Why Is NETGEAR Stock Jumping Premarket Thursday?

NETGEAR, Inc. NTGR shares are trading higher premarket today. On Wednesday, the company revised its business outlook for the third quarter of 2024.

The company has raised its net revenue guidance to $170 million – $180 million (from the previous range of $160 million – $175 million) versus the consensus of $167.2 million.

The company also disclosed in a regulatory filing that, on August 28, 2024, it inked a settlement deal with TP-Link Systems Inc., resolving all pending U.S. International Trade Commission and patent infringement disputes, as well as TP-Link’s patent challenges and breach of contract claims.

As part of the agreement, all litigation between the parties will be dismissed. NETGEAR has received a $135 million payment in consideration for the same.

The updated guidance accounts for both the litigation settlement and the earlier-than-expected launch of its next-generation 5G mobile hotspot, which was initially scheduled for the fourth quarter of 2024 but occurred in the third quarter.

In June, NETGEAR disclosed that Administrative Law Judge Doris Johnson Hines of the U.S. International Trade Commission issued an Initial Determination finding that China-based TP-Link violated federal law by importing and selling in the U.S. its multi-band Wi-Fi devices, routers and mesh networking devices.

The ALJ’s Initial Determination came in response to a complaint filed with the ITC by NETGEAR in April 2023, alleging that TP-Link’s products infringe certain of its patents.

Also, NETGEAR now expects its adjusted operating margin of -4.0% and -1.0%, an improvement from prior guidance of -11.0% to -8.0%, driven by the settlement and higher anticipated revenue.

As such, NETGEAR currently expects GAAP operating margin for the third quarter to be between 48.0% and 51.0%, compared to prior guidance of (15.3)% to (12.3)%, with the change primarily driven by the settlement and the profits from the expected increase in revenue.

The full benefit of the settlement will not be included in the third quarter non-GAAP earnings. NETGEAR expects the cash benefit from its settlement, after fees and taxes, to be around $90.3 million.

So far this quarter, the company has repurchased approximately 99,000 shares for $1.5 million at $14.92 per share and does not anticipate further repurchases in the third quarter due to trading window restrictions.

Investors can gain exposure to the stock via Brandes International ETF Brandes U.S. Small-Mid Cap Value ETF BSMC.

Price Action: NTGR shares are up 25% at $19.92 premarket at the last check Thursday.

Image via Shutterstock

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