It has been about a month since the last earnings report for NETGEAR, Inc. (
NTGR Quick Quote NTGR - Free Report) . Shares have lost about 5.7% 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 its most recent earnings report in order to get a better handle on the important drivers.
NETGEAR Reports Wider-Than-Expected Q1 Loss
NETGEAR reported first-quarter 2023 non-GAAP loss of 19 cents per share compared with the non-GAAP loss of 28 cents recorded in the year-ago quarter. However, it came in wider than the Zacks Consensus Estimate loss of 10 cents per share.
NETGEAR generated net revenues of $180.9 million, down 14.1% year over year. The downtick resulted from the weakness in the retail and service segment of the connected home business and small and medium business (SMB) inventory reduction by its largest e-commerce partner. Also, the top line missed the consensus estimate by 6.5%.
Region-wise, net revenues from the Americas were $121.9 million (67% of net revenues), down 15.7% year over year. Europe, the Middle East and Africa revenues (22%) were $39.2 million, up 6.3%. The Asia Pacific Region revenues (11%) were down 31.8% to $19.8 million.
NETGEAR ended the quarter with 772,000 paid service subscribers. The company aims to reach 875,000 subscribers by the end of 2023.
Connected Home (including Orbi, Nighthawk, Nighthawk Pro Gaming, Armor, and Meural Brands) delivered revenues of $102.7 million, down 21.2% year over year. The downtick was due to softness in the retail and service 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.
Orbi 8 and Orbi 9 Wi-Fi mesh products and 5G mobile hotspots helped the company to improve its connected home business. The company is likely to benefit from the ongoing Wi-Fi 7 upgrade cycle. The company also plans to launch the U.S. version of the unlocked Nighthawk M6 Pro 5G mobile hotspots to further grow its CHP business.
NETGEAR holds about 39% share in the U.S. retail Wi-Fi market, including mesh, routers, gateways and extenders.
In the quarter under review, the company announced a new addition to its Nighthawk line, the Nighthawk RS700 Router, the first Wi-Fi 7 router in the market.
Despite the strong demand for ProAV-managed switched products, revenues from SMB declined 2.6% year over year to $78.2 million. The downtick was caused by anticipated channel inventory reductions and unanticipated inventory reductions at its largest e-commerce channel partner, owing to a volatile macroeconomic environment.
The adjusted gross margin increased to 33.6% from 28.2% year over year.
The non-GAAP operating loss margin was 3.9% compared with 4.4% in the year-ago quarter.
Cash Flow & Liquidity
As of Apr 2, 2023, NETGEAR generated $9.1 million in cash from operations.
The company also had $143.2 million in cash and cash equivalents and $317.7 million of total current liabilities compared with $146.5 million and $345.9 million, respectively, in the quarter that ended Dec 31, 2022
The company did not repurchase any shares in the quarter under review.
For the second quarter of 2023, NETGEAR anticipates net revenues of $150-$165 million as the company remains optimistic that SMB and the CHP service provider channel will gain momentum amid volatile macroeconomic conditions.
The GAAP operating margin is estimated to be between (13.4)% and (10.4)%. The non-GAAP operating margin is expected to be between (9)% and (6)%.
How Have Estimates Been Moving Since Then?
Fresh estimates followed an upward path over the past two months.
Currently, NETGEAR, Inc. has a nice Growth Score of B, a grade with the same score on the momentum front. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
NETGEAR, Inc. has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.