Netgear stock plunges to 42-month low

NetGear Inc. (NASDAQ: NTGR) stock plunged to a 42-month low of $29.31 on Thursday as investors remained unsatisfied with the networking company’s downbeat forecast that came along with its first-quarter earnings report. The outlook was impacted by the reduced service provider shipments and higher marketing spending for WiFi 6 initiatives support.

The company has a history of the revenue shortfall and volatile earnings in recent years but NetGear believed to change this in 2019 with a 5% revenue growth and at least 10% earnings growth for the year. Market analysts expected that the company could turn beneficial in the future only if more devices are connected to the internet. This will increase the demand for NetGear’s wired and wireless networking and internet connected products.

On Wednesday after the bell, the company reported a 130% jump in earnings helped by lower operating expenses. During the quarter, NetGear experienced a decline in research and development, sales and marketing and general and administrative expenses. The results were benefited by the Orbi line of mesh WiFi systems, the Nighthawk Pro Gaming line, cable modems, and gateways, and its SMB switching portfolio.

The company reached 10.4 million registered users in the first quarter, which represents the foundation for building its paid subscriber base. Furthermore, NetGear’s number of registered app users reached 2 million in the quarter. The company planned to increase its marketing effort in the current quarter to push its entire WiFi 6 portfolio.

The company guided net revenue in the range of $215 million to $230 million for the second quarter. Operating margin is predicted to be in the range of 0% to 1% on a GAAP basis and 4% to 5% on an adjusted basis. The tax rate is projected to be about 28.5% on a GAAP basis and 23.5% on a non-GAAP basis for the second quarter.

For the second half of the year, NetGear had expected its operating margin to improve significantly when service provider revenue and marketing spending should both return to normal levels.

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Analysts believed the stock to be a good long-term investment as the expansion of the internet is the most happening thing in the years to come. Majority of the analysts recommended a “strong buy” or “buy” rating while expecting the stock to reach $49.67 per share in the next 52 weeks. The stock remained reasonably priced at current levels and could provide a good entry for long-term investment.

However, investors were concerned that the stock could head lower further in the near future, specifically in the next two quarters, due to the lack of short-term growth catalysts. Another concern is the shortfall of cash as the company has been spending more on new products and innovation.

Shares of NetGear ended Thursday’s regular session down 15.37% at $29.68 on the Nasdaq. The stock has fallen over 50% in the past year and over 24% in the past three months.

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