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Why Is Arista Networks (ANET) Down 0.1% 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 0.1% in that time frame, outperforming 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 Beats Q2 Earnings Estimates on Record Revenues
Arista reported solid second-quarter 2023 results, with record revenues driven by healthy demand trends. Easing supply chain woes and steady customer additions backed by the company’s best-in-class portfolio strength ensured a top-line expansion year over year. Both the bottom and the top line beat the respective Zacks Consensus Estimate.
Net Income
GAAP net income in the reported quarter rose to $491.9 million or $1.55 per share from $299.1 million or 94 cents per share in the year-ago quarter. The improvement was mainly propelled by higher net sales.
On a non-GAAP basis, net income was $501.2 million or $1.58 per share compared with $342.7 million or $1.08 per share in the year-earlier quarter. The bottom line beat the Zacks Consensus Estimates by 14 cents.
Revenues
During the quarter, revenues surged to $1,458.9 million from $1,051.9 million in the prior-year quarter, owing to an improvement in component supply that enhanced the manufacturing output consistency. The company introduced various solutions for cloud, Internet service providers and enterprise networks to meet the rising demands of AI/ML driven network architectures and unveiled the WAN routing system. These innovations enabled Arista to deliver a superior customer experience and increase customer engagement while surpassing 75 million cumulative cloud networking ports. The top line beat the consensus estimate of $1,380 million.
Net sales from Product totaled $1,261.5 million compared with $885.8 million in the year-ago quarter. It exceeded our estimate of $1,164.3 million. Service revenues increased to $197.4 million from $166.1 million in the prior-year quarter but fell short of our estimates of $211.9 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 79% to total revenues, while international revenues accounted for the remainder. Healthy contributions from enterprise customers in EMEA and APAC regions supported the top-line growth in the international market. Driven by its innovation, Arista continues to maintain a strong leadership position in the Data Center and Cloud Networking vertical.
Other Details
Non-GAAP gross profit rose to $893.8 million from $651.6 million, with non-GAAP gross margin of 61.3% and 61.9%, respectively. The margin was in line with the company’s guidance.
Total operating expenses were $354.1 million, up from $280.4 million in the year-ago quarter. Research & development costs rose to $229.7 million from $178.2 million. Sales and marketing expenses also increased to $98 million from $79.4 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 2023, Arista generated $808.6 million of net cash from operating activities compared with $318.2 million in the prior-year period. As of Jun 30, 2023, the company had $1,261.8 million in cash and cash equivalents and $61.5 million in other long-term liabilities. Arista repurchased common stock worth $30 million at an average price of $137.2 per share in the quarter.
Outlook
For the third quarter of 2023, management expects revenues in the range of $1.45-$1.5 billion. Non-GAAP gross margin is estimated at 62% and non-GAAP operating margin is approximated at 41%.
The company expects further easing of supply chain anomalies and an improvement in lead time. However, it anticipates a moderation in consumer spending, mainly for cloud titan customers. It expects a steady improvement in gross margin owing to the optimization of manufacturing output.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
The consensus estimate has shifted 6.83% due to these changes.
VGM Scores
At this time, Arista Networks has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. 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 #2 (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 0.1% Since Last Earnings Report?
A month has gone by since the last earnings report for Arista Networks (ANET - Free Report) . Shares have lost about 0.1% in that time frame, outperforming 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 Beats Q2 Earnings Estimates on Record Revenues
Arista reported solid second-quarter 2023 results, with record revenues driven by healthy demand trends. Easing supply chain woes and steady customer additions backed by the company’s best-in-class portfolio strength ensured a top-line expansion year over year. Both the bottom and the top line beat the respective Zacks Consensus Estimate.
Net Income
GAAP net income in the reported quarter rose to $491.9 million or $1.55 per share from $299.1 million or 94 cents per share in the year-ago quarter. The improvement was mainly propelled by higher net sales.
On a non-GAAP basis, net income was $501.2 million or $1.58 per share compared with $342.7 million or $1.08 per share in the year-earlier quarter. The bottom line beat the Zacks Consensus Estimates by 14 cents.
Revenues
During the quarter, revenues surged to $1,458.9 million from $1,051.9 million in the prior-year quarter, owing to an improvement in component supply that enhanced the manufacturing output consistency. The company introduced various solutions for cloud, Internet service providers and enterprise networks to meet the rising demands of AI/ML driven network architectures and unveiled the WAN routing system. These innovations enabled Arista to deliver a superior customer experience and increase customer engagement while surpassing 75 million cumulative cloud networking ports. The top line beat the consensus estimate of $1,380 million.
Net sales from Product totaled $1,261.5 million compared with $885.8 million in the year-ago quarter. It exceeded our estimate of $1,164.3 million. Service revenues increased to $197.4 million from $166.1 million in the prior-year quarter but fell short of our estimates of $211.9 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 79% to total revenues, while international revenues accounted for the remainder. Healthy contributions from enterprise customers in EMEA and APAC regions supported the top-line growth in the international market. Driven by its innovation, Arista continues to maintain a strong leadership position in the Data Center and Cloud Networking vertical.
Other Details
Non-GAAP gross profit rose to $893.8 million from $651.6 million, with non-GAAP gross margin of 61.3% and 61.9%, respectively. The margin was in line with the company’s guidance.
Total operating expenses were $354.1 million, up from $280.4 million in the year-ago quarter. Research & development costs rose to $229.7 million from $178.2 million. Sales and marketing expenses also increased to $98 million from $79.4 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 2023, Arista generated $808.6 million of net cash from operating activities compared with $318.2 million in the prior-year period. As of Jun 30, 2023, the company had $1,261.8 million in cash and cash equivalents and $61.5 million in other long-term liabilities. Arista repurchased common stock worth $30 million at an average price of $137.2 per share in the quarter.
Outlook
For the third quarter of 2023, management expects revenues in the range of $1.45-$1.5 billion. Non-GAAP gross margin is estimated at 62% and non-GAAP operating margin is approximated at 41%.
The company expects further easing of supply chain anomalies and an improvement in lead time. However, it anticipates a moderation in consumer spending, mainly for cloud titan customers. It expects a steady improvement in gross margin owing to the optimization of manufacturing output.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
The consensus estimate has shifted 6.83% due to these changes.
VGM Scores
At this time, Arista Networks has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. 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 #2 (Buy). We expect an above average return from the stock in the next few months.