Arlo highlighted growth in subscription revenue, expanding security partnerships and new AI-powered services in its third-quarter 2026 earnings report.
Arlo Technologies (NYSE: ARLO) is targeting approximately 30% annual recurring revenue growth in 2027 as the company expands its subscription services, introduces new AI-powered security capabilities and prepares for increased business through strategic partnerships.
The outlook follows a third quarter in which subscriptions and services revenue rose 20% year-over-year to $96 million, accounting for nearly two-thirds of Arlo’s $149.2 million in total revenue.
Arlo’s results reflect a business model increasingly dependent on recurring service revenue, with competitively priced cameras and expanded retail distribution serving as vehicles for acquiring subscribers. The company’s relationships with Comcast and ADT also underscore the importance of strategic partnerships in reaching additional residential security customers.
Subscription growth drives financial performance
Arlo ended the quarter with 6.6 million paid accounts, an increase of 23% year-over-year. Annual recurring revenue reached $370 million, up 14%, while consolidated customer churn remained below 1%.
Arlo reported monthly retail average revenue per user of $15.50, contributing to a lifetime value exceeding $900 per paid retail customer.
Subscriptions and services generated a non-GAAP gross margin of 84%, a figure that included nonrecurring engineering services revenue associated with strategic partners. Total non-GAAP gross margin increased 760 basis points year-over-year to 49%.
Adjusted EBITDA rose 58% to $26.9 million, with an 18% margin. Non-GAAP earnings per diluted share reached $0.24.
Product revenue totaled $53.1 million, declining from both the previous quarter and the year-earlier period. Management attributed the decline to the timing of Amazon Prime Day and promotional activity affecting industrywide average selling prices.
Comcast and ADT partnerships support expansion
Arlo CEO Matthew McRae identified Comcast as a potentially significant driver of the company’s future recurring revenue growth.
“Most importantly, our integration with Comcast is on schedule for a mid-2027 launch, with the prospect of quickly becoming our largest strategic partner and driving significant ARR growth as it rolls out after launch.”
Meanwhile, ADT continues expanding its channel assortment of the DIY ADT Blu offering ahead of what McRae described as a more substantial push in 2027.
McRae also indicated that additional strategic partnership announcements could follow in coming quarters.
AI and premium services create new revenue opportunities
Arlo introduced Arlo Secure 7, an updated subscription platform featuring an AI-powered Threat Assessment capability designed to evaluate the threat level of security events rather than simply identify objects or describe scenes.
The platform also includes a new $50 monthly subscription tier offering continuous video recording for up to three cameras.
McRae said early adoption suggests opportunities to increase average revenue per user.
“Without marketing support, approximately 6% of our new users are already selecting this new subscription tier, and you’ll see us utilize plan mix to drive ARPU higher over time.”
The company is also emphasizing multi-camera packages as a means of increasing household adoption and subscription opportunities.
During a recent Amazon Prime promotional event, Arlo reported 7% year-over-year unit growth, while multi-camera kit unit sales increased 41%.
Management anticipates a broader competitive market
McRae characterized Apple's HomeView announcement as a signal that smart home security is entering a period of broader consumer adoption. He predicted that increased awareness and faster innovation cycles could bring another 30 million to 50 million households into the market in the near future.
He also anticipates growing convergence between smart home technology and home security, with subscription services becoming an increasingly important competitive differentiator.
“It is also clear that the recurring revenue opportunity resides with those solution providers on the security side of the equation.”
McRae suggested that market consolidation could favor companies with established service businesses, diversified distribution and strong reputations for privacy and data security.
“What separates a winner is a deep commitment to innovation to expand customer value, a scaled services business, diversified go-to-market strategy, and a reputation built on trust, data security, and privacy.”
Arlo reported expanding retail shelf space and unit market share during promotional periods, while McRae cited the exit of Roku and other smaller competitors from the market.
Outlook calls for continued subscription gains
For the fourth quarter, Arlo expects total revenue between $137 million and $147 million, with subscriptions and services accounting for more than 70% of revenue.
Non-GAAP earnings per diluted share are projected between $0.17 and $0.23.
Kurt Binder, Arlo's chief operating and financial officer, said the company is positioning inventory to support holiday promotions while managing shipping expenses and potential increases in memory costs.
Looking further ahead, McRae linked the company's 2027 recurring revenue target to Comcast, Aloe Care and Arlo Secure 7.
“Our visibility is even stronger now, and based on our expected paths with Comcast, Aloe Care, and Arlo Secure 7, I expect that we will target roughly 30% ARR growth in 2027.”
(Editor’s note: This article was produced with the assistance of generative AI using Arlo's publicly available earnings call transcript as source material. The content was reviewed, edited and verified by the SecurityInfoWatch editorial team to ensure accuracy, context and adherence to our editorial standards.)
