Arista (ANET) Surpasses Q3 Earnings And Revenue Estimates

Arista Networks, Inc. (NYSE:ANET) reported healthy third-quarter 2018 results with year-over-year increase in revenues and record earnings on the back of solid order trends and favorable growth dynamics. Both the top line and the bottom line surpassed the respective Zacks Consensus Estimate in the quarter.

Net Income

On GAAP basis, net income increased to a record $168.4 million or $2.08 per share from $133.6 million or $1.68 per share in the year-ago quarter driven by top-line growth.

Non-GAAP net income was $171.3 million or $2.11 per share compared with $128.2 million or $1.62 per share in the year-ago quarter. The bottom line surpassed the Zacks Consensus Estimate by 26 cents.

Arista Networks, Inc. Price, Consensus and EPS Surprise

Revenues

Quarterly total revenues increased 28.7% year over year to $563.3 million led by higher product sales and strength in the Cloud Titans vertical. Also, the top line outpaced the Zacks Consensus Estimate of $547 million.

Product revenues improved to $485.5 million from $380.3 million while Service revenues rose to $77.8 million from $57.3 million. Arista is benefiting from strong demand of the ‘Cloud Titans’ vertical, which was the top revenue contributor for the quarter followed by ‘Cloud Specialized Providers’ and ‘Enterprises’ tied at the number two spot, and ‘Financials’ and ‘Service Providers’ tied at the third place.

Non-GAAP gross margin was 64.6%, up from 64.4% and was above the mid-point of management’s guidance of 63-65%, primarily driven by higher revenue mix from its non-cloud customers. Non-GAAP operating margin declined to 37.1% from 38.6% in the prior-year quarter.

Other Quarter Details

Total operating expenses were $180.8 million compared with $139.8 million in the year-ago quarter, primarily due to higher R&D expenses. Operating income came in at $180.8 million compared with $140.8 million a year ago.

Cash Flow and Liquidity

For the first nine months of 2018, Arista generated $207.3 million of cash from operating activities compared with $448 million in the prior-year period.

As of Sep 30, 2018, the company had $524.7 million of cash and cash equivalents with $211 million of non-current deferred revenue balance.

Outlook

For fourth-quarter 2018, Arista projects revenues in the range of $582-$594 million. The company anticipates non-GAAP gross margin of 63-65% and non-GAAP operating margin of approximately 35%.

Going Forward

Arista closed acquisitions of Mojo Networks for Cognitive WiFi and Metamako for low latency based in Sydney, Australia, in the third quarter. Also, it recently introduced the new 400-gigabit fixed switches the 7060X4 Series, based on the new Broadcom (NASDAQ:AVGO) merchant silicon Tomahawk 3 with significant routing and buffering improvements. Arista is likely to take a leading role in the rollout of 400-gig Ethernet in 2019 and beyond while continuing its healthy growth momentum in the future.

Zacks Rank and Stocks to Consider

Arista currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Corning Incorporated (NYSE:GLW) , Harmonic Inc. (NASDAQ:HLIT) and Knowles Corporation (NYSE:KN) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Corning has a long-term earnings growth expectation of 8.8%. It beat earnings estimates in each of the trailing four quarters, delivering an average positive surprise of 4.1%.

Harmonic has a long-term earnings growth expectation of 8.8%.

Knowles has a long-term earnings growth expectation of 10%.

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