Shares of Arlo Technologies Inc. (NYSE: ARLO) soared 17.41% in pre-market trading on Friday, following the company's impressive second-quarter financial results for 2025 and an optimistic outlook for the rest of the year. The smart home security company significantly outperformed analyst expectations, demonstrating robust growth and improved profitability, particularly in its subscription business.

Arlo reported quarterly adjusted earnings of $0.17 per share, surpassing the analyst consensus estimate of $0.15 by 13.33%. This represents a substantial 70% increase from the $0.10 per share earned in the same period last year. The company's revenue also exceeded expectations, coming in at $129.405 million, beating the analyst estimate of $123.463 million by 4.81%.

The strong performance was primarily driven by Arlo's growing subscription business. Subscriptions and services revenue rose 30% year-over-year to $78 million, now accounting for 60.4% of total revenues. The company's Annual Recurring Revenue (ARR) grew 34% year-over-year to $316 million, fueled by the launch of its new AI platform, Arlo Secure 6. CEO Matthew McRae highlighted this as a key driver of growth in subscriptions, boosting both revenue and ARR.

Looking ahead, Arlo provided a positive outlook for the third quarter of 2025, expecting revenue between $133 million and $143 million, and non-GAAP EPS between $0.12 and $0.18. Both ranges surpass current analyst expectations. The company also raised its full-year 2025 service revenue outlook to above $310 million, with subscriptions and services revenue expected to grow over 27%. Additionally, Arlo reaffirmed its non-GAAP service gross margin guidance at 85% for the full year and set a year-end ARR target of $335 million.

Investors were particularly encouraged by Arlo's strategic partnership with ADT and upcoming holiday product launches, which are expected to sustain growth momentum. The company announced its largest device launch in history, involving over 100 new SKUs, which is anticipated to drive 20-30% camera unit growth in Q3 and Q4, further accelerating service revenue.

In response to the strong results and outlook, Raymond James raised its price target for Arlo Technologies to $22 from $15, further boosting investor confidence in the company's future prospects. The pre-market surge reflects the market's positive reaction to Arlo's successful transition to a subscription-based model and its improving financial performance.