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Arista (ANET) Beats on Q2 Earnings, Revenues Up Y/Y


Arista Networks Inc. ANET reported earnings (including stock-based compensation) of $1.10 per share in second-quarter 2017, which comfortably surpassed the Zacks Consensus Estimate of 79 cents.

Excluding stock-based compensation but including all other one-time items, non-GAAP earnings was $1.34 per share, which surged 81.1% on a year-over-year basis.

Revenues of $405.2 million soared 50.8% from the year-ago quarter. The figure was better than management’s guided range of $354–$364 million. Product revenues (87.3% of total revenue) surged 50.2% to $353.9 million. Service revenues (12.7% of total revenue) jumped 54.9% to $51.3 million.

Arista expects revenue growth in the current-quarter to moderate sequentially as expenses are likely to grow faster than revenues due to higher investments.

Arista Networks, Inc. Price, Consensus and EPS Surprise

Arista Networks, Inc. Price, Consensus and EPS Surprise | Arista Networks, Inc. Quote

Management stated that gross margins can be negatively impacted due to re-design of the products affected by import ban related to the '945 case, which the company is fighting against Cisco CSCO.

Arista is now using the U.S. contract manufacturer to produce these, which will further negatively impact gross margin.

The stock has gained 79.6% year to date, substantially outperforming the 21.3% rally of the industry it belongs to.

Quarter Details

International revenues came in at $101.2 million, or 25% of total revenue, up from 21% in the previous quarter.

The company is benefiting from the expanding cloud networking market driven by strong demand for scalable infrastructure. The robust product portfolio is helping it win customers on a regular basis.

Gross margin expanded 30 basis points (bps) to 64.1% and was better than the company’s guided range of 61–64%. Product gross margin contracted 60 bps, while service margin expanded 110 bps.

Operating expenses, as percentage of revenues, declined 870 bps to 35.3%. Research & development (R&D), sales & marketing (S&M) and general & administrative (G&A) expenses declined 560 bps, 230 bps and 80 bps, respectively.

The lower R&D expense reflects reduced prototype and NRE spending, following the launch of Arista’s R2 products, offset by continued headcount growth.

Operating margin expanded almost 900 bps on a year-over-year basis to 28.8%.

Legal expenses associated with the ongoing lawsuits came in at $12 million for the quarter.

Balance Sheet & Cash Flow

Cash & cash equivalents and marketable securities as of Jun 30 were $1.12 billion as compared with $1.04 billion as of Mar 31. Cash flow from operating activities was $79.2 million.

Inventory increased to $363.8 million in the quarter, up from $286.8 million in the prior period.

Deferred revenue balance was $554.5 million, up from $497.2 million in the previous quarter driven by growth in services renewals.


For third-quarter 2017, management projects revenues in the range of approximately $405–$420 million, gross margin of approximately 61–64% and operating margin of approximately 30%.

Zacks Rank & Key Stocks

Arista has a Zacks Rank #2 (Buy). Better-ranked stocks in the broader technology sector include Alibaba Group BABA and Lam Research LRCX, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rates for Alibaba and Lam Research are projected to be 28.97% and 17.20%, respectively.

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