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.
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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.
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.
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