Shares of Netgear Inc. plummeted over 12% following a reported wider-than-expected quarterly loss and a missing revenue. The network hardware maker revealed a first-quarter loss of $9.7 million, or 33 cents a share. Analyzing it against the year-ago period’s loss of $57 million, or $1.95 a share, Netgear claims that the situation unfolded due to a reduction in inventory by its largest service provider partner and its largest e-commerce partner.
Moreover, Netgear’s shares plunged more than 12% in the extended session on Wednesday. Revenue dropped 14% to $180.9 million, with analysts forecasting, according to FactSet data, a GAAP loss of 11 cents a share on sales of $194.9 million. This is a far cry from the adjusted loss of 19 cents a share that Netgear reported.
Headquartered in San Jose, California, Netgear is a global computer networking company that specializes in the production of networking hardware for consumers, businesses, and service providers. In addition to fully managed switches, remotely managed switches, and layer 2 switches, Netgear offers other products such as home networking, business networking, and IP video, as well as cloud services and accessories.
The company’s financial performance over the past year is particularly relevant to the investors who added it to their portfolio last year. According to Benzinga Earnings, Netgear’s stock is trading at around $21.48, reflecting a loss of -43.26% over the past 12 months. Conversely, the stock has incisively underperformed the market by -48.06% for those who invested this year in the electronic component company.
Nevertheless, Netgear continues to launch new products, hoping to turn the tide for its investors. In March 2022, the company announced the upcoming release of its new smart switch line for small-medium businesses (SMBs). Priced at $299.99, the GS500 Insight Managed 8-Port Gigabit Ethernet Smart Switch and the GS330 8-Port Multi-Gigabit Ethernet Smart Switch, priced at $236.99, are both designed to deliver diverse connectivity support, including security features and enhanced networking options.
Given the current market landscape, it can be difficult for investors to view the company’s performance without considering the overall market trends. The market is increasingly reflecting investor attitudes towards concentrating on growth at a reasonable price (GARP). Additionally, in response to the company’s existing business landscape, investors are now turning their attention to “growth at a reasonable price” valuation ratios, which consider Netgear’s price-to-earnings ratio of 9.66X and a price-to-sales ratio of 0.71X.
Despite these efforts, there are potential warning signs indicating deeper challenges for Netgear investors. Slowed sales performance and a rapidly shrinking net income over the past year are causing increasing concern. Moreover, the company’s gross profit margin has narrowed, slipping from its five-year baseline average of 28.6% to its trailing 12 months (TTM) average of 26.8%.
Furthermore, the company’s net income is in decline. Netgear’s net income decreased for three consecutive quarters before turning positive last quarter, highlighting a downward trend in profits. The company’s net profit margin of -7.1% trails the electronic component industry’s average of 0.8%.
Underlining these concerns, Netgear’s financial statements reflect weakened operational efficiency. The company’s returns on equity (ROE), assets (ROA), capital (ROC), and investments (ROI) all trail the electronic component industry’s averages. While the company’s ROE of -1.4% compares unfavorably to the industry average of 9.9%, its ROA of -1.6% also falls short when compared to the electronic component industry’s 3.8%.
Will Netgear be able to redefine its market position and improve investor sentiment? Many challenges must be overcome. Its financial performance over the past year reveals a company struggling to maintain profitability while navigating slowed sales growth and lagging operational efficiency. Whether the company’s new product launches can turn the tide for investors remains to be seen.
