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NETGEAR (NTGR) Reports Narrower-Than-Expected Loss in Q2

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NETGEAR, Inc (NTGR - Free Report) reported weak second-quarter 2022 results, with earnings and revenues declining on a year-over-year basis.

The company reported a non-GAAP loss of 19 cents per share against non-GAAP earnings of 66 cents recorded in the year-ago quarter. However, it came in narrower than the Zacks Consensus Estimate loss of 24 cents per share.

NETGEAR, Inc. Price, Consensus and EPS Surprise

NETGEAR, Inc. Price, Consensus and EPS Surprise

NETGEAR, Inc. price-consensus-eps-surprise-chart | NETGEAR, Inc. Quote

NETGEAR generated net revenues of $223.2 million, down 27.7% year over year. The downtick resulted from the weakness in the retail segment of the CHP business, partly offset by strong revenue growth in the SMB segment. However, the top line beat the consensus estimate of $209.2 million.

Region-wise, net revenues from the Americas were $144 million (65% of net revenues), down 32.3% year over year. EMEA (Europe, Middle East and Africa) revenues (20%) were $45 million, down 27.2%. APAC (the Asia Pacific Region) revenues (15%) were down 0.5% to $34.2 million.

The number of registered app users in the reported quarter was 14.8 million. NETGEAR ended the quarter with 654,000 paid service subscribers, marking year-over-year growth of 27.2%.

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 $128.9 million, down 43.9% 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 42% share in the U.S. retail Wi-Fi market, including mesh, routers, gateways and extenders.

Driven by the strong demand for ProAV-managed switched products, revenues from SMB rose 19.5% year over year to $94.4 million. Amid the supply-chain constraints, the segment showcased strong operational execution and gained from the growing demand for digital AV-over-IP Ethernet solutions by the AV industry.

Robust demand for Wi-Fi 6 cloud-managed mesh wireless access points coupled with ProAV switching strength drove the momentum.

Other Details

The adjusted gross margin decreased to 27.7% from 30.4% year over year due to lower revenues. Non-GAAP operating margin was (1.9%) against 8.6% in the year-ago quarter.

Cash Flow & Liquidity

In the second quarter, NETGEAR generated $6.4 million cash from operations. As of Jul 3, 2022, the company had $149 million in cash and cash equivalents, and $305.1 million of total current liabilities compared with $206 million and $317.5 million, respectively, in the quarter ended Apr 3, 2022.

The company repurchased nearly 678,000 shares at an average price of $22.13 per share for $15 million in the second quarter of 2022.

Q3 Outlook

For the third quarter of 2022, NETGEAR anticipates net revenues of $240-$255 million. The company remains optimistic that SMB and the CHP service provider channel will gain momentum in the second half of 2022 due to solid demand and improving supply.

The company anticipates that the service provider channel will generate about $40 million in sales in the third quarter and SMB revenue will increase sequentially.

Owing to increasing air freight costs to compensate for shipping and production delays; and U.S. retail customers reducing their inventory positions, the GAAP operating margin is estimated to be between (1) % and remaining flat.

The non-GAAP operating margin is expected to be between 1.5% and 2.5%.

Zacks Rank & Stocks to Consider

NETGEAR currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the broader technology space are Aspen Technology (AZPN - Free Report) , Synopsys (SNPS - Free Report) and InterDigital Inc. (IDCC - Free Report) . Aspen Technology, Synopsys and InterDigital each carry a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Aspen Technology’s 2022 earnings is pegged at $5.49 per share, increasing 0.4% in the past 60 days. The long-term earnings growth rate is anticipated to be 16.3%.

Aspen Technology’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 4.1%. Shares of AZPN have soared 34.9% in the past year.

The Zacks Consensus Estimate for Synopsys 2022 earnings is pegged at $8.67 per share, unchanged in the past 60 days. The long-term earnings growth rate is anticipated to be 19.6%.

Synopsys earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 2.7%. Shares of SNPS have jumped 24.6% in the past year.

The Zacks Consensus Estimate for InterDigital’s 2022 earnings is pegged at $2.76 per share, declining 15.9% in the past 60 days. The long-term earnings growth rate is anticipated to be 15%.

InterDigital’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 141.1%. Shares of IDCC have declined 8.7% in the past year