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2024 has been a true rollercoaster for the shareholders of NETGEAR Inc (NASDAQ:NTGR), one of the world’s largest makers of networking hardware.
Between tumbling to over 10-year lows on weak Q1 results, spiking after a massive settlement with a key competitor TP Link, and ripping higher on rumors that the U.S. authorities are weighing an outright ban of TP-Link’s products – there were many ups and downs.
For the loyal investors, however, the drama paid off – when the dust settled, the company’s stock had nearly doubled in 2024, placing it among the year’s top performers.
To understand what exactly drove the spectacular run and to see what’s next for NTGR, Investing.com had an exclusive chat with Marc Chalfin, Chief Investment Officer of an activist fund, Windward Management, and one of NetGear’s vocal bulls.
Windward’s Stake in NTGR
Windward, a Florida-based activist fund targeting “significantly skewed and asymmetric risk/rewards,” took a 4.2% stake in the company in May of 2024.
As its CIO Marc Chalfin outlined to Investing.com at the time, the idea was simple - NetGear is a solid business, but it had struggled to overcome pandemic-related headwinds.
It has been chiefly EBITDA-positive ($60M-$150M annually) for 20 years, yet, at the time, NTGR’s market cap was just shy of $400M and just slightly above $350M+ of the cash it had on hand – implying nearly $0 value for the actual business.
If some headwinds abate and some potential catalysts materialize, the underlying business should be worth far more than $0.
Chalfin listed several potential catalysts, including the ongoing WiFi 7 upgrade cycle, improving business metrics, a share buyback with plentiful cash, and even a theoretical separation of the company’s best-performing business segment.
He also specifically pointed out the then-upcoming Congress vote on the ROUTERS Act – a bipartisan bill to examine and potentially curb the use of Chinese-made wireless equipment, in theory paving the way for massive market share gains for NTGR.
Potential Enforcement Against TP-Link
TP-Link is a Chinese maker of networking equipment. With a 60%+ market share in the U.S., it is NetGear’s biggest competitor. Over the years, it has also successfully pushed NTGR out of the lower-priced segment of the market.
While TP-Link is clearly among the targets for review under the ROUTERS Act, enforcement action against it may come even sooner – on December 18th, the Wall Street Journal reported that the U.S. authorities are considering fully banning sales of TP-Link routers in the U.S. in 2025.