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Why Is Arista Networks (ANET) Down 6.8% Since Last Earnings Report?
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A month has gone by since the last earnings report for Arista Networks (ANET - Free Report) . Shares have lost about 6.8% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Arista Beats Q4 Earnings Estimates on Top-Line Growth
Arista reported strong fourth-quarter 2021 results, wherein both the bottom and the top line beat the respective Zacks Consensus Estimate, driven by solid demand trends and healthy customer additions. Adjusted earnings and revenues also improved year over year.
Net Income
On a GAAP basis, net income in the reported quarter improved to $239.3 million or 75 cents per share from $182.9 million or 58 cents per share in the prior-year quarter, primarily driven by top-line growth.
Excluding non-recurring items, non-GAAP net income was $262.4 million or 82 cents per share compared with $197.7 million or 62 cents per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 8 cents.
In 2021, GAAP net income was up to $840.9 million or $2.63 per share from $634.6 million or $2 per share in 2020, primarily due to higher revenues. Non-GAAP earnings in 2021 improved to $915 million or $2.87 per share from $718.4 million or $2.26 per share in 2020.
Revenues
Quarterly total revenues jumped 23.7% year over year to $748.7 million and surpassed the company’s guidance of $725-$745 million. The rise was primarily led by solid customer additions and growth in the enterprise vertical, partially offset by shipment constraints resulting from the COVID-19 operating environment and supply-chain disruptions. The top line surpassed the consensus estimate of $737 million.
Arista generated 71% of total quarterly revenues from the Americas and the remainder from international operations. Product revenues increased to $667.9 million from $518.3 million on healthy traction from existing products and ramp up of newer ones with a successful transition from prototype to trials. Service revenues grew to $156.5 million from $130.2 million, supported by renewals and subscriptions. Cloud titans were the largest in terms of the vertical mix, followed by enterprise, specialty cloud providers, financials and service providers.
In 2021, revenues were record high at $2,948 million compared with $2,317.5 million in 2020 with healthy growth momentum in core cloud and data center products developed on differentiated Arista EOS stack and successfully deployed across 10, 25, 40, 100, 200 and 400-gig speeds.
Other Details
Non-GAAP gross profit improved to $530.4 million from $421.6 million for respective margins of 64.3% and 65%. The non-GAAP gross margin was at the higher end of the company’s guidance of 63-65%, reflecting healthy software and services mix.
Total operating expenses increased to $256.9 million from $219.9 million in the prior-year quarter owing to higher R&D costs, high variable compensation and other headcount-related charges, partially offset by lower COVID-related travel and marketing expenses. Non-GAAP operating income increased to $324.2 million from $243.5 million in the year-ago quarter, with corresponding margins of 39.3% and 37.6%, respectively.
With improved customer demand and order visibility, the company is taking decisive steps to improve inventory levels and manufacturing capacity to negate supply-chain headwinds that resulted in higher lead times of certain components. Fourth-quarter inventory was up to 650.1 million from 575.7 million in the prior-year quarter as it continued to maintain buffer levels for certain components and products.
Cash Flow & Liquidity
In 2021, Arista generated $1,015.9 million of net cash from operating activities compared with $735.1 million in 2020. As of Dec 31, 2021, the cloud networking company had $620.8 million in cash and cash equivalents with $129.1 million of non-current deferred tax liabilities compared with respective tallies of $893.2 million and $227.9 million in the prior-year period. Arista repurchased 176 million shares during the quarter at an average price of $113 per share. The company has thus completed its $1 billion share repurchase program initiated in second-quarter 2019. In October 2021, management increased its share repurchase program by an additional $1 billion, out of which it bought $72.9 million worth of shares at an average price of $124 per share during the quarter.
Q1 View
Arista is increasingly offering a software-driven, data-centric approach to help customers build their cloud architecture and augment their cloud experience. The company is increasingly gaining market traction in 100-, 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations. Arista expects to witness continued growth within its enterprise vertical in the forthcoming quarters, with customer mix being the key driver. For the first quarter of 2022, it expects revenues of $840-$860 million. It anticipates a non-GAAP gross margin of 63-64% and a non-GAAP operating margin of around 38%.
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 6.8% due to these changes.
VGM Scores
At this time, Arista Networks has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly 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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Why Is Arista Networks (ANET) Down 6.8% Since Last Earnings Report?
A month has gone by since the last earnings report for Arista Networks (ANET - Free Report) . Shares have lost about 6.8% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Arista Beats Q4 Earnings Estimates on Top-Line Growth
Arista reported strong fourth-quarter 2021 results, wherein both the bottom and the top line beat the respective Zacks Consensus Estimate, driven by solid demand trends and healthy customer additions. Adjusted earnings and revenues also improved year over year.
Net Income
On a GAAP basis, net income in the reported quarter improved to $239.3 million or 75 cents per share from $182.9 million or 58 cents per share in the prior-year quarter, primarily driven by top-line growth.
Excluding non-recurring items, non-GAAP net income was $262.4 million or 82 cents per share compared with $197.7 million or 62 cents per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 8 cents.
In 2021, GAAP net income was up to $840.9 million or $2.63 per share from $634.6 million or $2 per share in 2020, primarily due to higher revenues. Non-GAAP earnings in 2021 improved to $915 million or $2.87 per share from $718.4 million or $2.26 per share in 2020.
Revenues
Quarterly total revenues jumped 23.7% year over year to $748.7 million and surpassed the company’s guidance of $725-$745 million. The rise was primarily led by solid customer additions and growth in the enterprise vertical, partially offset by shipment constraints resulting from the COVID-19 operating environment and supply-chain disruptions. The top line surpassed the consensus estimate of $737 million.
Arista generated 71% of total quarterly revenues from the Americas and the remainder from international operations. Product revenues increased to $667.9 million from $518.3 million on healthy traction from existing products and ramp up of newer ones with a successful transition from prototype to trials. Service revenues grew to $156.5 million from $130.2 million, supported by renewals and subscriptions. Cloud titans were the largest in terms of the vertical mix, followed by enterprise, specialty cloud providers, financials and service providers.
In 2021, revenues were record high at $2,948 million compared with $2,317.5 million in 2020 with healthy growth momentum in core cloud and data center products developed on differentiated Arista EOS stack and successfully deployed across 10, 25, 40, 100, 200 and 400-gig speeds.
Other Details
Non-GAAP gross profit improved to $530.4 million from $421.6 million for respective margins of 64.3% and 65%. The non-GAAP gross margin was at the higher end of the company’s guidance of 63-65%, reflecting healthy software and services mix.
Total operating expenses increased to $256.9 million from $219.9 million in the prior-year quarter owing to higher R&D costs, high variable compensation and other headcount-related charges, partially offset by lower COVID-related travel and marketing expenses. Non-GAAP operating income increased to $324.2 million from $243.5 million in the year-ago quarter, with corresponding margins of 39.3% and 37.6%, respectively.
With improved customer demand and order visibility, the company is taking decisive steps to improve inventory levels and manufacturing capacity to negate supply-chain headwinds that resulted in higher lead times of certain components. Fourth-quarter inventory was up to 650.1 million from 575.7 million in the prior-year quarter as it continued to maintain buffer levels for certain components and products.
Cash Flow & Liquidity
In 2021, Arista generated $1,015.9 million of net cash from operating activities compared with $735.1 million in 2020. As of Dec 31, 2021, the cloud networking company had $620.8 million in cash and cash equivalents with $129.1 million of non-current deferred tax liabilities compared with respective tallies of $893.2 million and $227.9 million in the prior-year period. Arista repurchased 176 million shares during the quarter at an average price of $113 per share. The company has thus completed its $1 billion share repurchase program initiated in second-quarter 2019. In October 2021, management increased its share repurchase program by an additional $1 billion, out of which it bought $72.9 million worth of shares at an average price of $124 per share during the quarter.
Q1 View
Arista is increasingly offering a software-driven, data-centric approach to help customers build their cloud architecture and augment their cloud experience. The company is increasingly gaining market traction in 100-, 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations. Arista expects to witness continued growth within its enterprise vertical in the forthcoming quarters, with customer mix being the key driver. For the first quarter of 2022, it expects revenues of $840-$860 million. It anticipates a non-GAAP gross margin of 63-64% and a non-GAAP operating margin of around 38%.
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 6.8% due to these changes.
VGM Scores
At this time, Arista Networks has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly 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.