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Arista (ANET) Beats Q3 Earnings Estimates on Record Revenues

Arista Networks, Inc. ANET reported strong third-quarter 2022 results, wherein both the bottom and the top lines 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 $354 million or $1.13 per share from $224.3 million or 70 cents per share in the prior-year quarter, primarily driven by top-line growth.

Excluding non-recurring items, non-GAAP net income was $391.9 million or $1.25 per share compared with $236.9 million or 74 cents per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 20 cents.

Arista Networks, Inc. Price, Consensus and EPS Surprise

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

Arista Networks, Inc. price-consensus-eps-surprise-chart | Arista Networks, Inc. Quote


Despite supply chain disruptions, total revenues soared 57.2% year over year to $1,176.8 million. The top line surpassed the company’s guidance of $1,025-$1,075 million and exceeded the consensus estimate of $1,060 million. The record revenues were primarily led by solid customer additions and growth in the enterprise vertical, along with accelerated shipments to cloud titan customers that were mostly deferred from the previous quarter.

Arista generated 83% of total quarterly revenues from the Americas and the remainder from international operations. Product revenues increased to $1,008.7 million from $604.2 million on healthy traction from existing products and the ramp-up of newer ones with the launch of various products. Service revenues grew to $168.1 million from $144.5 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. The company maintained its leading position in 100, 200 and 400-gig switching and achieved solid market control in client to cloud networking domain.

Other Details

Non-GAAP gross profit improved to $719.8 million from $486.1 million for respective margins of 61.2% and 64.9%. The non-GAAP gross margin was near the higher end of the company’s guidance of 60-62%, reflecting healthy software and services mix.

Total operating expenses increased to $292.6 million from $245.3 million in the prior-year quarter, owing to higher R&D costs, increased variable compensation and other headcount-related charges. Non-GAAP operating income increased to $492.1 million from $293.7 million in the year-ago quarter, with corresponding margins of 41.8% and 39.2%, 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. Third-quarter inventory was up to 1.1 billion from 852.8 million in the prior quarter as it maintained buffer levels for certain components and products.

Cash Flow & Liquidity

In the first nine months of 2022, Arista generated $452.3 million of net cash from operating activities compared with $790.6 million in the prior-year period. As of Sep 30, 2022, the cloud networking company had $716.3 million in cash and cash equivalents. Arista repurchased shares worth $47.6 million during the quarter at an average price of $99 per share. The company has so far bought 7 million shares for $740 million as part of its $1 billion share repurchase program initiated in October 2021.

Q4 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 continued growth within its enterprise vertical in the forthcoming quarters, with customer mix being the key driver. For the fourth quarter of 2022, it expects revenues of $1,175-$1,200 million. It anticipates a non-GAAP gross margin of 60-62% and a non-GAAP operating margin of 40%.

Zacks Rank & Stocks to Consider

Arista currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

TESSCO Technologies Incorporated TESS, carrying a Zacks Rank #2 (Buy), delivered an earnings surprise of 61.9%, on average, in the trailing four quarters. Earnings estimates for TESSCO for the current year have moved up 49.4% since August 2021.

TESSCO offers products to the industry’s top manufacturers in mobile communications, Wi-Fi, wireless backhaul and related products. With more than three decades of experience, it delivers complete end-to-end solutions to the wireless industry.

Ooma Inc. OOMA, sporting a Zacks Rank #1, delivered an earnings surprise of 34.7%, on average, in the trailing four quarters. Earnings estimates for Ooma for the current year have moved up 5.4% since March 2022.

Ooma offers communications services and related technologies for businesses and consumers in the United States and Canada. It helps to create powerful connected experiences for businesses and consumers through its smart cloud-based SaaS platform.

Viavi Solutions Inc. VIAV, carrying a Zacks Rank #2, is a solid pick for investors in the broader industry. It delivered a modest earnings surprise of 12.4%, on average, in the trailing four quarters.

Earnings estimates for the current year for Viavi have moved up 7.9% since October 2021, while that for the next year is up 18.7%. It boasts a comprehensive product portfolio that offers end-to-end network visibility and analytics that help build, test, certify, maintain and optimize complex physical and virtual networks. Viavi expects growth to be driven by the secular demand for 5G wireless, fiber and 3D sensing.

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