NETGEAR, Inc ( NTGR Quick Quote NTGR - Free Report) reported third-quarter 2022 non-GAAP earnings of 21 cents per share compared with non-GAAP earnings of 50 cents recorded in the year-ago quarter. However, it surpassed the Zacks Consensus Estimate of 8 cents per share.
NETGEAR generated net revenues of $249.6 million, down 14% year over year. The downtick resulted from the weakness in the retail segment of the connected home business, partly offset by strong revenue growth in the SMB segment. However, the top line beat the consensus estimate of $242.8 million.
Region-wise, net revenues from the Americas were $169.4 million (67.9% of net revenues), down 13.2% year over year. EMEA (Europe, Middle East and Africa) revenues (18%) were $44.8 million, down 21.3%. APAC (the Asia Pacific Region) revenues (14.1%) were down 7.1% to $35.4 million.
The number of registered app users in the reported quarter was 15.5 million. NETGEAR ended the quarter with 666,000 paid service subscribers, marking year-over-year growth of 20.7%.
Following the announcement, shares of the company went down 9.6% in the pre-market trading on Oct 27, 2022. Shares of the company lost 29.3% compared with the
industry’s decline of 20.3% in the past year. Image Source: Zacks Investment Research Segmental Performance Connected Home (including Nighthawk, Orbi, Nighthawk Pro Gaming and Meural brands) delivered revenues of $150.6 million, down 27.8% year over year. The downtick was due to softness in the retail business, 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 and 5G mobile hotspots in retail and service channels.
Quad-band Orbi 9 and 5G millimeter wave mobile hotspots helped the company to improve its connected home business. The company also introduced Orbi 860 Series to update its existing Orbi 850 Series. The new product also includes a one-year free subscription to NETGEAR Armor, which provides cybersecurity against hackers.
NETGEAR holds about 42% share in the U.S. retail Wi-Fi market, including mesh, routers, gateways and extenders.
In the quarter under review, the company announced the launch of WAX628 and WAX638E Wi-Fi 6 and 6E access points and services to tap the residential installer market. The new system extends the Wi-Fi range without using ethernet wiring and can be paired with all the existing Wi-Fi endpoints.
Driven by the strong demand for ProAV-managed switched products, revenues from SMB rose 21.3% year over year to $99 million. Amid 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.
The adjusted gross margin decreased to 27.6% from 30.1% year over year due to lower revenues. The non-GAAP operating margin was 0.7% against 6.7% in the year-ago quarter.
Cash Flow & Liquidity
In the third quarter, NETGEAR used $15.2 million in cash from operations. As of Oct 2, 2022, the company had $132.9 million in cash and cash equivalents, and $330.4 million of total current liabilities compared with $149 million and $305.1 million, respectively, in the quarter ended Jul 3, 2022.
The company did not repurchase any shares in the quarter under review.
For the fourth quarter of 2022, NETGEAR anticipates net revenues of $235-$250 million as the company remains optimistic that SMB and the CHP service provider channel will gain momentum amid supply-chain constraints.
The company anticipates that the service provider channel will generate about $50 million in sales in the fourth quarter.
Owing to increasing air freight costs and increasing foreign currency volatility, the GAAP operating margin is estimated to be between (4.2)% and (3.2)%.
The non-GAAP operating margin is expected to be between (2)% and (1)%.
Zacks Rank & Stocks to Consider
NETGEAR currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the broader technology space are
InterDigital ( IDCC Quick Quote IDCC - Free Report) , Pure Storage ( PSTG Quick Quote PSTG - Free Report) and Blackbaud ( BLKB Quick Quote BLKB - Free Report) . Pure Storage, InterDigital and Blackbaud currently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks.
The Zacks Consensus Estimate for InterDigital’s 2022 earnings is pegged at $2.45 per share, up 2.5% in the past 60 days. The long-term earnings growth rate is anticipated to be 25%.
InterDigital’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 81.9%. Shares of IDCC have decreased 25.1% in the past year.
The Zacks Consensus Estimate for PSTG 2022 earnings is pegged at $1.18 per share, rising 24.2% in the past 60 days. The long-term earnings growth rate is anticipated to be 35.5%.
Pure Storage’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 171.8%. Shares of PSTG have increased 10.8% in the past year.
The Zacks Consensus Estimate for Blackbaud’s fiscal 2023 earnings is pegged at $2.55 per share, unchanged in the past 60 days. The long-term earnings growth rate is anticipated to be 3%.
Blackbaud’s earnings beat the Zacks Consensus Estimate in three of the last four quarters, the average being 8.6%. Shares of BLKB have decreased 24.6% in the past year.