You Can Get Anything You Want At Arlo’s Restaurant, ‘Ceptin Profits

With the new year, a new start for Arlo Technologies(ARLO) as NETGEAR(NTGR) distributed the 84.2% of the company that it still owned to its shareholders on December 31.  NETGEAR shareholders received 1.980295 shares of Arlo stock for every share of NETGEAR stock held.  Also, concurrent with the transaction, NETGEAR’s founder, Chairman and CEO, Patrick C.S. Lo, resigned from the Arlo Board and the Arlo Board was reduced from seven to six members.  In total, the company distributed 62,500,000 shares of Arlo stock.

The spin off of Arlo leaves it as the only standalone player in the home security camera space, a space which includes such competitors as Amazon(AMZN), which recently acquired Ring, and Alphabet(GOOG) which owns Nest. These are indeed formidable competitors and it will be a challenge for Arlo to establish its niche in a crowded marketplace.

Arlo, which went public last August, is way down from its IPO price of $16.  The Motley Fool asks “Is Arlo Technologies a Buy at 50% Off Its IPO Price?” It notes the company’s falling growth rate, delays in the launch of its next generation Arlo Ultra, and the company’s not-yet-proven attempt to transition to service-based revenue from pure hardware sales. Their conclusion?

The company still needs to demonstrate that its business can be grown profitably.

it’s going through a period of great uncertainty. Therefore, it’s hard to recommend Arlo Technologies even at this greatly reduced valuation until it can prove it’s able to successfully straddle both worlds.

We agree with their conclusion. Arlo Ultra launches, later than hoped, into a crowded market, populated by well-financed competitors. We have seen no evidence that Arlo has differentiated itself in a meaningful way or that it will be able to grow its market share in this rough environment, nor that it will be able to achieve sustained profitability. Until it starts demonstrating a positive trajectory, we recommend that investors look elsewhere.

Disclosure: The author holds shares of AMZN