Arlo Technologies Stock is Turnaround Pullback Play

Smart connected device maker Arlo Technologies NYSE: ARLO stock has been largely “under the radar” as the turnaround takes shape. Arlo was spun off from NetGear NASDAQ: NTGR in 2018. Shares pretty much went straight down until bottoming out during the pandemic in March 2020. The Company provides smart devices enabling security, safety, and monitoring solutions via internet-of-things (IoT) sensors and cameras. The Company is not as well-known as more publicized brands like Ring Video Doorbell acquired by Amazon NASDAQ: AMZN, however, Arlo is one of the nation’s largest providers of smart security cameras. Its devices and artificial intelligence (AI) powered app provides peace of mind for work-at-home and in-office customers. As the COVID vaccine rollout accelerates and workers return to the office, the Company should also see a recovery in top-line growth and continued growth in its subscription model. The recent earnings report reaction is providing opportunistic pullback levels for prudent investors looking for exposure in this turnaround recovery play.

Q4 2020 Earnings Release

On Feb. 23, 2021, Arlo released its fourth-quarter earnings report for the quarter ending in  December 2020. The Company saw an earnings-per-share (EPS) loss of (-$0.08), excluding non-recurring items, versus consensus analyst estimates for a loss of (-$0.18), beating by $0.10. Revenues fell (-6.2%) year-over-year (YoY) to $114.8 million, beating analyst estimates for $111.57 million. Most notable was the impressive 72.1% YoY growth in subscription revenues and 89.1% YoY growth in paid accounts. The Company ended the quarter with $206.1 million in cash and no debt.

Conference Call Takeaways

Arlo CEO, Mathew McRae, set the tone, “During a tumultuous 2021… we refresh most of our product portfolio, we launched new service plans, we won more awards than any other time in our company history. We diversified our revenues through key partnerships, and we optimized business operations.” CEO McRae continued to underscore financial improvements including growing GAAP margin by over 10% YoY, delivering $4 million in non-GAAP operating expense reduction and improving cash and cash equivalent short term investments by $12.5 million sequentially. The Company added 79,000 new paid accounts, up 36% sequentially from Q3 for a total of 435,000 paid accounts, up 89% YoY. Service revenues grew to $21.6 million, up 72% YoY driven by the focus on bolster subscriptions.

Arlo Smart App

The 90-day Arlo Smart trial service comes free with the purchase of hardware has been the key to conversion. CEO McRae credited, “Arlo Smart is our best in class AI powered motion identification and security service, which enhances product capabilities, and transforms the user experience. Upon expiration of we have consistently see a 50% subscription attach rate to the paid service, a rate 10 times higher than our old business model.” Old business model products were phased out in 2020 and nearly all products for 2021 fall under the new business model. The Company launched its wire-free video door bell product in Q4 and review.com called it, “The best video doorbell we’ve ever tested.” The touchless doorbell uses proximity technology to ring with a wave of the hand rather than physically pressing, to reduce the spread of pathogens and viruses. The Verisure European partnership deal milestone are being bet, which includes a $500 million hardware purchase minimum guarantee over five years from 2020 to 2024 in addition to paid accounts in the region.

Insider Buying

It’s worth noting that insiders have purchased net 1.18 million shares in 2020 and 580,000 shares as of Jan. 29, 2021 in the current year. This is a bullish sign of confidence by insiders. Despite impressive growth metrics, shares spiked and sold back down to levels where prudent investors can consider building a position at opportunistic pullback levels.

ARLO Opportunistic Pullback Levels

Using the rifle charts on the monthly and weekly time frames enables a more broader view of the price action playing field for ARLO stock. The monthly rifle chart has been uptrending with a rising 5-period moving average (MA) at $6.58 and upper Bollinger Bands (BBs) at $8.83. Shares peaked off the $10.51

Fibonacci (fib) level causing the monthly stochastic to stall just above the 70-band. From there, the monthly stochastic can for a mini pup towards the 80-band or peak and crossover down. The weekly market structure low (MSL) triggered above $5.70.The weekly rifle chart uptrend has peaked at the 5-period MA sloped down at $7.76 and 15-period MA at $7.56. Shares tested and coiled off the $6.10 fib. If the weekly stochastic peaks and slips back down towards the 80-band. Prudent investors can watch for opportunistic pullback levels at the $6.47 fib, $6.10 fib, $5.70 weekly MSL, $5.25 fib, and the $4.50 fib. The upside trajectories range from the $9.20 fib up to the $14.15 fib level.