NETGEAR (NTGR) Q2 Earnings Beat Estimates, Revenues Up Y/Y

NETGEAR, Inc. NTGR delivered impressive second-quarter 2020 results, with the top and the bottom line surpassing the respective Zacks Consensus Estimate. Further, earnings and revenues increased significantly on a year-over-year basis despite coronavirus-induced turmoil.

Net Income

GAAP earnings from continuing operations in the reported quarter were $6 million or 20 cents per share compared with $0.8 million or 3 cents per share in the year-ago quarter. The year-over-year improvement was primarily driven by higher revenues.

Non-GAAP net income from continuing operations was $16.3 million or 54 cents per share compared with $8.9 million or 28 cents per share in the year-earlier quarter. The bottom line beat the Zacks Consensus Estimate by 31 cents.

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 generated net revenues of $280.1 million, up 21.3% year over year driven by solid demand for CHP products in the wake of growing work-from-trend due to the COVID-19 pandemic. The top line surpassed the consensus estimate of $240 million. The company shipped nearly 3.7 million units, including 2.7 million nodes of wireless products in the second quarter of 2020.

Region wise, net revenues from the Americas were $202.2 million (72.2% of net revenues), up 28.7% year over year. EMEA (Europe, Middle East and Africa) revenues were $48.4 million (17.3%), up 12.2% year over year. Significant growth in both the regions can be attributed to higher demand of CHP products in retail and service provider channels. However, APAC (Asia Pacific Region) revenues fell 3.7% to $29.4 million (10.5%) due to lower sales in the region.

The number of registered app users in the quarter was 6.4 million. Notably, NETGEAR ended the quarter with 293,000 paid subscribers. The company tapped new service subscribers with considerable growth in parental control and cybersecurity protection services.

Segmental Performance

Connected Home, which includes Nighthawk, Orbi, Nighthawk Pro Gaming and Meural brands, generated net revenues of $230 million, up 37.3% year over year owing to robust product demand in retail and service provider channels. Markedly, NETGEAR continues to hold about 49% market share in U.S. retail WiFi products, which include mesh, routers, gateways and extenders.

Net revenues from SMB declined 21% year over year to $50 million due to reduced demand stemming from the virus outbreak. However, on the product front, ProAV switching and PoE Plus lines performed well in the market. Markedly, the company continues to hold about 49% market share in U.S. retail switch market.

Other Details

Adjusted gross margin increased to 29.6% from 28.8% due to higher revenues. Non-GAAP operating margin was 7.5% compared with 4.4% in the year-ago quarter thanks to higher operating income.

Cash Flow & Liquidity

During the second quarter, NETGEAR generated $63.2 million of cash from operating activities. As of Jun 28, the company had $252.6 million in cash and equivalents with $270.9 million of total current liabilities. It repurchased approximately 315,000 shares in the reported quarter at an average price of $23.78 per share for $7.5 million.

2020 Outlook

Due to uncertainties related to the COVID-19 pandemic, NETGEAR has not provided any definitive financial guidance for the third quarter of 2020 and full-year 2020. The company witnessed a significant shift in its business operations and predicts supply-chain disruptions due to the ongoing pandemic situation. Although the channel inventory levels have depleted in the second quarter, the company witnessed a significant development in Wi-Fi 6 offerings with a strong online presence. As channel partners migrate to efficient operating structures, the company is witnessing a change in demand from retail to online platforms. With a sturdy growth potential, the company continues to have accretive subscriber base and solid product demand owing to a rise in work-from-home trend. Backed by a robust liquidity position, NETGEAR is poised to witness recurring top-line growth.

Moving Forward

Despite supply chain disruptions amid global pandemic, NETGEAR is confident that it will maintain its leadership in new product introduction, based on the Wi-Fi 6 standards. This, in turn, is likely to drive positive cash flow amid competitive macro environment. The company witnessed higher shipments of 5G mobile hotspots and launched two new PoE+ switches. It aims to emerge as a pioneer of best-in-class networking technologies like WiFi 6 and Pro AV, thereby benefiting from advanced technological innovations. In order to ramp up the availability of its products, the company is committed to help customers with superior performance and emerge as the biggest contributor in these crucial times. Moving forward, NETGEAR intends to capitalize on technology inflections, create new categories, build recurring service revenues and boost its paid subscriber base to drive the momentum in 2020.

Zacks Rank & Stocks to Consider

NETGEAR currently has a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader industry are T-Mobile US, Inc. TMUS, Calix, Inc. CALX and Cisco Systems, Inc. CSCO. While T-Mobile US and Calix sport a Zacks Rank #1 (Strong Buy), Cisco carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

T-Mobile US’ bottom line surpassed the Zacks Consensus Estimate in the last four quarters. The company has a trailing four-quarter earnings surprise of 19.4%, on average.

Calix’s bottom line surpassed the Zacks Consensus Estimate in the last four quarters. The company has a trailing four-quarter earnings surprise of 43%, on average.

Cisco’s bottom line surpassed the Zacks Consensus Estimate in the last four quarters. The company has a trailing four-quarter earnings surprise of 4%, on average.

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