What happened
Shares of Netgear (NTGR +1.87%) were up 17.4% as of 1:45 p.m. EDT Thursday after the networking hardware company announced better-than-expected second-quarter 2019 results.
That's not to say Netgear's results looked good at first glance. Quarterly revenue declined 9.6% year over year, to $230.9 million. Trending toward the bottom line, adjusted operating margin was 4.4%, translating to a penny-per-share decline in adjusted net income from continuing operations, to $0.28 per share.
Three months ago, however, Netgear told investors to expect revenue of just $215 million to $230 million, with an adjusted operating margin of 4% to 5%.
A Netgear Orbi wireless router. Image source: Netgear.
So what
Within Netgear's top line, connected-home segment revenue declined 10.2% to $167.5 million, primarily hurt by a more than 40% decline in sales to service-provider customers. Revenue in the small and medium business solutions segment also fell, by 8% to $63.4 million.
"[W]e saw improvement in the U.S. retail WiFi market driven by the continued rollout of our WiFi 6 Nighthawk routers and various channel marketing activities," CEO Patrick Lo said. "The improved market demand allowed us to finish the quarter with healthy channel inventory levels."
Lo added that Netgear ended the quarter with 11.2 million registered users, including 2.8 million registered app users -- up from 10.4 million and 2 million, respectively, last quarter -- providing a large pool of prospective paying subscribers for the latest cyberthreat protection services built into its WiFi routers.
Now what
For the current third quarter, Netgear expects revenue ranging from $265 million to $280 million -- the midpoint of which is well above consensus estimates for sales closer to the bottom end of that range -- with adjusted operating margin expanding to a range of 8.5% to 9.5%.
With Netgear shares down almost 20% so far in 2019 leading up this report, the stock is simply responding accordingly today.
