TipRanks Smart Growth Portfolio #11: License to Bill
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Dear Investors,
Welcome to the 11th edition of the Smart Growth Portfolio and Newsletter.
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Portfolio Updates
❖ We are happy to announce the addition of Enova International (ENVA) – which was recommended in one of our previous Newsletters – to the Smart Growth Portfolio.
Enova International is a digital financial services company offering AI-driven credit solutions to underserved consumers and small businesses. Its fully online model supports installment loans, lines of credit, and small business financing through brands like CashNetUSA, NetCredit, and OnDeck. Leveraging proprietary machine learning and real-time analytics via its Colossus™ engine, Enova automates over 85% of underwriting, optimizing acquisition, fraud prevention, and collections.
Strategic acquisitions have expanded Enova’s reach and product diversity while enhancing underwriting capabilities. The company’s end-to-end tech stack, first-party data, and disciplined pricing fuel operational scalability and margin resilience. ENVA’s combination of high return on equity, scalable tech stack, and business mix – delivering recurring revenue at scale, with strong margin dynamics across economic cycles – underpins a financial profile that is both resilient and expansionary.
Enova’s revenue is 95% derived from the U.S., with 5% attributed to Brazil, where the company is scaling its consumer lending products. This geographic focus minimizes exposure to volatile international markets or trade-related tensions, and offers a measure of macro insulation relative to peers with global footprints. ENVA ended Q1 2025 with record-high revenue – up 22% YoY – and non-GAAP EPS of $2.98, up 56% from the prior year.
Despite surging by nearly 60% over the past year, Enova still trades at a steep discount to sector peers. Analysts rate it a “Strong Buy,” with price targets implying an upside of over 30%. With 95% of revenue coming from the U.S. and a scalable, AI-native platform, Enova is positioned for durable growth. It stands out as a rare blend of tech-driven efficiency, credit risk discipline, and valuation upside in a volatile market.
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Portfolio News
❖ monday.com (MNDY) kicked off fiscal 2025 with a robust Q1, posting revenue of $282.3 million, up 30% year-over-year, exceeding expectations and maintaining its streak of strong execution in the work management platform space.
The company reported GAAP operating income of $9.8 million, reversing a loss of $5.0 million a year ago. On a non-GAAP basis, operating income nearly doubled year-over-year to $40.8 million, lifting non-GAAP operating margin to 14%, up from 10% in Q1 2024. Free cash flow remained a standout metric, with adjusted free cash flow reaching a record $109.5 million, representing a 39% margin—a rare level of cash efficiency at scale. Adjusted EPS surged by more than 80% YoY, reaching $1.10 – versus analyst consensus of $0.70.
Customer expansion was equally impressive. The number of clients with over $50K in ARR rose 38% YoY to 3,444, while those over $100K in Annual Recurring Revenue (ARR) jumped 46% to 1,328. Net dollar retention hit 116% for $50K+ accounts and 117% for $100K+ accounts, underlining strong upsell dynamics within the enterprise base.
Strategically, the company launched new enterprise-focused features while continuing to ed roll out embedded AI capabilities – key components of its plan to become the go-to operating system for work management. monday.com also named a new Chief Revenue Officer to help drive go-to-market expansion.
Looking ahead, monday.com raised its full-year guidance. It now expects 2025 revenue of $1.22-1.226 billion (25-26% YoY growth) and non-GAAP operating income of $144-150 million. Adjusted free cash flow is projected at $310-316 million, or roughly 25-26% margin, maintaining a high bar for efficiency even as the company scales. With enterprise penetration deepening and margins expanding, monday.com continues to reinforce its leadership in the collaborative work management space.
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❖ Cellebrite DI (CLBT) posted a solid Q1 2025, delivering steady revenue growth and strong profitability. Total revenue slightly missed analyst estimates but was nonetheless strong at $107.5 million – up 20% year-over-year – driven by a 21% increase in subscription revenue, which now comprises nearly 89% of total sales. ARR climbed to $408 million, marking 23% YoY growth, with dollar-based net retention at a healthy 121% – signaling continued upsell and expansion among existing customers.
On the profitability side, CLBT continues to impress. Adjusted EBITDA rose 34% to $23.7 million, with a 22% margin – underscoring disciplined cost control despite ongoing investments in R&D and go-to-market. Non-GAAP EPS came in at $0.10, beating the consensus by a penny.
Despite these positives, shares dropped sharply following the report, driven by a modest downward revision to full-year revenue guidance, now set at $470-485 million, down from $480-490 million. Management attributed this cut to two key factors:
- Delayed net new deals – largely timing-related slippage on customer contracts that were expected to close in Q1.
- Softer-than-expected revenue from one-time professional services in the U.S. Federal vertical – e.g., digital forensic consulting or implementation tied to federal law enforcement agencies – a high-margin but inherently lumpy segment. This line fell short of internal forecasts, highlighting uncertainty in procurement cycles.
Importantly, guidance for ARR ($480-495 million) and adjusted EBITDA ($113-123 million) was maintained, signaling continued confidence in recurring revenue growth and cost discipline. Cellebrite also emphasized ongoing investments in its AI- and cloud-native Case-to-Closure platform, with its new Cellebrite Cloud offering gaining initial customer traction.
Q2 guidance calls for $110-116 million in revenue and $26-28 million in adjusted EBITDA, reflecting cautious optimism. While the fundamentals remain solid, the market reaction reflects heightened expectations amid a renewed tech/growth rally.
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This Week’s Top Growth Pick: Arlo Technologies (ARLO)
Arlo Technologies Inc. is a smart home security company specializing in AI-powered connected devices and subscription-based software services. Originally known for its hardware, such as cameras and doorbells, Arlo has transformed into a SaaS-first business with a secure, scalable cloud platform called Arlo Intelligence. Its offerings include advanced features like facial recognition, object detection, and real-time alerts, serving both individual consumers and strategic partners. With over 5 million paid subscribers and growing annual recurring revenue, Arlo is carving out a leading role in the expanding smart security market. As adoption of connected security rises globally, Arlo’s integrated approach – combining robust hardware with sticky, high-margin services – positions the company at the forefront of this digital safety wave.
Source: Arlo Technologies Q1 2025 Investor presentation
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Lenses Out, Licenses In
Arlo Technologies was spun off from NETGEAR in 2018 as a standalone public company focused on connected security devices. Initially positioned as a consumer hardware company, Arlo built its reputation on sleek, reliable security cameras and doorbells that quickly gained traction in the burgeoning smart home market. However, as the competitive landscape evolved and hardware margins tightened, Arlo began rethinking its long-term strategy.
The inflection point came in the early 2020s, when the company initiated a multi-year transition from a hardware-heavy model to a software-centric, recurring revenue business. This shift accelerated in 2021-2022 with the ramp-up of Arlo Secure – a subscription service offering cloud storage, AI-based notifications, and emergency response features. By bundling software value into its hardware ecosystem, Arlo began increasing subscriber conversion and long-term customer monetization.
Over the past five years, Arlo has invested heavily in platform capabilities and artificial intelligence. The introduction of Arlo Intelligence, its proprietary AI engine, enabled advanced functionality such as object classification, person recognition, fire and smoke detection, and even customizable AI models trained by users. These enhancements differentiated Arlo in a crowded market and increased service stickiness.
Strategic partnerships have also played a critical role. The company expanded integrations with major smart home ecosystems like Amazon Alexa, Google Assistant, and Samsung SmartThings. It also entered new retail and distribution deals to grow shelf space and international presence – particularly in Europe, where smart home adoption is on the rise.
Arlo hasn’t pursued major M&A deals, but has made targeted investments to strengthen its tech stack, including a strategic investment in Origin Wireless to enhance sensing capabilities. Simultaneously, operational improvements – such as tighter inventory management and a more efficient direct-to-consumer channel – have supported margin expansion and capital efficiency.
Arlo’s transformation into a SaaS-first business model wasn’t without risk, but the results are beginning to show. By 2025, service revenue accounted for the majority of the company’s total income, and annual recurring revenue had more than doubled from pre-2020 levels. What began as a camera business has evolved into a subscription-driven platform, with AI at the core and a growing footprint in the $25B+ smart home security market.
This shift has laid the foundation for scalable growth – positioning Arlo as more than just a device maker, but as a technology platform embedded in the future of connected home security.
Source: Arlo Technologies Q1 2025 Investor presentation
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Security as a Service
Arlo has redefined itself as a pure-play smart security platform – a SaaS-first company built on a foundation of connected devices, proprietary AI, and scalable cloud infrastructure. Previously known primarily for selling security cameras, Arlo now generates the majority of its revenue from recurring software subscriptions, offering a sticky, high-margin alternative to traditional home security models.
The company operates across two main revenue streams: hardware sales and subscriptions, with the latter now contributing nearly 60% of total revenue. Hardware remains essential for distribution and market entry, but the growth engine is clearly the services layer – powered by Arlo Secure, Arlo Safe, and a suite of AI-enabled features that enhance both utility and customer retention.
Arlo Secure is the company’s flagship subscription service, offering real-time alerts, cloud video storage, activity zones, and advanced object detection. Arlo Safe extends protection beyond the home, with personal safety features such as emergency response, crash detection, and location sharing – positioning Arlo as a broader safety platform rather than just a home camera vendor. These services are increasingly bundled with Arlo devices at the point of sale, streamlining conversion and boosting attach rates.
What powers these offerings – and sets Arlo apart – is Arlo Intelligence, the company’s proprietary AI platform at the heart of its SaaS stack. Built in-house and refined over a decade, Arlo Intelligence processes over 170 billion AI alerts annually, analyzing 900 million hours of video to suppress noise and surface only actionable events. Capabilities include object detection (people, vehicles, animals), facial and license plate recognition, fire and smoke detection via computer vision, and even user-trained AI agents – a rare feature in consumer tech. This depth of functionality underpins Arlo’s positioning as a tech-forward, privacy-conscious alternative to legacy providers.
Another key differentiator is Arlo’s vertically integrated AI stack and singular focus on security. While rivals dilute focus across broader smart home categories, Arlo has built a full-stack platform centered on actionable intelligence, low churn, and long-term customer value.
The company’s privacy-first architecture and tight integration with Google, Amazon, and Samsung ecosystems further enhance its competitive edge. Its cloud platform delivers enterprise-grade uptime and handles billions of API calls daily – providing both resilience and scalability across consumer and B2B deployments.
Geographically, Arlo remains U.S.-heavy, but international momentum is building. With deepening retail partnerships and rising global smart home adoption, overseas revenue is expected to accelerate.
Arlo’s total addressable market (TAM) is sizable – estimated at $25 billion in the U.S. for 2025, including $8.2 billion in devices and $16.6 billion in services. Globally, the smart home security market is projected to expand from about $33 billion in 2025 to $93 billion by 2032. This trajectory opens significant headroom for Arlo as it scales internationally through broader retail access and ecosystem alignment. Despite growing device adoption – with U.S. smart camera and doorbell usage more than doubling in five years – just 7% of U.S. households currently pay for security services, leaving a vast subscription runway. Arlo’s focus, platform depth, and execution discipline position it to take meaningful share in a market still early in its SaaS adoption curve.
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Profit Surveillance
Arlo Technologies reported a strong start to the year, with Q1 2025 results reflecting continued momentum in its high-margin subscription business and improving operating leverage. Revenue reached $119.07 million, coming in above consensus expectations and near the upper end of the company’s guidance range.
Profitability metrics were even more notable. Arlo delivered non-GAAP earnings per share of $0.15, up from $0.09 in Q1 2024 and handily beating the Street’s forecast of $0.12. The company’s adjusted EBITDA rose to $16.4 million, a 76% increase year-over-year, while free cash flow reached a record $28.1 million – representing a healthy 23.6% free cash flow margin. These gains were driven by a more favorable revenue mix, higher gross margins on services, and continued cost discipline.
The composition of revenue underscores Arlo’s transition from a hardware-centric business to a SaaS-led model. In Q1, services accounted for 58% of total revenue, up from 50% a year ago. Annual recurring revenue (ARR) grew to $276.4 million, marking a 22% increase from the prior year. The number of paid accounts expanded to 4.9 million, up 51% year-over-year – a clear indicator of traction in customer acquisition and retention. Arlo’s service gross margin remained strong at 83%, and retail-specific metrics – such as ARPU (average revenue per user), gross margin, and customer acquisition cost – continued to support a best-in-class LTV-to-CAC ratio1 of 4:1.
Source: Arlo Technologies Q1 2025 Investor presentation
Looking ahead, Arlo issued optimistic guidance for Q2 2025, projecting revenue in the range of $119 to $129 million and non-GAAP EPS between $0.11 and $0.17. Both ranges are above or in line with current analyst forecasts, reinforcing confidence in the company’s momentum. For the full year, Arlo maintained its guidance of $510 to $540 million in total revenue and $0.56 to $0.66 in non-GAAP EPS, while reiterating a services revenue target of more than $300 million. This represents year-over-year growth of 3% to 9% in revenue, 21% or more in services, and a sharp 70% to 100% increase in non-GAAP EPS compared to FY 2024 – underscoring the impact of margin expansion and a deeper shift toward high-value recurring revenue.
With ARR projected to grow approximately 25% in 2025 and the business now comfortably above the Rule of 402 threshold, Arlo’s financial trajectory reflects a company moving from operational stabilization to profitable scale. The earnings beat, strong cash flow, and expanding service mix all reinforce the view that Arlo is executing on a durable, high-growth model.
Source: Arlo Technologies Q1 2025 Investor presentation
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1 – LTV-to-CAC ratio, i.e., lifetime value to customer acquisition cost, compares the total gross profit a company expects to earn from a customer over the course of their subscription (LTV) to the cost of acquiring that customer (CAC). A ratio above 3:1 is generally considered strong in subscription models. Arlo’s 4:1 ratio means it earns four dollars in gross profit for every dollar spent to acquire a new subscriber – a sign of efficient growth and sustainable customer economics.
2 – Rule of 40 is a benchmark used to evaluate the health of SaaS and subscription-based businesses. It adds a company’s revenue growth rate and profit margin (usually free cash flow or EBITDA margin). A combined score of 40% or higher is considered strong, indicating a balance between growth and profitability. Arlo, with 22% ARR growth and a 23.6% FCF margin in Q1 2025, comfortably exceeds this threshold – a sign of efficient, sustainable scaling.
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Trigger Point
Arlo’s stock reached its all-time high in July 2024, as investor confidence surged following four consecutive quarters of triple-digit earnings growth and growing evidence of its successful transformation into a full-stack SaaS company. However, the stock’s rapid ascent was followed by a sharp pullback, driven primarily by profit-taking and broader market volatility. A second, shorter-lived rally followed in February 2025, again triggered by strong earnings and business momentum, but quickly muted by external market dynamics. Between these spikes, ARLO traded largely sideways.
The broader “tariff correction” that swept across tech and IoT stocks in early spring saw Arlo and its peers bottom out around April 8, but the rebound played out very differently. While peer stocks staged modest recoveries and remained in the red on a 12-month basis, Arlo surged, turning nearly vertical after its Q1 2025 earnings. In just over a month, the stock climbed nearly 60%.
Despite the rally, valuation remains compelling. ARLO currently trades at a premium to the Technology sector average on a non-GAAP TTM P/E basis, reflecting the market’s recognition of recent earnings momentum. Yet it trades at a slight discount on forward P/E, signaling that future growth is not fully priced in. This setup – high growth with a reasonable forward multiple – fits the classic GARP (growth at a reasonable price) profile. Based on projected free cash flows, the stock appears to be undervalued by roughly 30%, offering an attractive entry point for long-term growth investors.
Relative to its peers, Arlo’s valuation story strengthens. While it ranks near the top of the peer set on TTM P/E, its forward P/E sits mid-pack, even as its EPS is expected to nearly double year-over-year – a growth rate that more than justifies a premium multiple. Moreover, on EV/Sales, both trailing and forward, Arlo trades near the bottom of its peer group, despite a significantly higher share of high-margin services revenue in its mix.
Wall Street remains bullish: analysts currently rate ARLO a “Strong Buy,” with a 12-month average price target implying more than 45% upside from current levels.
Taken together, Arlo’s financial performance, valuation positioning, and market momentum present a rare alignment of growth, profitability, and pricing power – making it one of the more compelling small-cap tech opportunities in the market today.
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To Sum It All Up
Arlo Technologies is a smart security platform combining connected devices, proprietary AI, and cloud-based software to deliver high-margin, recurring services. The company has successfully pivoted from hardware to a SaaS-first model, backed by a robust AI engine and growing ecosystem integrations. Strategic investments, a deepening retail footprint, and strong subscription momentum have positioned Arlo to scale efficiently in a rapidly expanding global market. Its business fundamentals reflect both growth acceleration and financial discipline, with expanding margins, strong cash flow, and rising customer stickiness. Despite recent stock gains, Arlo remains attractively valued relative to its earnings potential and peer group. For investors seeking exposure to consumer-facing AI, recurring revenue, and digital infrastructure in the home, Arlo offers a differentiated, under-the-radar growth story with room for both earnings expansion and multiple rerating.
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Smart Growth Portfolio
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Click here for more stock analysis from TipRanks Macro & Markets research analyst Yulia Vaiman
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Disclaimer
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