Hardware Units Growth: 30% year-over-year
• Subscription Revenue Growth: 35-40% year-over-year
• Service Revenue Gross Margin: 85%

Operational Updates

• Arlo is undergoing a major product refresh with new platforms for its Essential, Pro, and Ultra lineups.
• The company is launching around 110 new SKUs and reducing COGS by 20-30% on new hardware.
• Arlo Secure 6 introduces AI enhancements such as object detection and facial recognition, with further advancements planned for Arlo Secure 7 next year.
• Strategic partnerships with Verisure, ADT, and Calix are expected to contribute significantly to subscriber growth.

Future Outlook

• Arlo aims to reach 10 million paid subscribers, with strategic accounts contributing 60% and retail/direct channels 40%.
• The company is focusing on aggressive hardware pricing to drive service contract sign-ups.
• Continued investment in AI capabilities, including edge and cloud processing, is a priority.

Q&A Highlights

• Arlo has increased ARPU by over 50% with minimal impact on churn, indicating strong pricing power.
• The company focuses on low-funnel marketing strategies like search engine optimization and in-store promotions.
• Strategic partners handle sales, marketing, and retention, resulting in zero CAC for those accounts.

For a detailed understanding, readers are encouraged to refer to the full transcript below.

Full transcript - Piper Sandler 4th Annual Growth Frontiers Conference:

Jim Fish, Analyst, Piper Sandler Research: All right, good afternoon, everyone. Thanks for joining us. Jim Fish with Piper Sandler Research. We have the pleasure of having Arlo with us. Thanks for joining us.

Unidentified speaker: Yeah, happy to be here.

Jim Fish, Analyst, Piper Sandler Research: Look, I think a large part of your story, just to get right into it, is this massive transition you’ve been on, and it’s been very successful. You guys have exceeded your ARR targets ahead of time. You know, I think it’s $316 million ARR, up 34%, 5 million plus paid subscribers just got announced. Remind us, just to level set us here, your long-term goals and how you plan to get to there.

Unidentified speaker: Yeah, so for those of you that may not be familiar with the story, we’re a spin from Netgear and started off really as a hardware company, building hardware in the DIY security space, basically created that category. Since the spin, we started transitioning the company into a services business. The metrics you’re reading off are some of our latest metrics where we’ve actually inflected the business. We’re seeing very fast ARR growth. Just crossed over 5 million subscribers, $316 million in ARR. Where we’re headed is we have a set of long-range targets. First, we’re moving towards 10 million paid subscribers. I think we think, you know, well before 2030, you know, call it five years from now, we’ll be able to double our subscriber base. We’re at $316 million ARR. Our goal is to get to $700 million, so more than double the recurring revenue in the business.

I think last quarter we just hit about 13% operating margin. Our goal is to get over 25% operating margin. We’re about halfway to most of those targets, but the business is actually accelerating. I would tell you at this point, we think we’ll probably hit some of those targets early, given the 2030 target. We think some of those will actually hit probably in 2028, 2029.

Jim Fish, Analyst, Piper Sandler Research: How do you get from 5 million to 10 million subscribers then? How do we think about the Q side of that, as well as the P side with pricing?

Unidentified speaker: Yeah, so if you straight line our current trajectory, you get most of the way there, actually. In some ways, you could say it’s conservative. That’s why I’m saying I think we’ll hit some of them early. Our main vehicles of gaining subscribers are really two major categories. One is through our retail and direct channels. Think of the largest retailers in the world: Walmart, Best Buy, Costco, you know, our own website, arlo.com. That’s a main channel, and that’s really where we started when we spun from Netgear. That was our only channel, and then since our spin, we’ve been working on what we call strategic accounts, which is B2B2C. B2B2C includes a partner in Europe called Verisure, but it also includes, we announced a deal with ADT. We have Calix. We have a bunch of partners.

We believe, Kurt and I, who’s the CFO sitting in the front row here, when we look at how we get from 5 to 10 million, we think about 60% of those incremental subs are going to come from actually our strategic accounts. We’re seeing a lot of interest coming in from partners, business partners who want to get into this very lucrative space around providing security services. I would tell you first, 60% is going to come from strategic accounts, the delta, 40% from our traditional channel. A lot of that growth is obviously going to come from subscription services. When we did that model, we assumed we were only going to do about two price increases over the five-year period. I think there’s actually opportunity for more.

We can talk about our pricing power relative to hardware services, but we think there’s actually a lot of ability to expand. To get to the 10 million paid subscribers and the $700 million ARR, we are not assuming we’re launching into new verticals like small business or health and wellness and some of the areas that we’ve talked about as potential expansions. It’s really just executing well in the core markets and balancing the strategic accounts with the retail and direct paid area.

Jim Fish, Analyst, Piper Sandler Research: Speaking of launching things, one of the feedbacks I hear about you guys is, hey, this big ramp around product refresh or new products coming. As we think about the next 12 to 24 months in terms of that dynamic, what’s going to be sort of new product-oriented versus refresh of what you’ve got? What’s sort of on the roadmap to be improved of the refresh? You’re typically a B2C base, but how long are consumers keeping that old hardware and looking to refresh it?

Unidentified speaker: Yeah, so if you look at our product cycle, it’s typically about two years. Most of our technology from a hardware perspective, I’ll start there, is, we launch platforms, we fine-tune, we cost reduce through roughly a two-year cycle, and then we do a relatively major refresh or expansion of the product line. We are in a major refresh right now. Our new platforms and our new update to all of our products is actually shipping to retail right now. We’ll launch, be available for sale in the first part of October for the holiday period. That’s a complete refresh of our Essential lineup, our Pro lineup, our Ultra lineup. This is one of those big, you know, Intel used to call it TikTok where they had kind of minor versus major. This is a major update on our hardware platform.

It’s reducing costs by somewhere between 20% and 30% on COGS. It’s adding a bunch of new functionality and better performance. It’s expanding the product line into more power SKUs and pan-tilt zoom SKUs. It’s a major product. We’re actually shipping close to 110 new SKUs simultaneously across our channels, which is a whole operational execution challenge in itself, but we do this very, very well. Usually in between those, like next year, we’ll do some minor updates, some expansion, and you would expect another major update in early 2027. That’s actually a new platform that we’re not talking a lot about, but you’ll see a lot of new capabilities come on that platform, but that’s already in development. When I look at services, services is a little bit faster. We do a major update every year. Last year we launched Arlo Secure 5.

This year we launched Arlo Secure 6, which adds a tremendous amount of AI capabilities around theme descriptions and object detection, facial recognition, vehicle recognition, basically all the functionality that people really subscribe to Arlo for. That was announced in kind of the January-February timeframe. We rolled that out. It’s part of the reason our average revenue per user is expanding right now. Obviously we’re under work for Arlo Secure 7, which will be sometime next year, and we’re already planning a pretty big update on that around some pretty fundamental big steps forward on AI capabilities. That’s roughly the timeline. It’s two years for hardware refresh with some work in between, and now our big subscription AI packages is annual.

Jim Fish, Analyst, Piper Sandler Research: I think some people in the audience might think TikTok is some application I’ve heard.

Unidentified speaker: Yeah, I’ve never heard of that.

Jim Fish, Analyst, Piper Sandler Research: You actually went where I wanted to go. You’ve got about 110 SKUs at this point, more products coming here this fall, ending of life, I’m going to guess some. I guess what’s the right number of SKUs overall? What launches are you most excited about that you just talked about?

Unidentified speaker: Yeah, the SKU count is interesting because we use variable SKUs to minimize channel conflict and actually maximize performance by channel. You know, we’ll have a certain set of SKUs we use in Walmart to hit certain price points and drive awareness and sales there. That’s one of the things we’re experiencing as this product category is starting to go mass market. The next 20 to 30 million households are going to be captured over the next couple of years as prices have hit a certain level and awareness has gotten to a certain level. At a place like Best Buy, we do a lot of exclusive SKUs there because they will get behind it from a big advertising campaign. The buyer at Best Buy is very different than Walmart.

Some of that configuration or that size of a SKU count is because we’re doing specific things with different channels and making sure we’re maximizing the opportunity in each one of those.

Jim Fish, Analyst, Piper Sandler Research: I think camera unit growth was about 30%.

Unidentified speaker: Yeah, so you know, we track our success based on a pretty small set of metrics. One is hardware units, not hardware revenue. Right? One of the things we’re doing is we’re bringing down the barrier of entry on the cost of that initial hardware sale. We don’t really care about hardware revenue. We care about units because units become households. Households become subscriptions. We really track hardware units. We track service revenue or ARR, and that’s the expansion of the services business, which is really driving our profitability. Then we looked at blended gross margin or operating income. If we can get units growth, which is 30% year over year in the last quarter, subscription revenue growing at 35%, growing closer to 40% year over year, and then expansion of operating income, we think we’re managing the business well.

Jim Fish, Analyst, Piper Sandler Research: Yeah, so I think back half numbers, implied, you know, 20-30% growth. What kind of visibility do you have for that, in terms of giving you confidence around the guide then?

Unidentified speaker: Yeah, so all of the orders and promotions for the second half have basically been in the can since April. There are, we are seeing some incrementality, I think through tariffs and some of the supply chain disruption. We’ve seen some incremental opportunities come to us from some of the retail partners. There can be some small adjustments, but basically all of the ship-in and the promotional calendar is finalized by April, May.

Jim Fish, Analyst, Piper Sandler Research: You have a commercial strategy also in place. I know we talked about like B2C, typically now it’s becoming B2B2C.

Unidentified speaker: Right.

Jim Fish, Analyst, Piper Sandler Research: What sort of hurdles are in place? What are your kind of goals and aspirations around that potential demand driver for you?

Unidentified speaker: Yeah, like I said, we think this will be 60% of the incremental growth from here to our 10 million paid subscriber goal. What’s interesting is we think we’re very well positioned and differentiated and have a competitive advantage in the retail channels that we operate in, but it actually is even more so in the B2B2C. B2B2C would be us selling to ADT, who then sells to the end user, or us selling to a service provider like Verizon, who then sells to the consumer. We call that B2B2C or our strategic account. It turns out that our differentiation there is even more powerful. You know, there’s only a handful of companies in our segment that really have a powerful hardware portfolio plus the AI service platform to deliver a really smart security solution.

A couple of the other big guys like Ring or Amazon, or Google, a lot of people do not want to partner with because of the loss of control over the data, the competition. There’s been security instances and some other things. Also, for Amazon and Google, this is not an area of focus for them. We’re actually seeing companies like Google back off and kind of de-emphasize. We roll in. This is all we do. We go into a partner and we say, we wake up every morning and we try and build the best smart security platform in the world. It’s your data. We’re here to partner and service that data for you. We have a dedicated set of AI capabilities and platforms and models that are tuned specifically for the security use case.

We tend to win more than our fair share of some of those partnership capabilities. It’s another reason why Kurt and I believe that, a little bit more, like over index, 60% of our growth is going to come from the B2B2C platform because we’re just seeing so much demand and interest in the space.

Jim Fish, Analyst, Piper Sandler Research: How do you see though, you brought up the big D word in differentiation.

Unidentified speaker: Yeah.

Jim Fish, Analyst, Piper Sandler Research: How do you see that differentiation playing out beyond the sort of channel and partnerships? How do you differentiate on the hardware and software side? Within that, as we’re thinking about AI, do we have AI processing on the end device versus kind of cloud-based longer term?

Unidentified speaker: Good point. On the hardware differentiation, we’ve always been at the forefront, and we will continue to be. It’s, I would say, on a relative basis, it’s still important, but maybe not the most important anymore because the AI and the platform differentiation is really what’s driving the value. Even on the hardware, we were the first company to ship 4K cameras, first company to do dual noise canceling microphones, first company to do wireless battery-operated cameras you can place anywhere. We’re still the only company doing battery-free flood lights, which are really bright lights, but still battery-powered with three to four months battery life. There’s a lot of work being done on RF, low-power design, optics, and all that performance. Our DNA from Netgear has always made us one of the best hardware companies in the world from a design perspective.

I would say now that used to be 70-80% of the differentiated value. Now I’d flip it. I’d say that’s about 20-30% of what really matters out there. Where a lot of that differentiation is coming from is our platform. We’ve built our platform from the ground up to be very low latency, specifically built for security, as services specifically built with AI in the entire pipeline from the very beginning. We launched our first AI subscription service in 2018, just to give you an idea. This has been built from the ground up to do real-time AI analytics on live video, not finish recording the video, upload it to the cloud, start to process it. The problem with security is you need, you know, somebody walks up to your front door, you need that AI to run in real time before the video is even finished recording.

Our entire AI and cloud platform is completely different than a lot of the platforms that are out there. Let alone we do all of our own AI models internally. Silly things around, you know, if you’re doing computer vision models, if you just use off-the-shelf images to train your model, you’ll get maybe 80% accurate, where we use actually in-field images that provide us the 95+% accuracy. From a performance perspective and an AI capability, we’re at the forefront as well. You asked about edge versus cloud.

Jim Fish, Analyst, Piper Sandler Research: Yeah.

Unidentified speaker: From an execution of the AI models, historically, we’ve been almost 100% cloud because the power just wasn’t there on the edge camera. We’re going to start seeing that shift a little bit. Now, one of the things that’s interesting, especially in the consumer DIY space, roughly 80%+ of the cameras that are deployed are battery-operated. It’s not as easy as just pushing AI models out to the edge, because the cameras aren’t powered. They’re on battery. There’s another balance between battery life and AI capability on the edge. We are just starting to move some of our models into what we call a hybrid situation where there’s some processing done on the edge and some done in the cloud, and we’ll continue to do that as chipset design gets lower, you know, from a power perspective and batteries get better.

One of the unique things on our AI-driven platform is it’s been built from the ground up to be that hybrid. Pretty much on any model or any specific deployment, we can choose anywhere on that spectrum to put, you know, 10% in the edge and 90% in the cloud or swing it to 50-50. In fact, when we deploy a model, like let’s say our vehicle recognition model, depending on the camera we have deployed, it’ll behave differently. If you have a camera that was, you know, you bought five years ago from us, we’re still deploying new services to it. That would be 100% cloud. If you buy a camera next year, let’s say a brand new camera, it might be 30%, 40% edge and cloud. The experience is the same, but where that model is running is completely flexible on our backend.

We’re one of the only platforms that can do that in the world.

Jim Fish, Analyst, Piper Sandler Research: Yeah, you mentioned earlier, pricing power, and I believe the AI package has been playing a role on ARPU at this point. How much of an impact has that been? Let’s go into why you guys think you have pricing power at this point.

Unidentified speaker: Yeah, so our discoveries over the last, you know, three years have really been that the price sensitivity in the end user is really the upfront cost of the hardware. We’re being very aggressive on hardware pricing, and that’s driving new household formation. It’s one of the reasons I mentioned that the metric we chase is hardware units because units turn into households. There’s pricing sensitivity there. If we drop the price a little bit, we can see units grow quite quickly through a specific channel. What we found on the service side is, in several cases, we will launch a lot of new features, wait a little bit, let it soak, and then we can raise price. One of our price ranges that we changed recently was roughly a 25% to 30% price increase, and we see basically no impact on churn.

Our ARPU, if you looked at us at the beginning of last year, was probably around $8 or $9 going to like $10. It is now over $15. We’ve raised ARPU by over 50% and have seen no impact on churn. We think we have a lot of pricing power going forward, partially because of the power of the solutions we’re deploying. Also, if you look, our ARPU is around $15. If you look at traditional security in the marketplace, like think of a traditional security deployed through dealers like ADT or Vivint or Brinks, their ARPU is on the order of somewhere closer to $50. We are deliberately bringing up ARPU, deploying new functionality, building value for the user, and then looking at ways to raise price or makeshift people into our higher price plans.

We think we have a long way to go before we hit any pricing ceiling in the channels we’re in today.

Jim Fish, Analyst, Piper Sandler Research: Yeah, so speaking of the channels you’re in today, holiday season’s coming up here a little bit. I guess, how are you thinking about incentivizing customers to adopt Arlo as opposed to the Amazons, Googles, SimpliSafes beyond, you know, this pricing dynamic?

Unidentified speaker: Yeah, so, we watch, we’ve been in the consumer market. A lot of the executives at Arlo have been in the consumer market for almost 30 years, not the data. The consumer goes through the different phases. Sometimes if the economy is really strong and they have a lot of, you know, they’re feeling flush with cash, they will buy products on brand. That’s kind of the primary driver for selection of a different solution that they’re looking for, and specifically in this case, in home security, let’s say. Today, consumers are really buying on price and functionality. Does this product fulfill what I’m trying to get done? What’s my initial price to get this bought? We are actually spending most of our marketing budget pretty low funnel and winning on the search engine online or winning with a promo at the shelf at a Best Buy, let’s say.

That price sensitivity is driven because of where the consumer is today. What’s interesting is once they’ve bought into the hardware and they see the experience, we do a free trial with all of our customers when they install the product. They get to experience the set of services. When that free trial ends, we get over a 50%, sometimes as high as 60% attach rate on service, and that’s, again, less price sensitive. Today, most of our marketing is not around awareness. There’s actually very high awareness in the category already. What we’re spending our marketing on is winning at that last, what used to be called the last 10 feet of that decision making, or the virtual 10 feet, which would be like on Amazon, that last conquesting and search engine results. That’s turning over the highest set of new households for us.

If the market changes, let’s say the economy starts to expand again and consumers are feeling really strong, we will start to lift some of that brand spend back upper funnel and start to talk about capabilities on the brand again.

Jim Fish, Analyst, Piper Sandler Research: Yeah, you guys use, I’ll say, your hardware as a weapon to a degree in the sense of you’ll take the discount and, you know, it’s margin diluted to you guys clearly on purpose in order to get the higher margin services contract. How should we think about how you guys are managing your hardware gross margin kind of longer term and how that plays a role in the overall gross margin profile of the company?

Unidentified speaker: Yeah.

Jim Fish, Analyst, Piper Sandler Research: Especially as you’re talking about 20-30% reduction on COGS here.

Unidentified speaker: Yes, that’s exactly it. The reason we choose the metrics that we chase, hardware units, service revenue, you’ll remember I said blended gross margin, right? That’s how we install the discipline across the organization. If we choose to go a little bit lower on hardware gross margin, it still needs to be accretive on the total gross margin of the business, meaning that lower gross margin on the hardware needs to generate substantial service revenue, additional service revenue. Our service revenue, just to give you an idea, is at 85% gross margin. That’s risen from 60% a couple of years ago to 70% to 80%, and now it’s 85% gross margin.

As long as we’re starting to turn the dial on hardware at certain promotions and certain time periods, if we see that it’s adding to overall gross margin growth in the company and operating income, obviously, then we’ll do it. That’s how we hold ourselves accountable for that.

Jim Fish, Analyst, Piper Sandler Research: One thing I think about with more so the cash flow of the business, but also retention to a degree, is about a quarter of your customers are on annual contracts at this point versus monthly. Where are you guys thinking that could go over time? How do the partnerships play a role on that, if at all? Do you notice a difference at all in terms of the retention rates for an annual cohort versus a monthly cohort?

Unidentified speaker: Yeah, it calculates differently, but we actually don’t see a lot of difference. If you take just our monthly subscribers, meaning they’re month to month, they can cancel at any month, we have about a 1% churn there. It’s usually 1.1% to 1.3%. This last quarter was actually 1% churn. That actually compares very favorably to certain companies in the security business that lock people up into two or three-year contracts, and their churn is still higher than what we have. We have a very high satisfaction and very high retention rate in the company. On the annual plan, typically the reason people use the annual plan is we’ll give them a little bit of a discount on an annual plan because we get the cash, we get 12 months of cash up front.

It actually helps us a little bit too, because on a month-to-month plan, we have credit card fees every month. There are actually 12 credit card charges across that time period, where if it’s an annual plan, it’s one credit card charge, we get all the cash up front. That’s part of the reason we pass a discount to the end user. On a blended basis, if you look at the churn across the two, it’s not a huge difference. We treat them very differently internally in that we know when an annual subscriber is coming up, we’re making sure we’re really communicating to them the month prior, the week prior, and making sure we’re actively managing that renewal of that user. We have a lot of things we do from A/B testing and save journeys and everything to actually keep our churn at what is an absolute industry low.

Retention is obviously a very important part. The things we track in our vertical kind of funnel are obviously the new household formation that goes on the top of the funnel. We look at things like free trial activations. We look at things like the initial conversion rate, when they convert. Did they convert during the free trial? Was it after? How long they attach? Attach rate for us is we take a cohort and we look over six months, and that approaches 60%. We look at things like churn rate and other things to make sure that that’s a healthy funnel that’s driving service revenue for us.

Jim Fish, Analyst, Piper Sandler Research: Yeah, on that funnel, how are you, from the outside distribution perspective, going back to this, balancing, focusing on sort of that direct-to-consumer versus the channel partnerships that you’ve established with like ADT and Verisure?

Unidentified speaker: Yeah, no, that’s a good question. What’s interesting is, you know, we do an LTV/CAC calculation just like most SaaS companies. Our LTV is $840, and our CAC is just over $200, right? I don’t think we’ve updated our CAC recently. Our LTV/CAC ratio is over 3, which is considered world-class. That’s really what we spend our time managing, that retail and direct customer, that entire LTV/CAC, that entire stack on retention. On the B2B2C or the strategic partner area, it’s very different. In fact, most of those customers, we have no sales and marketing cost, no support cost, so our CAC is effectively zero. The customer or the partner is actually doing the retention, doing the sales and marketing on that side. Some of them actually lock the customer up into a longer-term contract.

In some cases, that churn is lower, but we’re not actually spending a lot of time actively churning or actively managing that. The partner is doing that, and effectively, our CAC is zero on a lot of those accounts. Where we spend our time is actually managing our stack through the direct and retail channel.

Jim Fish, Analyst, Piper Sandler Research: Awesome. I think that’s a great spot to end it. Appreciate your time today, and it’s a great story.

Unidentified speaker: Yeah, appreciate it. Thank you, guys.

Jim Fish, Analyst, Piper Sandler Research: Thanks, guys.

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