NETGEAR, Inc ( NTGR Quick Quote NTGR - Free Report) reported dismal first-quarter 2022 results, with earnings and revenues declining on a year-over-year basis. Further, the bottom and top lines missed the Zacks Consensus Estimate.
The company reported a non-GAAP loss of 28 cents per share against non-GAAP earnings of 99 cents recorded in the year-ago quarter. The Zacks Consensus Estimate was pegged at earnings of 10 cents per share.
NETGEAR generated net revenues of $210.6 million, down 33.8% year over year. The top line lagged the consensus mark of $224 million. The downtick resulted from the weakness in the Connected Home or CHP segment. The U.S. consumer Wi-Fi market, which rose nearly 15% (above pre-pandemic level) has performed tepidly in the quarter under review. In the first quarter, the market ended approximately flat to 2019 levels, added NETGEAR. This led to a decline in the company’s revenues from the CHP segment.
Due to continued supply-chain issues amid the pandemic and a Shenzhen shutdown briefly interrupted component supplies to factories in Southeast Asia. This negatively impacted revenues from Small and Medium Business or SMB segment revenues. In absence of such factors, SMB revenues would have been higher by 5-7% in the first quarter, added NETGEAR.
Region-wise, net revenues from the Americas were $144.6 million (68% of net revenues), down 34% year over year. EMEA (Europe, Middle East and Africa) revenues (18%) were $36.9 million, down 39.7%. APAC (the Asia Pacific Region) revenues (14%) were down 22.9% to $29 million.
The number of registered app users in the reported quarter was 14.2 million. NETGEAR ended the quarter with 627,000 paid subscribers, marking year-over-year growth of 30.4%.
The company remains confident of tapping 750,000 paid subscribers by the end of 2022.
Segmental Performance Connected Home (including Nighthawk, Orbi, Nighthawk Pro Gaming and Meural brands) delivered revenues of $130.3 million, down 45.9% year over year. The downtick was due to softness in the retail and service provider businesses which had witnessed pandemic-led elevated consumer demand in the prior-year period. However, the segment witnessed strong demand for premium Wi-Fi mesh systems.
NETGEAR holds about 44% share in the U.S. retail Wi-Fi market, including mesh, routers, gateways and extenders.
Driven by the strong demand for managed switched products, revenues from SMB rose 4.2% year over year to $80.2 million. Amid the supply constraints, the segment showcased strong operational execution on the back of the growing demand for a flexible working environment and business formations.
Robust demand for Wi-Fi 6 cloud-managed mesh wireless access points coupled with ProAV switching strength, drove the momentum. The company holds about 55% share in U.S. retail switch market.
The adjusted gross margin decreased to 28.2% from 35.2% due to lower revenues. Non-GAAP operating margin was (4.4%) against 13.3% in the year-ago quarter.
Cash Flow & Liquidity
In the first quarter, NETGEAR generated $1.3 million of cash from operations. As of Apr 3, 2022, the company had $206 million in cash and cash equivalents, and $317.5 million of total current liabilities compared with $263 million and $341 million, respectively, in the quarter ended Dec 31, 2021.
The company repurchased nearly 354,000 shares at an average price of $26.50 per share for $9.4 million in the first quarter of 2022.
For the second quarter of 2022, NETGEAR anticipates net revenues of $205-$220 million.
Owing to the lost leverage from the top line along with increasing freight costs, higher component costs and numerous disruptions on the logistics front, the GAAP operating margin is estimated to be between (6.5)% and (5.5)%.
The non-GAAP operating margin is expected between (4)% and (3)%. The company remains optimistic that sea transportation costs will reduce with SMB supply improving in the second half of 2022, thereby creating a favorable environment for top and bottom lines.
Zacks Rank & Stocks to Consider
NETGEAR currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the broader computer network sector are
Cisco Systems ( CSCO Quick Quote CSCO - Free Report) , Jabil ( JBL Quick Quote JBL - Free Report) and Pure Storage ( PSTG Quick Quote PSTG - Free Report) . Jabil currently sports a Zacks Rank #1 (Strong Buy), while Cisco Systems and Pure Storage carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Cisco Systems’ fiscal 2022 earnings is pegged at $3.45 per share, unchanged in the past 60 days. The long-term earnings growth rate is pegged at 6.5%.
Cisco Systems’ earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 1.84%. Shares of Cisco Systems have fallen 4.1% in the past year.
The Zacks Consensus Estimate for Jabil’s fiscal 2022 earnings is pegged at $7.25 per share, up 10.2% in the past 60 days. The long-term earnings growth rate is 12%.
Jabil’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 13.5%. Shares of JBL have gained 5% in the past year.
The Zacks Consensus Estimate for Pure Storage’s fiscal 2022 earnings is pegged at 86 cents per share, up 22.9% in the past 60 days. The long-term earnings growth rate is 30.9%
Pure Storage’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 99.2%. Shares of Pure Storage have rallied 43.3% in the past year.