It has been about a month since the last earnings report for NETGEAR, Inc. (NTGR Quick QuoteNTGR - Free Report) . Shares have lost about 13.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is NETGEAR, Inc. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

NETGEAR’s Q1 Earnings Miss Estimates

NETGEAR 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.

Other Details

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.

Q2 Outlook

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.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

The consensus estimate has shifted -436.36% due to these changes.

VGM Scores

Currently, NETGEAR, Inc. has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise NETGEAR, Inc. has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.