NETGEAR (NTGR, Financial) saw a 30% surge today after settling a dispute with TP-Link Systems, a manufacturer of whole home mesh Wi-Fi systems. The settlement awards NTGR $135 million. Additionally, NTGR announced an early launch of its next-gen 5G mobile hotspot, now set for Q3 instead of Q4. Consequently, NTGR raised its Q3 revenue guidance to $170-180 million, up from $160-175 million.
NTGR is a global provider of consumer networking products, operating through two segments: Connected Home and NETGEAR for Business. The company primarily offers Wi-Fi devices, including mesh systems, routers, and 4G/5G mobile products.
Before the recent settlement and revised guidance, NTGR shares were struggling. Since their 2021 highs, the stock had fallen over 70%, hitting a low in late 2023 before a mild recovery in 2024. Factors like inflation, interest rates, and weak consumer sentiment created significant headwinds. NTGR has not posted a quarter of positive year-over-year sales growth since Q2 2021. Earlier this year, the company faced more destocking than expected, increasing the cost of carrying excess inventory. To combat these issues, NTGR has been implementing strategies to rejuvenate growth.
- NTGR accelerated its inventory reduction efforts through Q2, resulting in a 17% year-over-year revenue drop but significantly lowering its inventory levels.
- By the end of Q2, NTGR had nearly $300 million in cash and expects more cash generation in the year's second half, aided by the settlement payment. Subscriber counts grew 19% year-over-year to 958K in Q2, driving a 30% increase in recurring subscription revenues.
- Management introduced changes to its business line, hiring a new leader and reorganizing its global sales team. The business division also secured several large projects in Q2, indicating a rise in enterprise-scale customers.
These recent positive developments could be the catalyst NTGR needs for sustained growth. However, given its past struggles, caution is advised. Another disappointing quarter could erase the gains from today's surge.
