Smart security company Arlo (NYSE: ARLO) reported revenue ahead of Wall Street’s expectations in Q2 CY2026, with sales up 20.5% year on year to $155.9 million. On top of that, next quarter’s revenue guidance ($145 million at the midpoint) was surprisingly good and 8.8% above what analysts were expecting. Its non-GAAP profit of $0.28 per share was 43.1% above analysts’ consensus estimates.

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Company Overview

Originally spun off from networking equipment maker Netgear in 2018, Arlo Technologies (NYSE: ARLO) provides cloud-based smart security devices and subscription services that help consumers and businesses monitor and protect their homes, properties, and loved ones.

Revenue Growth

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $587.1 million in revenue over the past 12 months, Arlo Technologies is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels. On the bright side, it can grow faster because it has more room to expand.

As you can see below, Arlo Technologies’s sales grew at a solid 7.6% compounded annual growth rate over the last five years. This is an encouraging starting point for our analysis because it shows Arlo Technologies’s demand was higher than many business services companies.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. Arlo Technologies’s annualized revenue growth of 6.6% over the last two years is below its five-year trend, but we still think the results were respectable.

This quarter, Arlo Technologies reported robust year-on-year revenue growth of 20.5%, and its $155.9 million of revenue topped Wall Street estimates by 4.7%. Company management is currently guiding for a 3.9% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to decline by 2.2% over the next 12 months, a deceleration versus the last two years. This projection doesn’t excite us and suggests its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.

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Adjusted Operating Margin

Adjusted operating margin is a key measure of profitability. Think of it as net income (the bottom line) excluding the impact of non-recurring expenses, taxes, and interest on debt - metrics less connected to business fundamentals.

Arlo Technologies was profitable over the last five years but held back by its large cost base. Its average adjusted operating margin of 5.6% was weak for a business services business.

On the plus side, Arlo Technologies’s adjusted operating margin rose by 12.1 percentage points over the last five years, as its sales growth gave it immense operating leverage.

This quarter, Arlo Technologies generated an adjusted operating margin profit margin of 1.6%, down 11.5 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Arlo Technologies’s full-year EPS flipped from negative to positive over the last five years. This is a good sign and shows it’s at an inflection point.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

Arlo Technologies’s EPS grew at an astounding 55.3% compounded annual growth rate over the last two years, higher than its 6.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

In Q2, Arlo Technologies reported adjusted EPS of $0.28, up from $0.17 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Arlo Technologies’s full-year EPS to shrink by 12.6% from $0.94 to $0.82.

Key Takeaways from Arlo Technologies’s Q2 Results

It was good to see Arlo Technologies beat analysts’ EPS expectations this quarter. We were also excited its EPS guidance for next quarter outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this quarter featured some important positives. The stock traded up 4.3% to $16.14 immediately after reporting.

Arlo Technologies put up rock-solid earnings, but one quarter doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here (it’s free).