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Arista Networks (ANET) Down 1.6% Since Last Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for Arista Networks (ANET - Free Report) . Shares have lost about 1.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Arista Networks due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Arista's Q2 Earnings Estimates Beat on Solid Top-Line Growth
Arista reported healthy second-quarter results, with the top and bottom lines soaring year over year, driven by robust demand trends. Innovative product launches and steady customer additions backed by the company’s best-in-class portfolio strength ensured top-line expansion, while steady margin improvement contributed to earnings growth. Both the bottom and the top lines beat the respective Zacks Consensus Estimate.
Net Income
GAAP net income in the reported quarter improved to $665.4 million or $2.08 per share from $491.9 million or $1.55 per share in the year-ago quarter, mainly propelled by higher revenues.
On a non-GAAP basis, net income was $672.6 million or $2.10 per share compared with $501.2 million or $1.58 per share in the year-earlier quarter. The bottom line beat the Zacks Consensus Estimate by 16 cents.
Revenues
Revenues surged to $1.69 billion from $1.46 billion in the prior-year quarter, driven by the strength in the enterprise vertical. The company introduced various solutions for cloud, Internet service providers and enterprise networks to meet the rising demands of AI/ML-driven network architectures. These innovations enabled Arista to deliver a superior customer experience and increase customer engagement. The top line beat the consensus estimate of $1.64 billion.
Net quarterly sales from Products totaled $1.42 billion compared with $1.26 billion in the year-ago quarter. Service revenues increased to $267.1 million from $197.4 million. Arista witnessed positive demand trends owing to its strong product portfolio that is highly scalable, programmable and provides data-driven automation, analytics and world-class support services.
Net sales from the Americas contributed 81% to total revenues, while international revenues accounted for the remainder. Driven by its relentless pursuit of innovative products, Arista maintains a strong leadership position in the Data Center and Cloud Networking vertical.
Other Details
Non-GAAP gross profit rose to $1.1 billion from $893.8 million, with a non-GAAP gross margin of 65.4% and 61.3%, respectively. The margin was above the company’s guidance.
Total operating expenses were $397.6 million, up from $354.1 million in the year-ago quarter. Research & development costs rose to $267.5 million from $229.7 million. Sales and marketing expenses also increased to $104.4 million from $98 million due to a rise in headcount, new product introduction costs and higher variable compensation expenditures.
Cash Flow & Liquidity
In the first six months of 2024, Arista generated $1.5 billion of net cash from operating activities compared with $808.6 million in the year-ago period. As of Jun 30, 2024, the company had $2.43 billion in cash and cash equivalents and $133.4 million in other long-term liabilities.
During the quarter, the company repurchased $172 million worth of shares at an average price of $282.2 per share, $82 million of which was repurchased under the prior $1 billion share buyback authorization (which is now complete) and the remaining $90 million under the new program. Management authorized a new $1.2 billion stock repurchase program, which commenced in May 2024 and expires in May 2027.
Outlook
For the third quarter of 2024, management expects revenues in the range of $1.72-$1.75 billion owing to healthy growth momentum. Non-GAAP gross margin is estimated at 63-64%, and non-GAAP operating margin is approximated at 44%.
The company expects healthy demand trends in the remainder of 2024, backed by the strength of its existing portfolio and new product introductions. Arista presently supports more than 10,000 customers with a cumulative of 100 million ports deployed worldwide. The company expects healthy traction from Etherlink AI platforms launched during the quarter that are ultra-Ethernet consortium compatible, validating the migration from InfiniBand to Ethernet.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
The consensus estimate has shifted 5.72% due to these changes.
VGM Scores
At this time, Arista Networks has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Arista Networks has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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Arista Networks (ANET) Down 1.6% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Arista Networks (ANET - Free Report) . Shares have lost about 1.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Arista Networks due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Arista's Q2 Earnings Estimates Beat on Solid Top-Line Growth
Arista reported healthy second-quarter results, with the top and bottom lines soaring year over year, driven by robust demand trends. Innovative product launches and steady customer additions backed by the company’s best-in-class portfolio strength ensured top-line expansion, while steady margin improvement contributed to earnings growth. Both the bottom and the top lines beat the respective Zacks Consensus Estimate.
Net Income
GAAP net income in the reported quarter improved to $665.4 million or $2.08 per share from $491.9 million or $1.55 per share in the year-ago quarter, mainly propelled by higher revenues.
On a non-GAAP basis, net income was $672.6 million or $2.10 per share compared with $501.2 million or $1.58 per share in the year-earlier quarter. The bottom line beat the Zacks Consensus Estimate by 16 cents.
Revenues
Revenues surged to $1.69 billion from $1.46 billion in the prior-year quarter, driven by the strength in the enterprise vertical. The company introduced various solutions for cloud, Internet service providers and enterprise networks to meet the rising demands of AI/ML-driven network architectures. These innovations enabled Arista to deliver a superior customer experience and increase customer engagement. The top line beat the consensus estimate of $1.64 billion.
Net quarterly sales from Products totaled $1.42 billion compared with $1.26 billion in the year-ago quarter. Service revenues increased to $267.1 million from $197.4 million. Arista witnessed positive demand trends owing to its strong product portfolio that is highly scalable, programmable and provides data-driven automation, analytics and world-class support services.
Net sales from the Americas contributed 81% to total revenues, while international revenues accounted for the remainder. Driven by its relentless pursuit of innovative products, Arista maintains a strong leadership position in the Data Center and Cloud Networking vertical.
Other Details
Non-GAAP gross profit rose to $1.1 billion from $893.8 million, with a non-GAAP gross margin of 65.4% and 61.3%, respectively. The margin was above the company’s guidance.
Total operating expenses were $397.6 million, up from $354.1 million in the year-ago quarter. Research & development costs rose to $267.5 million from $229.7 million. Sales and marketing expenses also increased to $104.4 million from $98 million due to a rise in headcount, new product introduction costs and higher variable compensation expenditures.
Cash Flow & Liquidity
In the first six months of 2024, Arista generated $1.5 billion of net cash from operating activities compared with $808.6 million in the year-ago period. As of Jun 30, 2024, the company had $2.43 billion in cash and cash equivalents and $133.4 million in other long-term liabilities.
During the quarter, the company repurchased $172 million worth of shares at an average price of $282.2 per share, $82 million of which was repurchased under the prior $1 billion share buyback authorization (which is now complete) and the remaining $90 million under the new program. Management authorized a new $1.2 billion stock repurchase program, which commenced in May 2024 and expires in May 2027.
Outlook
For the third quarter of 2024, management expects revenues in the range of $1.72-$1.75 billion owing to healthy growth momentum. Non-GAAP gross margin is estimated at 63-64%, and non-GAAP operating margin is approximated at 44%.
The company expects healthy demand trends in the remainder of 2024, backed by the strength of its existing portfolio and new product introductions. Arista presently supports more than 10,000 customers with a cumulative of 100 million ports deployed worldwide. The company expects healthy traction from Etherlink AI platforms launched during the quarter that are ultra-Ethernet consortium compatible, validating the migration from InfiniBand to Ethernet.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
The consensus estimate has shifted 5.72% due to these changes.
VGM Scores
At this time, Arista Networks has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Arista Networks has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.