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NETGEAR (NTGR) Q3 Earnings Beat Estimates, Revenues Fall Y/Y

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NETGEAR, Inc (NTGR - Free Report) reported third-quarter 2023 non-GAAP earnings per share (EPS) of 23 cents compared with 21 cents recorded in the year-ago quarter. The reported figure surpassed the Zacks Consensus Estimate of a loss of 6 cents per share.

NETGEAR generated net revenues of $197.8 million, down 20.7% year over year. The downtick resulted from inventory reduction by SMB business partners amid a volatile macroeconomic environment. Also, geopolitical tensions and stagnant or negative GDP growth in major markets such as Greater China, Germany and Japan were headwinds. However, the top line beat the consensus estimate by 7.6%.

Region-wise, net revenues from the Americas were $141.1 million (71% of total revenues), down 16.7% year over year. Europe, the Middle East and Africa generated revenues (18%) of $35.6 million, down 20.4%. Revenues from the Asia Pacific region (11%) decreased 40.3% to $21.1 million.

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 ended the quarter with 844,000 paid service subscribers, up 26.7% year over year.

Segmental Performance

Connected Home (including Orbi, Nighthawk, Nighthawk Pro Gaming, Armor, and Meural Brands) delivered revenues of $127.3 million, down 15.4% 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. Our estimate for the segment’s revenues was pegged at $100.6 million. Continued momentum in premium CHP products, like Orbi 8, Orbi 9 Wi-Fi mesh and 5G mobile hotspots, acted as a tailwind.

NETGEAR holds about 35% share in the U.S. retail Wi-Fi market, including mesh, routers, gateways and extenders.

Despite a strong demand for ProAV-managed switched products, revenues from SMB declined 28.8% year over year to $70.5 million. The downtick was caused by continued channel inventory reductions by partners, owing to a volatile macroeconomic environment. Our estimate for segmental revenues was $83.4 million.

Other Details

Adjusted gross margin increased to 35% from 27.6% year over year. Non-GAAP operating income was $5.25 million compared with $1.77 million in the year-ago quarter.

Cash Flow & Liquidity

For the third quarter, NETGEAR generated $0.6 million in cash from operations. It also had $228.1 million in cash and cash equivalents and $259.8 million of total current liabilities compared with $202.8 million and $264.4 million, respectively, in the quarter that ended on Jul 2, 2023.

NTGR did not repurchase any shares in the quarter under review.

Q4 Outlook

For the fourth quarter of 2023, NETGEAR anticipates net revenues in the range of $175-$190 million. Management remains optimistic owing to healthy underlying demand trends in the premium portion of CHP business amid volatile macroeconomic conditions.

GAAP operating margin is estimated to be between (4.4)% and (1.4)%. Non-GAAP operating margin is expected in the (2)-1% band.

Zacks Rank & Other Stocks to Consider

NETGEAR currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader technology space are Asure Software (ASUR - Free Report) , Synopsys (SNPS - Free Report) and (WIX - Free Report) . Each stock presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Asure Software’s 2023 EPS has increased 5.9% in the past 60 days to 54 cents.

Asure Software’s earnings beat the Zacks Consensus Estimate in all the last four quarters, the average being 676.4%. Shares of ASUR have surged 55.9% in the past year.

The Zacks Consensus Estimate for Synopsys’ 2023 EPS has gained 2.5% in the past 60 days to $11.09. SNPS’ long-term earnings growth rate is 16.4%. Shares of SNPS have surged 62.7% in the past year.

The Zacks Consensus Estimate for Wix’s 2023 EPS has remained unchanged in the past 60 days to $3.35.

Wix’s earnings beat estimates in all the trailing four quarters, delivering an average surprise of 319.3%. Shares of WIX have rallied 5.3% in the past year.

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