Netgear's Arlo line of connected home security cameras.
Photo credit: Netgear
By Aaron Pressman
February 7, 2018

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Flip, GoPro, Fitbit, Pebble, Jawbone, Arlo Technologies…need I go on? Aaron in for Adam on an about-to-be slushy Wednesday in Boston pondering the history of small consumer hardware companies.

Router and network equipment maker Netgear said Tuesday that it plans to sell to the public just under a 20% stake in Arlo, its unit that makes Internet-connected security cameras, in the second half of the year. After the IPO, it will distribute the remaining 80%-ish stake to its shareholders in 2019. It’s hard to imagine a less exciting investment opportunity.

Arlo has sold close to 7 million of its white, pod-like cameras that can keep tabs on a sleeping baby, valuables stashed on the back porch, or an unoccupied vacation home. Of course, Netgear is pitching Arlo not just as the maker of easily commoditized hardware, but as a cloud software service provider, too. Arlo cameras include some free online backup of videos, but the company offers additional storage space and other features for additional fees. A $99 “premier” plan, for example, stores 30 days worth of recordings and supports up to 10 cameras.

Arlo’s revenue doubled last year to $378 million, while sales at the rest of Netgear actually slipped 10% to $1.03 billion. But how much of Arlo’s revenue was from cloud services? A paltry $20.9 million, or about 5%, and up from an only very-slightly-less paltry $19.8 million in 2016.

Netgear CEO Patrick Lo explained that the fast-growing Arlo unit needed to “aggressively acquire new users,” Wall Street speak for racking up big losses, while the rest of Netgear had to “deepen engagement” with an already large user base, a signal that customers would be squeezed with higher prices for more profits. One of his PowerPoint slides put it more bluntly: “Profit growth for NTGR; User growth for ARLO.”

That may make sense from a corporate strategy perspective. Netgear’s stock has done fine, but trailed the S&P 500 index for most of the past five years until a big rally the past few months, largely over excitement about how well Arlo cameras sold in the holiday shopping period. (One daft analyst even claimed Arlo was worth 10 times Netgear’s entire market value because its store of video data could be used for AI training projects.) But don’t forget that GoPro’s IPO pitch included how it was underlying a whole new video network or Fitbit’s focus during its IPO of its growing social network of fitness freaks. GoPro has since lost 77% of its value and Fitbit 74%.

Now may be the right time for Lo and company to cash in on the hype with an Arlo IPO. But as for investors, they should keep in mind philosopher George Santayana’s maxim: “Those who cannot remember the past are condemned to repeat it.”

Aaron Pressman
@ampressman
aaron.pressman@fortune.com

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