ANET Stock Overview
Arista Networks, Inc. develops, markets, and sells cloud networking solutions in the Americas, Europe, the Middle East, Africa, and the Asia-Pacific.
Arista Networks, Inc. Competitors
Price History & Performance
|Historical stock prices|
|Current Share Price||US$126.03|
|52 Week High||US$148.57|
|52 Week Low||US$85.18|
|1 Month Change||28.26%|
|3 Month Change||16.00%|
|1 Year Change||37.37%|
|3 Year Change||132.65%|
|5 Year Change||194.70%|
|Change since IPO||816.58%|
Recent News & Updates
Arista Networks: Beats Earnings With Blistering Growth
Arista Networks is a leader in high-performance equipment for Data Centers and Campuses. The company smashed Revenue and Earnings estimates for the second quarter of 2022. Arista has super high margins with a >60% Gross Margin and >40% Operating margin. Management showed confidence and bought back $483.7 million of stock during Q2,22 average price of $101 per share. They are deeply embedded with customers such as Microsoft and Meta, which gives them a competitive advantage. Arista Networks (ANET) is a leading provider of high performance IT Networking equipment for Datacenters and Campus environments. The company has over 8000 customers and even supplies the "Cloud Titans" such as Meta (META) and Microsoft (MSFT) with high powered switches for their data centers. Arista has generated blistering growth in the second quarter and beat top and bottom line growth estimates. In addition, the company has high margins and best in class technology, which acts as a competitive advantage. Let's dive into the Business Model, Financials and Valuation for the juicy details. ANET data by YCharts $4 Trillion Market Opportunity Arista Networks is poised to ride the growth in at least seven converging technology industries. The most prevalent is the "Digital Transformation" of enterprises. Large organizations are moving their on-premises data center to the cloud, in order to become more agile and lower operating costs long term. This secular shift was accelerated by the pandemic and the industry is forecasted to hit a staggering $3.8 trillion by 2028, growing at a blistering 22.1% CAGR. Arista TAM (Investor Day Presentation Aug 2022) Other growth industries include; Streaming Media, Edge Cloud, Remote Work, IoT (internet of Things), 5G, AI and many more. Tech Business Model Arista networks is a leader in high performance data center switches. In simple terms, you can think of "Switches" as the building blocks of a Network that connect together for communication. Cisco was known has the go to provider for Switches, however Arista is rapidly gaining market share and offers a better solution for high performance use cases such as Data Centers. As you can see from the charts below, Arista has increased its "Share of Dollars" and also "Share of Ports", while Cisco has been declining. Arista Vs Cisco (Investor Presentation August 2022) Competitive Advantage (Microsoft and Meta Partners) As mentioned in the introduction, Arista supplies data center equipment (Switches) to "Cloud Titans" such as Microsoft and Meta who management states are "very special customers" and each expected to be 10% of their total revenue. At Microsoft, Arista's Switches are deployed in all layers of their network across the entire "Spine and Leaf" architecture. In addition to Microsoft's Local Area Network (LAN) and Cloud Edge. Arista has even partnered with the Microsoft to create a Data Center Interconnect ((DCI)) layer, which is used to connect Data Centers together and is now the "gold standard" in the industry. Arista is deeply embedded with Microsoft and they even have an engineering partnership to develop and test the next generation of 400G switches which are astonishingly powerful. 400G Platforms (Investor Presentation August 2022) For Meta, Arista has supplied their Data Centers with products since the "early days" and have codeveloped multiple products with them. I believe this "co-development" with both Meta and Microsoft gives the company a competitive advantage over other industry players. "Cloud Titans" are the company's largest vertical followed by Enterprises, cloud specialty providers and Financial industry players. Best in Class Products Arista has built out a "Complete" Data Center portfolio, Campus Portfolio and they are now expanding their Routing and Software Portfolio. Arista Product segments (Investor Presentation August 2022) A unique aspect of Arista is the only networking company to offer a consistent operating model for Cloud, Enterprise or Service Provider. The core of its Platform is its Extensible Operating System (EOS™) which is a scalable operating system that enables more efficient maintenance, security and fault finding when compared to traditional systems. CloudVision is an automation tool which gives users a "Vision" into the state of their IT infrastructure. This includes easy configuration options and the ability for telemetry data to be easily captured. For example, in the 2nd quarter of 2022 the company won a contract for overall Data Center architecture and CloudVision was a "Key Decision" factor for the customer, according to Arista's management. CloudVision (Investor Presentation August 2022) Arista's support network (A-Care) is also best in class and the company has an high NPS (Net Promoter Score). In addition to being a Gartner Magic Quadrant leader in Data Center Networking. Arista Care (Investor Presentation August 2022) In the first half of 2022, Arista completed two small acquisitions to increase its switching and security expertise. One of the acquisitions was a company called Untangle which is an edge threat management solution. Growing Financials Arista Networks announced strong financials for the second quarter of 2022. Revenue popped to $1.052 billion, up a blistering 48.75% year-over-year and up 20% over the prior quarter. This smashed analyst expectations by $72 million. This growth was driven by strong US revenues with their "Cloud Titan" customers such as Meta and Microsoft. International revenues thus made up a smaller portion of revenues this quarter at 20% of total, less than the 24% in the prior quarter. Service and Subscription revenue made up 17.6% of total revenue, this was down slightly from the 19.2% in the prior quarter. However, this was driven by stronger product revenue growth and more "consistent" Service and Subscription revenue growth, thus, it's not an issue. ANET Revenue Estimates for Next Fiscal Year data by YCharts Arista Networks generates high gross margins overall of over 60%. In the second quarter of 2022, its Gross margin was 61.9% which was at the top end of managements guidance but slightly lower than prior quarters. This was driven by a higher mix of Cloud Titan revenue and rising supply chain costs. According to the CFO (Ita Brennan), Overall, demand in the quarter was healthy with strength across all areas of the business. The supply environment remains challenging with ongoing supplier decommits constraining shipments and requiring higher cost broker purchases and expedite fees. This was surprisingly positive, but also realistic given many companies are reporting poor demand across areas. Despite rising costs in many areas, Arista's Operating Expenses were flat compared to the last quarter at $226.1 million or 21.5% of Revenue. This was fantastic to see and shows the company has high Operating Leverage moving forward. For the uninitiated "Operating Leverage" is a company's ability to keep its fixed costs the same while increasing revenue. With the majority of expenses been managements choice as opposed to being thrust upon them. For instance, the company decided to increase its investment into R&D by 14.1% to $148 million, which was mainly driven by increased headcount. However, they decided to decrease Sales and Marketing Expenses slightly to $63.1 million (6% of revenue) down from $66.2 million in the prior quarter. While General and Administrative expenses (the costs that are hard to control) was pretty much flat at $15 million and only makes up a slither of revenue at 1.4%. ANET Operating Income ((TTM)) data by YCharts Due to its high revenue growth and handle on operating expenses, it's no surprise the company generated strong operating income of $425.5 million, which equates to ~40% of its revenue, which is fabulous As you can see from the chart above the trend has been upwards over the past few years, with a slight dip during the pandemic. Earnings Per Share ((EPS)) was strong at $1.08, which beat analyst expectations by $0.16 and was up a rapid 59% year-over-year. Arista Networks has a fortress balance sheet with cash, cash equivalents and investments of ~$2.9 billion. In addition to total debt of less than $57.5 million. Given the company completed two acquisitions for $158.9 million, its balance sheet is rock solid. Management showed confident and bought back $483.7 million of stock at an average price of $101 per share. Management still has $307 million of stock authorised to buy back, after a major $1 billion buyback program announced in October 2021. Advanced Valuation In order to value Arista Networks, I have plugged the latest financials into my advanced valuation model which uses the discounted cash flow method of valuation. I have forecasted its growth rate to dip to just a 16% growth rate for next year, given the macroeconomic environment. In the future I am forecasting a 22% growth rate over the next 2 to 5 years. This is higher than some analyst estimates, but still much lower than the ~48% growth rate generated this past year.
Arista Networks: Consistent Execution Amid Tough Conditions
Arista Networks has navigated tough macro conditions very well, which has allowed the stock to avoid a massive share price decline this year. Revenue growth is accelerating, in spite of constrained supply chain conditions. The company is also hanging on to its low-60s gross margin profile, which is impressive for a hardware vendor, especially for one dealing with supply constraints. EPS also continues to grow in the double digits; at the same time, Arista is fairly valued at ~25x forward P/E. For the first time in a long time, the tech sector is hurting in 2022. And while a lot of the YTD declines we've seen in the sector have been due to weakening sentiment and overreaching valuations, many companies are also starting to report that enterprise spend is down, hurting enterprise software and IT vendors. Yet there is one bright spot among the turmoil, at least from a fundamental perspective: Arista Networks (ANET). This cloud-friendly data networking leader has managed deftly through a tough supply chain environment, while also maintaining solid demand from the cloud titans that make up the majority of its business. It is also penetrating into new market segments, especially campus routing. Year to date, shares of Arista have lost approximately 25% of their value: Data by YCharts Arista is great, but with the market so full of beaten-down tech stocks, it's too expensive to consider Evaluating where the market is today and what all my buying options are to deploy capital, I remain neutral on Arista, though I am edging Arista up slightly on my watch list. Two things have happened since I last wrote on the stock: first, the share price has reduced by roughly 15% from the low ~$120s in March; second, the company executed tremendously well in its first-quarter earnings. There is little doubt that Arista remains a top-notch, product-oriented company. The fact that Arista has continually nabbed market share from legacy giant Cisco (CSCO) remains one strong positive indicator. Between Cisco and Arista, these two giants hold roughly half of the data center switching market. In 2021, Arista notes that while Arista gained two points of share to 19%, Cisco lost three points and ended at 31%. Forrester, a leading tech industry analyst and ranking system, also ranks Arista as the leading vendor in its market: Arista rankings (Arista Q1 investor presentation) This strong product-market alignment, especially with Arista's popularity among cloud titans, has driven very consistent earnings growth through the years, as shown in the chart below: Arista EPS growth trend (Arista Q1 investor presentation) 2022, so far, appears to be a continuation of this narrative, with record revenue in Q1 and robust EPS growth. Yet at the same time, I think a lot of Arista's high quality is already reflected in its current share price. For the current fiscal year, Wall Street is expecting $3.70 in pro forma EPS, representing 29% y/y EPS growth; for FY23, the company is expected to put out $4.25 in EPS, or 15% y/y growth. Against these expectations (data from Yahoo Finance), Arista trades at: 28.4x FY22 P/E 24.7x FY23 P/E Considering these multiples are now well ahead of the broader market, I hesitate to invest in Arista with a clear conscience. At the moment, I prefer buying much more beaten-down small/mid-cap tech names to deploy my excess cash - but Arista, in my view, will either market perform or underperform the S&P 500 given its existing premium. Adopt a "watch and wait" stance here - either Arista's fundamentals and EPS outlook change dramatically to the upside, or its stock price needs to come down. At current levels, Arista is not a buy. Q1 download This being said, we will acknowledge the tremendous strength in Arista's Q1 results. Take a look at the Q1 earnings summary below: Arista Q1 results (Arista Q1 investor presentation) Arista's revenue in Q1 grew at a stunning 31% y/y pace to $877.1 million. This is impressive on a number of counts. First of all, it beat Wall Street's expectations of $856.4 million (+28% y/y) by a three point margin. Second, revenue also accelerated from 28% y/y growth in Q4. Third, it was also an all-time quarterly revenue record for the company. Now, the other remarkable piece on these results is that it reflects performance within an incredibly tight supply environment. The company noted that it faced heavy supplier decommits within the quarter, and it boosted its forward purchases in anticipation of both continued tightness in supply as well as consistently strong demand from its cloud titan customers. Per CFO Ita Brennan's prepared remarks on the Q1 earnings call: Supply remained constrained in the quarter with supplier decommits resulting in higher broker purchases and expedite fees in the period [...] Our purchase commitment number for the quarter was $4.3 billion, up from $2.8 billion in Q4. The significant increase in commitments largely represents orders for 2023 and beyond, reflecting overall strength and demand for those periods and our expectation that this long lead time supply environment continues. As a reminder, we continue to prioritize newer, early life-cycled products for inclusion of these strategies in order to help mitigate the risk of excess or obsolescence."
|ANET||US Communications||US Market|
Return vs Industry: ANET exceeded the US Communications industry which returned -10.7% over the past year.
Return vs Market: ANET exceeded the US Market which returned -11.6% over the past year.
|ANET Average Weekly Movement||6.2%|
|Communications Industry Average Movement||8.3%|
|Market Average Movement||7.8%|
|10% most volatile stocks in US Market||16.9%|
|10% least volatile stocks in US Market||3.2%|
Stable Share Price: ANET is not significantly more volatile than the rest of US stocks over the past 3 months, typically moving +/- 6% a week.
Volatility Over Time: ANET's weekly volatility (6%) has been stable over the past year.
About the Company
Arista Networks, Inc. develops, markets, and sells cloud networking solutions in the Americas, Europe, the Middle East, Africa, and the Asia-Pacific. The company’s cloud networking solutions consist of extensible operating systems, a set of network applications, as well as gigabit Ethernet switching and routing platforms. It also provides post contract customer support services, such as technical support, hardware repair and parts replacement beyond standard warranty, bug fix, patch, and upgrade services.
Arista Networks, Inc. Fundamentals Summary
|ANET fundamental statistics|
Is ANET overvalued?See Fair Value and valuation analysis
Earnings & Revenue
|ANET income statement (TTM)|
|Cost of Revenue||US$1.30b|
Last Reported Earnings
Jun 30, 2022
Next Earnings Date
|Earnings per share (EPS)||3.40|
|Net Profit Margin||29.55%|
How did ANET perform over the long term?See historical performance and comparison