ARLO stock earns price target raise at Roth

Following the company’s fourth quarter results, Roth MKM analyst Scott W. Searle remains bullish on Arlo Technologies (Arlo Technologies Stock Quote, Chart, News, Analysts, Financials NYSE:ARLO).

On February 29, ARLO reported its Q4 and fiscal 2023 results. In the fourth quarter, the company posted GAAP gross profit of $47.3-million on revenue of $135.1-million, a topline that was up 14 per cent over the same period a year prior.

“Arlo finished the year strong with the largest product launch in our company history contributing to solid revenue growth of 14% and ARR growth of over 50% compared to Q4 of the prior year. This culminated in record non-GAAP earnings of $0.11 per share and our first ever profit on a GAAP basis,” said Matthew McRae, Chief Executive Officer of Arlo technologies. “The growth is even more impressive when looking at Arlo’s full year results with our annual service revenue growing 47% to more than $200 million and an $83 million increase in our free cash flow from the prior year. Arlo is clearly well positioned for success in 2024 as evidenced by our announcement that we crossed the 3 million subscribers milestone, substantially earlier than originally projected in our Long-Range Plan.”

Searle gave his take on the quarter.

“Arlo beat 4Q23 expectations, guided in line for 1Q24/2024, and raised its long term targets. Additionally, the company offered an updated product evolution to monetize its deep visual AI expertise into next-gen solutions, as well as expand its portfolio into other adjacencies (SMB, Insurtech, telehealth, etc.). With 20%+ recurring services growth and long-term targets approaching 10M subs by the end of the decade (from 3M today) ARLO remains underappreciated, in
our opinion.”

In a research update to clients March 1, Searle maintained his “Buy” rating but raised his price target on ARLO from $13.00 to $13.50.

The analyst thinks ARLO will post EBITDA of $45.7-million on revenue of $536.4-million in fiscal 2024. He expects those numbers will improve to EBITDA of $63.0-million on a topline of $595.1-million the following year.

“While our sales estimates are largely unchanged, we are modestly raising our EPS estimates by 1 cent and 3 cents to $0.40 and $0.55 in 2024 and 2025, respectively,” Searle concluded. “We believe the company has executed well ahead of its long-term plan (now revised to $700M ARR with > 25% OMs by 2030, up from $300M ARR with 10% OM by 2025). Additionally, the company is poised to leverage its currently non-monetized installed base of 5.5M+ unpaid accounts with Arlo Secure 5. Meanwhile, other adjacencies in SMB, Insurtech and telehealth could drive incremental recurring revenue stream, and the SaaS mix well above 50% (from the current 40%+), in our opinion. As the company continues to execute against its plan, we believe that the valuation disparities with traditional SaaS companies (4-10x EV/Sales) will narrow. Consequently, with ARLO trading at 1.5x EV/25E sales and 18x CY25 EPS, we believe there is conservative upside to $13.75, or 25x CY25 revised EPS (or 4x Services sales).”