What Happened?

Shares of home security provider Arlo (NYSE: ARLO) fell 26% in the morning session after the company reported disappointing third-quarter earnings. Its revenue guidance for the next quarter missed expectations, and its EBITDA fell short of Wall Street's estimates. 

Sales growth was modest, with product revenue declining by 4% year-on-year despite a push in service-related revenue, which now represents nearly 50% of the total revenue mix. 

Profitability was also under pressure as declining hardware margins were only partially offset by gains in high-margin services. 

Furthermore, the company observed consumer demand shifting towards lower-priced products, prompting management to adopt aggressive promotional strategies to drive volume ahead of the holiday season. Overall, this was a weaker quarter.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Arlo? Access our full analysis report here, it’s free.

What The Market Is Telling Us

Arlo’s shares are very volatile and have had 22 moves greater than 5% over the last year. But moves this big are rare even for Arlo and indicate this news significantly impacted the market’s perception of the business.

Arlo is up 25.1% since the beginning of the year, but at $11.53 per share, it is still trading 32.6% below its 52-week high of $17.10 from July 2024. Investors who bought $1,000 worth of Arlo’s shares 5 years ago would now be looking at an investment worth $4,060.

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