NETGEAR, Inc. (NTGR) Down 8.9% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for NETGEAR, Inc. (NTGR). Shares have lost about 8.9% 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 the most recent earnings report in order to get a better handle on the important drivers.
NETGEAR Posts Loss in Q2, Revenues Beat Estimates
NETGEAR reported second-quarter 2023 non-GAAP loss of 16 cents per share compared with the non-GAAP loss of 19 cents recorded in the year-ago quarter. The reported figure was also narrower than the Zacks Consensus Estimate of a loss of 35 cents per share.
NETGEAR generated net revenues of $173.4 million, down 22.3% year over year. The downtick resulted from inventory reduction by CHP retail as well as SMB business partners amid volatile macroeconomic environment. However, the top line beat the consensus estimate by 10.8%.
NTGR noted sales to the service provider partners outperformed anticipation and are now somewhat stabilized due to increased demand.
Region-wise, net revenues from the Americas were $116.6 million (67% of total revenues), down 19% year over year. Europe, the Middle East and Africa generated revenues (21%) of $36.2 million, down 19.6%. Revenues from the Asia Pacific region (12%) were down 39.7% to $20.6 million.
NETGEAR ended the quarter with 804,000 paid service subscribers, up 22.9% year over year.
Segmental Performance
Connected Home (including Orbi, Nighthawk, Nighthawk Pro Gaming, Armor, and Meural Brands) delivered revenues of $98.4 million, down 23.6% 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 $75.4 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 37% share in the U.S. retail Wi-Fi market including mesh, routers, gateways and extenders.
Despite strong demand for ProAV-managed switched products, revenues from SMB declined 20.5% year over year to $75 million. The downtick was caused by continued channel inventory reductions by partners, owing to a volatile macroeconomic environment. Our estimate for segmental revenues was $80.7 million.
Other Details
Adjusted gross margin increased to 31.6% from 27.7% year over year. Non-GAAP operating loss was $10.7 million compared with operating loss of $4.2 million in the year-ago quarter.
Cash Flow & Liquidity
For Q2, NETGEAR used $34.6 million in cash from operations. It also had $106.4 million in cash and cash equivalents and $264.4 million of total current liabilities compared with $143.2 million and $317.7 million, respectively, in the quarter that ended Apr 2, 2023.
NTGR did not repurchase any shares in the quarter under review.
Q3 Outlook
For the third 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 SMB segment and the premium portion of CHP business amid volatile macroeconomic conditions.
GAAP operating margin is estimated to be between (7)% and (4)%. Non-GAAP operating margin is expected in the (4)-(1)% band.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -357.14% due to these changes.
VGM Scores
At this time, NETGEAR, Inc. has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, NETGEAR, Inc. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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NETGEAR, Inc. (NTGR) : Free Stock Analysis Report
