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Netgear Musters Solid Growth Following Its Arlo Separation

By Steve Symington – Updated Apr 15, 2019 at 3:20PM

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The networking specialist had a strong holiday season.

Netgear (NTGR -1.06%) announced fourth-quarter 2018 results on Wednesday after the market closed. The networking products leader highlighted better-than-expected growth following the completion of its spinoff of Arlo Technologies (ARLO -0.85%), and its subsequent distribution to shareholders of its stake in that wireless security camera company.

Let's look at how Netgear fared in the holiday period.

White Netgear Orbi wireless router on a desk

A Netgear Orbi wireless router. Image source: Netgear.

Netgear results: The raw numbers

Metric

Q4 2018

Q4 2017

Year-Over-Year Growth 

Revenue

$288.9 million

$274.1 million

5.4%

GAAP net income (loss) from continuing operations

$1.1 million

($41.8 million)

N/A

GAAP earnings (loss) per share from continuing operations

$0.03

($1.33)

N/A

Data source: Netgear. GAAP = Generally accepted accounting principles 

What happened with Netgear this quarter?

  • Revenue was near the high end of Netgear's guidance provided in October, which called for non-Arlo revenue of $275 million to $290 million.
  • Adjusted for items like stock-based compensation and Arlo separation expenses, Netgear's non-GAAP net income from continuing operations was $0.68 per share, up from $0.34 in the year-ago period.
  • Adjusted operating margin was 9.4%, up from 4.6% in last year's fourth quarter.
  • By business segment:
    • Connected Home Products (CHP) revenue -- which includes Netgear's Nighthawk and Orbi networking lines -- increased 5.9% year over year to $203.5 million. 
    • Small and Medium Business (SMB) solutions grew 3.8% to $73.3 million.
  • By geography, Americas revenue increased 7.6% to $190.3 million; Europe, the Middle East, and Africa revenue declined 0.7% to $58.8 million, and Asia-Pacific grew 4.6% to $39.8 million.
  • In early January, Netgear completed its planned distribution of its 84.2% stake in Arlo, giving Netgear shareholders 1.980295 shares of Arlo common stock for each share of Netgear they owned. Fractional shares were paid in cash, and Netgear no longer owns any Arlo common stock.

What management had to say

Netgear CEO Patrick Lo said:

We had a successful fourth quarter of 2018, driven by Orbi, Nighthawk Pro Gaming, cable modems and gateways, and our SMB switching portfolio, in particular the [Power over Ethernet] and ProAV switches. Our financial results for the quarter came in at the high end of our guidance range for revenue and operating margin. We delivered a healthy profit in Q4 and saw year-over-year top-line growth for both the CHP and SMB segments. We are pleased to report that we reached 9.7 million registered users in Q4, which represents the foundation for building our paid subscriber base. We are also thrilled to report that our number of registered app users reached 1.4 million for the fourth quarter, which is over double the amount that we last shared in September of 2018. On the product front, we had two significant product launches during the quarter, which were our industry-leading Wi-Fi 6 router, as well as the world's first millimeter wave 5G device with AT&T. We were also pleased with the reception that Meural, the world's leading smart digital canvas, received during the holiday season and at the Consumer Electronics Show.

Check out the latest Netgear earnings call transcript.

Looking forward

For the first quarter of 2019, Netgear expects net revenue ranging from $235 million to $250 million, and adjusted operating margin of 8% to 9%. While we don't usually pay close attention to Wall Street's expectations, most analysts were modeling first-quarter revenue closer to $265 million. 

Still, this is a seasonally slower period for Netgear, and the company has shown a propensity for underpromising and overdelivering of late. But after combining its relative outperformance in the lucrative holiday period with its seemingly conservative guidance, it's little surprise to see Netgear shares waffling between positive and negative territory throughout the day as we speak.

Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends Netgear. The Motley Fool has a disclosure policy.

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Stocks Mentioned

NETGEAR, Inc. Stock Quote
NETGEAR, Inc.
NTGR
$21.40 (-1.06%) $0.23
Arlo Technologies, Inc. Stock Quote
Arlo Technologies, Inc.
ARLO
$4.64 (-0.85%) $0.04

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