Imperial Capital Out Bullish On Arlo Technologies After Spinoff From NetGear

Security camera company Arlo Technologies, Inc. ARLO's shares have been on the rise since its initial public offering earlier this month. 

The Analysts

Imperial Capital analyst Saliq Khan initiated coverage of Arlo Technologies with an Outperform rating and $39 price target.

The Thesis

In the last 12 months, Arlo posted revenue of $441 million and an adjusted EBITDA of $19 million, Khan said in the initiation note. (See the analyst's track record here.) 

The company provides over 8.6 million devices to 2.2 million registered users and controls 48 percent of the market, the analyst said. 

The following factors drove Imperial's bullish stance, Khan said: 

• Arlo’s separation from NetGear, Inc. NTGR should result in a sharpened focus on growth.
• An improved capital structure encourages the company to pursue strategic options.
• Arlo’s distinct investment profile allows for direct investments in the company’s future.

The security camera maker has growth opportunities in the form of annual upgrades, the improvement of customer “stickiness” and increased subscription revenue from Smart Services, Khan said. The analyst also suggested an expansion of Arlo’s strategic partnerships.

“The company currently sells its products through traditional and online retailers, wholesale distributors, broadcast channels, and wireless carriers" such as AT&T Inc. T, Khan said. 

"Although the company has benefited from a broad demand for smart home devices and Netgear’s brand awareness, we believe Arlo will need to strategically collaborate with its retail partners to drive in-store (across its 20,000-plus retail locations) and online purchases."

In fiscal 2017, Arlo's largest retailers were Best Buy Co Inc BBY, accounting for 28 percent of revenue; Amazon.com, Inc. AMZN, which contributed 16 percent; and Costco Wholesale Corporation COST, which generated 13 percent of revenue, according to Imperial Capital. 

Price Action

Arlo shares were slipping 4.3 percent to $22.08 at the time of publication Tuesday. 

Related Links:

Alarm.com Downgraded On Valuation By Imperial Capital

Why Netgear Is Poised To Make A Run

Photo courtesy of Arlo Technologies.