Netgear Shares Tank on Lackluster Results and Disappointing Outlook

Networking equipment maker Netgear (NASDAQ: NTGR) reported second quarter earnings on Wednesday evening, and the results missed expectations on multiple fronts.

The company continues to struggle with supply chain challenges as the global semiconductor shortage persists, impacting countless sectors.

As of 12:15 p.m. on Thursday, Netgear stock had tanked by 10%.

Supply chain bottlenecks held back the top line

Revenue in the second quarter increased 10% to $308.8 million, but analysts were looking for $314.8 million in sales. While the shift to remote work has boosted demand as people upgrade home networking equipment, the logistics bottlenecks limited sales.

“Worldwide supply chain constraints, however, such as component shortages, increased freight costs and transit times, and factory closures due to COVID-19, led to a perfect storm of factors that held back our revenue number and saw us fall short of our operating margin goals,” CEO Patrick Lo commented. “As we continue to navigate through this rapidly changing environment, our long-term thesis that premium WiFi will drive the growth of the consumer networking market and our service subscriber base remains intact.”

Lo expects the consumer networking market to grow 20% above pre-pandemic levels in the second half of the year, and Netgear has a dominant 46% market share in the U.S. consumer WiFi market.

During the quarter, Netgear launched a new subscription service that includes greater parental controls. Nighthawk and Orbi routers support the offering, which allows parents to manage how much time their children spend online as well as providing filters for inappropriate content.

The subscription, which costs $8 per month or $70 per year, joins another existing service, Netgear Armor, which provides cybersecurity to home networks. The company hopes to have 650,000 total subscribers by the end of the year.

That all resulted in adjusted earnings per share of $0.66, also shy of the consensus estimate of $0.71 per share in adjusted profits. 

Challenges ahead

Netgear’s guidance also left a bit to be desired. The company is forecasting revenue of $285 million to $300 million in the third quarter, well below the Street’s models that call for $346.4 million in sales.

Netgear is working with channel partners to optimize inventory levels while expecting the broader networking market’s growth to “moderate further.” 

The small- and medium-sized business (SMB) segment will continue to face supply constraints, which is a major factor contributing to the lackluster outlook. The SMB segment comprised roughly 25% of revenue last quarter.

Of course, the COVID-19 pandemic continues to ravage many markets and create ongoing uncertainties around macroeconomic conditions, particularly around the consumer electronics supply chain.

Netgear expects its adjusted operating margin in the third quarter to be in the range of 5% to 6%, in part due to the loss of operating leverage since sales are expected to decline on a sequential basis.

Pick Like A Pro

Where to invest $500 right now

Before you buy Amazon, or Netflix, or Apple, consider this…

The team at Motley Fool first recommended each of those stocks more than a dozen years ago!

  • They discovered Netflix for $1.85 per share, back in the days of DVDs by mail.
  • And recommended Amazon at $15.31 in 2002, before most people were comfortable using credit cards online.
  • And even hit Apple at $4.97 per share, about a month before the release of the very first iPhone.

Check out where those stocks are today. The bottom line: a $500 investment in all three of these stocks would be worth more than $200,000 today!

And here’s why that’s important: The Motley Fool’s flagship investing service Stock Advisor just announced their top 10 “best buys now” across the entire stock market. Whether you’re starting with $100, $500, or more, you’ll want to get the full details!

Click here to learn more

Leave a Reply

Your email address will not be published. Required fields are marked *

In This Article