What happened

Shares of Arlo Technologies (NYSE:ARLO) sank on Wednesday after the connected-camera company reported its second-quarter results. While Arlo beat analyst expectations, revenue and earnings plunged from the prior-year period. The stock was down about 19.3% at 1:40 p.m. EDT.

So what

Arlo reported second-quarter revenue of $83.6 million, down 24.7% year over year and about $6.4 million above the average analyst estimate. Revenue from products tumbled 28.9% year over year to $72.4 million, while revenue from services rose 23.3% to $11.2 million.

A declining chart.

Image source: Getty Images.

The number of paid subscribers grew by 83.3% in the second quarter, while the number of cumulative registered users grew by 54.1%. The company's flagship Ultra camera system became available in March, so a full quarter of Ultra sales are included in the results.

Non-GAAP (adjusted) earnings per share came in at a loss of $0.36, down from a loss of $0.05 in the prior-year period and $0.06 better than analysts were expecting. Non-GAAP gross margin was just 12.5%, down from 26.2% in the prior-year period.

Now what

Arlo expects to produce revenue between $95 million and $105 million in the third quarter, along with a non-GAAP gross margin between 9% and 12%, and a non-GAAP EPS loss between $0.37 and $0.43.

Normalizing channel inventory levels will help push up revenue in the back half of the year, as will new product launches. In remarks in the earnings release, CEO Matthew McRae said: "We continue to exhibit the innovation Arlo is known for and will be adding a new camera introduction to the doorbell that will hit the market in the coming quarters. I am excited about the trajectory Arlo is on, and look forward to accelerating growth in the back half of the year." 

While Arlo beat analyst estimates in the second quarter, it wasn't enough to prevent investors from punishing the stock.

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