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Why Is NETGEAR (NTGR) Up 16.1% Since Last Earnings Report?

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It has been about a month since the last earnings report for NETGEAR, Inc. (NTGR - Free Report) . Shares have added about 16.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is NETGEAR due for a pullback? 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 Q1 Loss Wider Than Expected

NETGEAR reported first-quarter 2024 non-GAAP loss of 28 cents per share compared with non-GAAP loss of 19 cents recorded in the year-ago quarter. The reported figure was wider than the Zacks Consensus Estimate of a loss of 27 cents.

The company generated net revenues of $164.6 million, down 9% year over year. However, the top line beat the consensus estimate by 0.4%.

Management noted that tough macroeconomic conditions along with inflationary pressure and high interest rates compelled channel partners to drive down inventory levels across both the consumer and B2B businesses, thereby affecting the top-line performance.

Further, higher destocking coupled with an unfavorable product mix (shift from premium-consumer products to service-provider products) and a promotional retail market environment negatively impacted profitability in the quarter.

Region-wise, net revenues from the Americas were $109.9 million (67% of total revenues), down 9.8% year over year. Europe, the Middle East and Africa generated revenues (19%) of $31.2 million, down 20.4% year over year. Revenues from the Asia Pacific region (14%) increased 18.5% year over year to $23.5 million.

NETGEAR ended the quarter with 928,000 paid service subscribers.

Segmental Performance

CHP segment (which includes Orbi, Nighthawk, and Armor brands) delivered revenues of $96 million, down 6.6% year over year. The downtick was due to the underperformance of the overall U.S. retail market amid weak macroeconomic environment. Our estimate was pegged at $97.7 million.

Continued momentum in premium CHP products (including newly released Wi-Fi 7 Orbi 97x mesh system and premium mobile hotspot) acted as a tailwind.

Despite a strong demand for ProAV-managed switched products, revenues from NFB revenues declined 12.2% year over year to $68.6 million. The downtick was caused by continued channel inventory reductions by channel partners. Our estimate was $66.1 million.

Other Details

Adjusted gross margin decreased to 29.5% from 33.6% year over year. Non-GAAP operating loss was $16 million compared with operating loss of $7.07 million in the year-ago quarter.

Non-GAAP operating expenses were $64.6 million, down 4.8% year over year.

Cash Flow & Liquidity

For the quarter ended Mar 31, 2024, NETGEAR generated $17.2 million in cash from operations. It also had $172.7 million in cash and cash equivalents and $244.3 million of total current liabilities compared with $176.7 million and $264.4 million, respectively, in the quarter that ended on Dec 31, 2023.

The company repurchased 783,000 shares worth $11.4 million in the quarter under review.

Q2 Outlook

Management anticipates net revenues in the range of $125-$140 million. The company expects to accelerate through NFB and CHP destocking activities with its channel partners resulting in a headwind of $25-$30 million to quarterly revenues.

Further management added that higher cost of inventory amid the company’s inventory reduction efforts and phasing out slower moving inventory in an accelerated manner is likely to weigh down on the margin performance in the current quarter.

GAAP operating margin is estimated to be between (30.9)% and (27.9)%. Non-GAAP operating margin is expected in the band of (25)-(22)%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

The consensus estimate has shifted -374.19% due to these changes.

VGM Scores

At this time, NETGEAR has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.


Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise NETGEAR has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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