What happened

Shares of Netgear (NASDAQ:NTGR) were down 13.1% as of 12:45 p.m. EST Tuesday after Amazon (NASDAQ:AMZN) agreed to acquire a privately held competitor in the home-networking space.

Yesterday after the market closed, Amazon announced it will acquire Eero, a provider of mesh Wi-Fi systems capable of essentially "blanketing" homes with reliable wireless coverage, for an undisclosed sum.

Woman drawing a large yellow fish eating a smaller fish

Image source: Getty Images.

So what

The news is disconcerting for Netgear investors on two fronts. First, it means Amazon will be moving into one of Netgear's bread-and-butter niches. For perspective, last quarter Netgear's connected come products (CHP) segment saw revenue climb 5.9% year over year, to $203.5 million, representing over 70% of its total sales. 

Second, Amazon's purchase quells speculation that Netgear may be an acquisition candidate itself -- an idea that gained traction after Netgear completed its spinoff of wireless security camera specialist Arlo Technologies last month.

Now what

In any case, this doesn't mean Netgear is a doomed business. The company still enjoys a broad distribution network, a strong product portfolio, and good rapport with consumers. But given an up-and-coming competitor now has access to Amazon's reach and financial resources, it's no surprise to see shares falling today.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Netgear. The Motley Fool has a disclosure policy.