ARLO

Arlo just crossed a structural inflection. After four straight years of losses (-$56M, -$57M, -$22M, -$30M from FY2021–FY2024), FY2025 delivered $14.9M of net income and, more importantly, income from operations swung to +$6.1M from a -$34.9M loss a year ago. The driver is explicit in the MD&A: this is no longer a hardware company. Annual recurring revenue reached $330.5M, up 28.4%, on 5.69M paid accounts (+23.7%) out of 12.1M registered accounts — high-margin services now dominate the gross-profit mix even though total revenue grew only 3.6% to $529M. That mix shift is why gross profit jumped 24.2% (44.0% gross margin) on flat-ish revenue, and why operating cash flow surged 53.4% to $78.7M against just $14.9M of reported net income — deferred subscription revenue and minimal D&A ($3.9M) and capex (~$2.7M) make this a genuine cash compounder.

The balance sheet backs the quality. Cash grew 78.5% to $146M with stockholders' equity up 26.7% to $128M; the 1.43x liabilities/equity ratio is dominated by current/deferred items rather than debt. Management is returning that cash — $45.6M of buybacks in FY2025 (up from ~$4M) — which is rational at ~17x price/operating-cash-flow and accretive given only 107M shares. The headline 93x P/E is the wrong lens: it is built on a depressed $0.14 GAAP EPS that buries the cash generation under the residual cost of the hardware transition. On P/S of 2.6x and an enterprise value net of $146M cash (~$1.24B / $78.7M OCF ≈ 16x), a 28%-growing recurring-revenue base is not expensive.