Smart security company Arlo (NYSE: ARLO) beat Wall Street’s revenue expectations in Q3 2026, with revenue up 6.9% year on year to $149.2 million. Guidance for next quarter’s revenue was better than expected at $142 million at the midpoint, 1.2% above analysts’ consensus estimates. Its non-GAAP profit of $0.24 per share was 21.7% above analysts’ consensus estimates.

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“Arlo continued its outstanding momentum into the third quarter, delivering 20% growth in subscriptions and services revenue and expanding profitability with adjusted EBITDA up over 50% year over year,” said Matthew McRae, Chief Executive Officer of Arlo Technologies. “And the recent launch of Arlo Secure 7 powered by AI-enabled Threat Assessment keeps Arlo at the forefront of innovation while cementing the foundation for continued growth into the future. Our level of confidence in our future growth opportunities is underscored by the recent authorization of a $100 million share repurchase program.”

Revenue growth

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years.

With $596.8 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 positive side, it can grow faster because it has more room to expand.

Arlo Technologies’s 7.9% annualized revenue growth over the last five years was solid. That indicates stronger demand than at 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 6.7% over the last two years is below its five-year trend, but the results were still respectable.

This quarter, Arlo Technologies reported year-on-year revenue growth of 6.9%, and its $149.2 million of revenue exceeded Wall Street’s consensus estimates by 2.9%. Management is guiding for flat revenue next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 1.7% over the next 12 months, according to S&P, a deceleration versus the last two years. This projection is underwhelming and indicates its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

Adjusted operating margin

Adjusted operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses, from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies because it excludes non-recurring expenses, interest on debt and taxes.

Arlo Technologies was profitable over the last five years but held back by its large cost base. Its average adjusted operating margin of 6.4% was weak for a business services company.

On the positive side, Arlo Technologies’s adjusted operating margin rose by 11.5 percentage points over the last five years, as its revenue growth provided substantial operating leverage.

This quarter, Arlo Technologies’s breakeven margin was 0.7%, down 9.4 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, or 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 moved from negative to positive over the last five years. This is a good sign and shows it’s at an inflection point.

As 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 a strong 57.7% compounded annual growth rate over the last two years, higher than its 6.7% annualized revenue growth. This indicates the company became more profitable on a per-share basis as it expanded.

In Q3, Arlo Technologies reported adjusted EPS of $0.24, up from $0.16 in the same quarter last year. This result easily cleared analysts’ consensus estimates, a positive for shareholders. Over the next 12 months, Wall Street expects Arlo Technologies’s full-year EPS to shrink by 8.6% from $1.02 to $0.93, according to S&P. This is unusual as its revenue and operating margin are anticipated to increase, signaling the fall likely stems from “below-the-line” items such as taxes.

Key takeaways from Arlo Technologies’s Q3 results

Arlo Technologies’ EPS outlook for next quarter came in well above Wall Street’s consensus estimates, adding to the positives from its Q3 EPS beat. This was a good quarter overall, but investors were likely hoping for more. Shares tumbled 8.2% to $13.65 immediately after the results.

When evaluating Arlo Technologies at its current price, consider valuation, business quality and the latest earnings. Read more in our full research report here (it’s free).