Give Choppy ARLO Stock Some Time

ARLO stock - Give Choppy ARLO Stock Some Time

Source: Brad Moon

Like many technology-based initial public offerings, Arlo Technologies (NYSE:ARLO) experienced tremendous enthusiasm out of the gate. An offshoot from NetGear (NASDAQ:NTGR), Arlo specializes in remote-controlled home-security cameras. On August 3, starting from an IPO price of $16, ARLO stock closed its first day at $22.10, or a 38% increase.

But just a day after its introduction to the markets, ARLO stock fell into volatile trading. Thursday’s session was particularly ugly, with shares dropping 8% against the prior day’s close. Now, the question on investors’ minds is whether ARLO is truly a viable play or a flash in the pan.

These fears are not unreasonable. We’ve seen technically-advanced device makers like Fitbit (NYSE:FIT) or GoPro (NASDAQ:GPRO) receive a warm initial welcome in the markets, and why not? Their products have earned rabid fanbases. The problem, though, is that selling devices to the same consumers year after year is challenging.

Unless you’re Apple (NASDAQ:AAPL), investors tend to shy away from device-sales-centric businesses. Plus, competition is everywhere. And as early-bird investors in FIT or GPRO found out, initial enthusiasm is no guarantee of future success.

Obviously, those who are considering ARLO stock want to avoid the fate of early-peaking tech IPOs. And Arlo already faces a tough environment from competitors.

Smart-device maker Sonos (NASDAQ:SONO), which also just had its IPO, is a competitor in the security-camera industry. Moreover, tech giants Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) have their own exposure to the sector.

It’s not just the quantity of competitors, but the quality. These companies have other popular business lines, offering natural synergy. Arlo for the most part is just Arlo.

That said, ARLO stock is an intriguing opportunity.

ARLO Stock Benefits From Broader Tailwinds

Arlo is a device maker. And I completely understand why investors may not want to risk capital towards a business dependent on product sales. Furthermore, Arlo makes security cameras. There’s nothing cool about them, nor is there a need to buy the latest, greatest iteration.

That said, according Bureau of Justice Statistics, 1.9% of home in the U.S. experienced a burglary in 2016. And a recent criminology report by UNC Charlotte found that 60% of burglars surveyed were deterred by the presence of visible security cameras. So there is a reason to buy security cameras.

Plus, contrary to popular portrayal, most burglaries do not occur during the dead of night. Instead, they occur shockingly during 10am to 3pm. While these hours make burglars more visible, it’s also when most people are at work or school. Therefore, the practical reality is that these criminals are rarely noticed.

Naturally, having an affordable security system can mitigate these issues, which is a net positive for ARLO stock.

Not only that, industry sales of internet protocol (IP) cameras, which are used for security and surveillance purposes because they can transmit data/footage through the internet, have jumped recently. In 2014, IP cameras totaled $65 million in revenue in the U.S. Last year, the industry hauled in $154 million.

The best part, though, is that ARLO stock isn’t dependent on device sales. The company offers multiple, attractive service packages. Their “premiere” package, which offers 30 days of cloud recordings, is less than $10 a month. The “elite” package, which offers 60 days of cloud recordings, is less than $15.

Compared to what dedicated, 24/7 monitoring services offer, the prices aren’t even close. For families that want effective but cost-friendly security solutions, Arlo represents an ideal alternative.

Arlo Will Enjoy Perpetual Demand

Another longer-term benefit for ARLO stock is that the home-security business will never go out of style. So long as crime exists, so too will a need to protect ourselves from it.

Moreover, burglaries and related crimes are asymmetric. They can happen anytime, anywhere. Moving to a nice neighborhood doesn’t guarantee anything. As a result, it just makes sense to have some sort of security system.

Because of this dynamic, home security is also an industry that can support multiple players. People who are cost-sensitive will gravitate towards Arlo. Those who want extra protection can seek companies like ADT (NYSE:ADT).

Of course, the markets have the last word, and right now, they’re bearish on ARLO stock. But in the long run, the fundamentals should reassert themselves. The good news is, prospective buyers have more positives to work with than negatives.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

©2022 InvestorPlace Media, LLC