The disruption is also the supplier

ADT, which sells professionally installed and continuously monitored alarm, fire and video systems to American homes and small businesses, launched a self-installed product called ADT Blu in the second quarter at an entry price of $10 a month. The platform underneath it belongs to Arlo Technologies, the Carlsbad, California maker of wireless cameras and video doorbells that also supplies the hardware and cloud service behind Comcast's Xfinity offering, Europe's Verisure and Samsung SmartThings (Security Systems News). The company most often cast as the threat to monitored contracts is a counterparty, not a rival.

The substitution itself is genuine. For the first time, more American alarm owners installed their own systems than hired a professional, and professional monitoring now ranks ninth of twelve factors buyers weigh; only 5% of non-users said they intended to buy monitoring within a year (SafeHome 2026 market report). Ring, Amazon's doorbell brand, is named by 43% of users as their primary system. ADT's fight is to defend the monitored socket, not to win the device.

So far it is holding. Second-quarter revenue of $1.31bn grew less than 2%, but gross profit rose 10.2% as margin widened to 53.4% from 49.4%. Ending recurring monthly revenue was $360m, and the share of that revenue lost to cancellations over twelve months was flat at 13.1% both sequentially and against last year — no deterioration in the metric the DIY thesis predicts. Adjusted free cash flow of $406m was up 48%, and management raised full-year guidance. The soft spot is below gross profit: operating income fell 7.9%. Net debt of $7.4bn sits at 2.8 times earnings before interest, taxes, depreciation and amortization, 98% fixed-rate, with the largest maturity not due until 2030 (Investing.com). Management flagged 2027 headwinds of roughly $50-100m each in cash taxes and cash interest as tax losses run out and swaps expire.

Losing money on cameras on purpose

Arlo's pro forma product gross margin was minus 11.6% last quarter. That is the strategy: every device sold below cost enters a household into a subscription funnel whose lifetime value rose 15% to $967, against service gross margin of 84.1%. Paid accounts reached 6.3m, up 23%, annual recurring revenue was $365m, and service is now 60% of the top line. Revenue grew 20.5% and gross profit 29.5% — hardware is expanding, not shrinking. Management raised full-year guidance to $580-600m of revenue and $0.90-1.00 of earnings per share.

That progress is more visible in the price. Arlo trades at 5.46 times trailing gross profit, roughly 2.5 times ADT's 2.23. Its forward multiple of 16.2 times earnings falls to about 13.6 on the top of its own guidance; ADT trades at 9.6 times trailing and 8.0 times forward earnings, and 4.9 times EBITDA — the fitting lens for a leveraged annuity.

Resideo's problem is a memory chip

Resideo makes thermostats, water controls and smoke and carbon-monoxide detectors under the Honeywell Home and First Alert brands. On 3 August it distributed one share of ADI Global Distribution for every two of its own in a tax-free separation; ADI, a $4.8bn-revenue low-voltage equipment distributor, was the larger half by sales (Commercial Integrator). The close went from $36.23 to $26.17 the next session — value moved, not lost. A second drop, 12.7% on 13 August, followed the standalone outlook of $2.90-2.95bn revenue and $605-625m of adjusted EBITDA (FinancialContent). Strip those two sessions and the month is down 3.9%; count the ADI stub near $21, worth about $10.60 per original share (TradingView), and a continuing holder is down roughly a tenth, not two-fifths.

The real news was the margin guide. Products gross margin hit 43.6%, a thirteenth straight quarter of expansion, and management said the streak ends this quarter: memory costs are up about fourfold and metals about 35%. Memory suppliers have reallocated capacity to servers and high-bandwidth chips, with AI data centers projected to absorb roughly 70% of high-end DRAM this year and prices up 63% in the second quarter alone (J.P. Morgan). A smoke-detector maker is being repriced by an AI shortage. Separately, one large original-equipment security customer moving production in-house removes $40-50m of second-half revenue. Resideo repaid a $900m term loan at the spin.

Both subscription names have recovered on the charts — ADT up 5.6% and Arlo 2.8% over 30 days, each moving back above its long-term moving average in the first week of August — while remaining down 16.3% and 19.1% over twelve months. Housing supports the caution: existing-home sales fell 4.2% in the first half and household mobility sits at a record-low 11.2% (Harvard Joint Center for Housing Studies), which starves new installations even as remodeling spending grows.

The setup

Where it stands — Two subscription businesses with improving unit economics; one manufacturer repriced by a spin-off and rising input costs. Would confirm — ADT attrition at or below 13.1% next quarter, and Arlo paid accounts above 6.5m. Would invalidate — ADT recurring monthly revenue falling below $360m, or Arlo service revenue growth slipping under 10%. Watch next — Resideo's third quarter, its first clean standalone period, guided to $705-730m of revenue. Valuation — ADT 9.6x trailing and 8.0x forward earnings; Arlo 5.46x trailing gross profit against ADT's 2.23x.