Netgear Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of networking equipment maker Netgear (Nasdaq: NTGR  ) plunged today, down by 12% at their low before recovering, after fourth-quarter earnings were reported.

So what: Revenue added up to $309.2 million, leading to earnings of $0.69 per share. The figures topped the market's expectations, and forward-looking guidance also came out on top. The company expects first quarter sales between $310 million and $325 million, which looks healthy compared to the $311 million consensus.

Now what: What's weighing on shareholders is the prospect of costs getting jacked up and putting a crimp on the bottom line. Deutsche Bank downgraded shares to Hold while lowering its price target to $40. The analyst said that despite the strong quarter, the company warned it was increasing R&D spending and there are concerns over if Netgear can successfully build up its software offerings.

Interested in more info on Netgear? Add it to your Watchlist by clicking here.

Fool contributor Evan Niu holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Netgear. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On February 08, 2012, at 5:05 PM, FoolSolo wrote:

    This is a great buying opportunity for anyone who is looking to get a piece of the WiFi revolution. The downgrade is baseless, NTGR said they were increasing their R&D from 4% to 4.5%, just a half percent increase. CEO Patrick Lo told investors it would not affect their profitability or their margins, and stated repeatedly that NTGR will be at $2 billion by 2014 (2011 was $1.18B).

    This is the time to load up on this great company, they are flushed with $353 million in cash, no debt, great management and they are in a fantastic growth industry.

  • Report this Comment On February 09, 2012, at 2:52 AM, MichaelDSimms wrote:

    Many of the ISPs will provide you with a wireless modem now and they have an intergrated router so it provides coverage for your whole home. I am not surprised they are losing out on market share.

  • Report this Comment On February 10, 2012, at 4:06 PM, mjtri wrote:

    I'm guessing that the losing out on market share comment is very narrowly focused. Netgear is gaining market share. Per the CEO, they are gaining at 4-5 times the growth of the market.

    With regards to the cost increase, Wall Street continues to be very short term focused although it does seem that the increase in software development expenses is rising a little quicker than I'd expect.

  • Report this Comment On February 17, 2012, at 4:46 PM, FoolSolo wrote:

    @MichaelDSimms

    as mjtri noted above, NTGR is gaining market share faster than others. Also, NTGR is one of the companies supplying ISPs with those integrated routers. NTGR is also one of the leading suppliers to SMB, particularly in restaurants, cafes and other public areas.

    The concern raised by Deutsche Bank, which you can listen to in the earnings conference call, is over NTGR raising their R&D spend from 4% to 4.5% (a 1/2 percent increase), despite assurance from the CEO that it will not affect profitability or margins.

    If you missed the opportunity to buy on this dip, you can still get onboard as this company will be growing to $2 Billion in a couple of years

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