Arlo (ARLO) Q3 2026 earnings review
Arlo wins record subscribers, but the average one pays less
Arlo, a maker of security cameras, is winning subscribers faster than ever, but the average one brings in less money. It signed up a record number of paying accounts, yet its yearly subscription value grew only $5 million. A refund of US import tariffs lifted profit per share above Arlo's own plan. By our math, that plan has fourth-quarter sales up less than 1%.
| Revenue | $149.2M +7% from a year ago |
|---|---|
| Yearly value of subscriptions (ARR) | $369.9M +$4.9M in the quarter; +14% from a year ago |
| Paying accounts | 6.64M +340,000 in the quarter |
| Full-year revenue outlook | Raised $7M middle of the range: about 13% growth |
⚖️ Verdict: 🔴 Bearish
The story got worse, because subscription value slowed again while the partner launches meant to revive it slipped. Chief executive Matthew McRae now puts the Comcast launch in mid-2027. One caution: the pricier Secure 7 plans arrived only in late September, so this quarter could not show their effect.
The question now is whether Arlo reaches the roughly 30% subscription-value growth McRae targets for next year. If Comcast, Aloe Care and the new plans arrive on time, growth could double; if not, it stays near today's pace. McRae's year-end plan will tell.
🐂 Bull Case
Arlo Added a Record 340,000 Paying Accounts
Arlo sells cameras cheaply so that more households pay a monthly fee for video storage and alerts. Finance chief Kurt Binder credited customer-retention work and growth at its main partners for the gains.
- Paying accounts: 6.6 million, up 23% from a year ago
- Added in the quarter: 340,000, against 281,000 a year earlier
- Multi-camera kits sold during Amazon's Prime event: up 41% from a year ago
Chief executive Matthew McRae said buyers of multi-camera kits are more likely to subscribe, so Arlo now aims its promotions at kits and doorbells. Those subscribers also stay, because monthly cancellations held under 1% of accounts, as in recent quarters.
What to watch: accounts added in the holiday quarter, due with the year-end results. Another quarter above 300,000 would show that the push toward kits brings in subscribers, not only hardware buyers.
Subscriptions Now Bring Nearly Two-Thirds of Sales
Arlo keeps about 84 cents of each subscription dollar after direct costs but loses money on cameras. Finance chief Kurt Binder tied the higher gross margin to "a higher mix of subscriptions and services revenue".
- Subscription share of revenue: 64%, against 57% a year ago
- Cost of making and shipping products: 41.3% of revenue, down 9.3 percentage points
- Tariff refund inside that cost line: about 4.2 percentage points of revenue
Without the refund, gross margin excluding one-offs still rose about 3.4 percentage points by our math. But overhead took the gain, because general and administrative costs climbed to 15.0% of revenue from 10.8%.
What to watch: the subscription share of fourth-quarter revenue, which Binder expects above 70%. Reaching it would push the mix further toward subscriptions, though partly because camera sales shrink.
Positives this quarter didn't test
Three positive threads from earlier quarters got no new figures that would let a reader check them. Each needs a disclosed number before it can carry weight in the case.
- Aloe Care, the medical-alert service for older people that Arlo bought in April: chief executive Matthew McRae counts on "a pretty strong ramp" in 2027, but Arlo reports no revenue or user figures for it.
- Lifetime value of a retail subscriber: McRae put it at over $900 without an exact update, so no one can tell whether it still rises.
- Long-range plan of 10 million paying accounts, $700 million of recurring revenue and a 25% margin: Arlo says it will get there "substantially early", but gives no date.
🐻 Bear Case
Subscription Value Grew the Least in Two Years
Arlo tracks annual recurring revenue (ARR), the yearly value of all its active subscriptions. It is the clearest sign of future subscription sales, and its growth rate has halved since the first quarter.
- ARR added in the quarter: $4.9 million, against $7.5 million a year ago
- ARR growth: 14% from a year ago, down from 29% in the first quarter
- ARR per paying account: about $56 a year, down 7% by our math
- Monthly revenue per retail account: $15.50, according to chief executive Matthew McRae
Retail customers pay about what they did earlier this year, so the drop points to cheaper accounts from partners and acquired brands. Arlo does not split them out. Secure 7, its new subscription tier, went on sale only in late September, so this quarter could not show its effect.
The fourth-quarter plan shows no lift either. By our math, it implies subscription revenue growth of about 13%, down from 20% now, so the outlook supports the concern rather than easing it.
What to watch: ARR added in the fourth quarter, the first with Secure 7 on sale. A gain well above this quarter's would show that the new plans raise what each account pays.
Camera Losses Deepened Without the Tariff Refund
Arlo sells its cameras below cost to win subscribers, and finance chief Kurt Binder credited the richer subscription mix for this quarter's jump in gross margin. The quarterly filing points to a second cause: a $6.3 million refund of US import tariffs, booked as lower product cost.
Strip the refund out, and product gross margin excluding one-offs worsened to about minus 26% by our math, from minus 17% a year ago. Over nine months, Arlo blamed component prices and "a constrained memory supply market". For this quarter, it also cited "higher inventory reserves as we head into a higher promotional holiday season".
That cuts against the mix story, because each dollar of camera sales lost more even as product revenue shrank 10.8%. Binder also blamed lower prices around Amazon's Prime Day. So the refund, which Arlo says it has almost fully collected, covered a weakening hardware business.
What to watch: product gross margin in the holiday quarter, when no refund remains. A loss deeper than this quarter's underlying figure would show promotions and memory costs eating into the subscription gains.
Comcast Launch Moves to the Middle of 2027
Arlo counts on big partners such as Comcast, ADT and Samsung to reach millions of homes. Chief executive Matthew McRae expects Comcast to become its largest partner quickly. He also plans to announce new partners within two or three quarters.
This quarter the Comcast date moved. McRae said the work is "on schedule for a mid-2027 launch", three months after Arlo had aimed for earlier in the year. He added that "the full-year impact wouldn't be until 2028".
McRae also noted that "Thrive Capital is looking to potentially take them private", referring to ADT. Arlo still reports no partner accounts or partner revenue, so readers cannot track the ramp.
What to watch: the first Comcast region going live, which McRae now places around the middle of next year. Another delay would push most partner revenue into 2028.
Risks this quarter didn't answer
Four standing risks got partial numbers this quarter, but none of them settled. Each needs one more disclosure before it can move the case either way.
- Verisure, Arlo's biggest customer and a European alarm company: 38% of nine-month revenue and 58% of receivables, against 40% in December. A falling share would ease the risk.
- Stock-based pay: up 65% to $21.7 million; diluted shares still rose 0.9% despite $14.3 million of buybacks. The new $100 million program, which chief executive Matthew McRae tied to confidence, helps only if the share count falls.
- One-off engineering fees: Arlo still does not say whether its yearly subscription value counts them.
- Canary and Aloe Care, bought this year: $7.8 million of subscription revenue in nine months; without it, nine-month subscription growth is about 20%, not 23%, by our math.
👓 Other Themes
Arlo Launched Secure 7 With a $50 Plan
Arlo launched Secure 7, its new subscription software, with "AI-driven innovations including Threat Assessment and Arlo Summary". Threat Assessment tries "to assess the threat level of events" instead of only spotting a person. A new $50-a-month plan records nonstop video from up to three cameras. Chief executive Matthew McRae said "approximately 6% of our new users are already selecting this new subscription tier".
Tariff Refunds Are Over for Arlo
In February the US Supreme Court ruled that some 2025 import tariffs were unlawful, and a trade court then ordered refunds. Arlo collected $14.2 million this year and booked it as lower product cost. It has "received substantially all tariff refunds", so none remain to help the fourth quarter. Arlo still calls the tariff environment uncertain.
💲 Other KPIs
Free cash flow, the cash left after investment spending, rose 11% from a year ago to 11.1% of revenue. Over nine months it ran slightly ahead of 2025. Cash and short-term investments fell to $144.0 million, after Arlo paid for two acquisitions and for buybacks.
Money owed by customers fell 20% from a year ago, even as revenue rose. Days to collect dropped to 37 from 50, which finance chief Kurt Binder tied to more subscribers paying for a year upfront. The figure has crept back up from 26 days in December.
Stock on hand rose 18% from a year ago. Turns, the times inventory sells through in a year, slowed to 4.7 from 6.4. US distributors also held almost three times as many weeks of stock. Binder said Arlo shipped by sea early to cut freight costs and guard against memory price rises before holiday promotions.
🔮 Guidance
New. The plan has fourth-quarter sales growing just 0.5% from a year ago at the middle of the range. By our math, product sales drop about 21% while subscriptions climb. That would be the slowest quarter in the period shown. The full-year range leaves no separate remainder, since it matches this one.
New. The middle of the range, $0.20, sits 9% below last year's fourth quarter. That would end a long run of strong growth, since no tariff refund remains and holiday promotions hurt camera margins. Arlo topped the middle of its profit range by 20% this quarter, about half its usual margin.
New. Under standard accounting, which counts stock-based pay, the plan centres on zero profit per share, against $0.05 a year ago. Stock pay and other items explain the $0.20 gap to the measure excluding one-offs.
Raised. The middle of the range rose $7 million, to about 13% growth for the year. It follows a $25 million lift last quarter, and the outlook held still before that. With nine months already booked, the range simply repeats the fourth-quarter plan.
Raised. The middle of the range moved to $1.00, about 41% above last year. Nine months already delivered most of that, so the change mostly banks this quarter's beat. The 5-cent move follows a 15-cent raise last quarter.
Unchanged. The plan still has subscription sales up about 20% for the year. By our math, that leaves about $101 million for the fourth quarter. That is 13% above a year earlier, down from 20% growth now. Arlo has kept this range since it first set it.
New. Chief executive Matthew McRae said he will "target roughly 30% ARR growth in 2027", meaning annual recurring revenue, the yearly value of subscriptions. By our math, that means adding about $111 million of subscription value in a year. Arlo added $47 million over the past four quarters. McRae promised details with the year-end results.
❓ Key Questions
Does ARR include one-time engineering fees?
Arlo booked one-off engineering and license fees inside subscription revenue in recent quarters. If ARR, the yearly subscription value, counts them, the slowdown in new subscription value is larger than reported.
How many paying accounts came with Canary?
Arlo bought Canary's devices and subscribers in March. If acquired accounts sit inside this year's record sign-ups, the underlying pace of new subscribers is slower than it looks.
What does a partner account pay versus a retail one?
Average subscription value per account is falling while retail customers pay about the same. Only a split by channel can show whether Comcast and ADT will lift or dilute it.
What legal matter drove the jump in overhead?
Legal fees added $1.4 million to general and administrative costs this quarter and $5.7 million over nine months. Arlo has not named the matter.