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Arista (ANET) Q2 Earnings & Revenues Beat Estimates, Down Y/Y

Zacks Equity Research

Arista Networks, Inc. ANET reported decent second-quarter 2020 results, with the top and the bottom line beating the respective Zacks Consensus Estimate. However, both figures declined on a year-over-year basis.

Net Income

On a GAAP basis, net income in the June-end quarter declined to $144.8 million or $1.83 per share from $189.2 million or $2.33 per share in the prior-year quarter, primarily due to lower operating income.

Non-GAAP net income came in at $167 million or $2.11 per share compared with $198.6 million or $2.44 per share in the year-ago quarter. However, the bottom line beat the Zacks Consensus Estimate by 14 cents, with an earnings surprise of 7.1%.

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


Quarterly total revenues fell 11.1% year over year to $540.6 million (but were at the upper end of the company’s guidance of $520-$540 million) due to COVID-19 related supply challenges. This resulted in extended lead time and shipment constraints. The top line, however, surpassed the consensus estimate of $530 million.

Arista generated 81% of total revenues from the Americas and the remainder from international operations. Almost 40% of the vertical mix was driven by cloud titans, followed by 35% from enterprises, including financial services, and 25% from service and cloud specialty providers. Product revenues declined to $421.4 million from $513.2 million, while Service revenues rose to $119.2 million from $95.2 million supported by renewals.

Other Details

Non-GAAP gross profit contracted to $349.9 million from $393.8 million, with the respective margins remaining stable at 64.7%. The non-GAAP gross margin was above the midpoint of the company’s guidance of 63-65%, reflecting software and services mix.

Non-GAAP operating income declined to $205.7 million from $235.1 million in the year-ago quarter with a margin of 38.1% and 38.7%, respectively.

Cash Flow & Liquidity

In the first half of 2020, Arista generated $333.1 million of net cash from operating activities compared with $366.5 million in the prior-year period. As of Jun 30, the cloud networking company had $800.2 million in cash and cash equivalents with $249 million of non-current deferred revenues.

Q3 Outlook

For the third quarter of 2020, Arista expects revenues of $570-$590 million. It anticipates a non-GAAP gross margin of 63-65% and a non-GAAP operating margin of nearly 37%.

Zacks Rank & Stocks to Consider

Arista carries a Zacks Rank #3 (Hold), at present.

Some better-ranked stocks in the broader industry are Turtle Beach Corporation HEAR, T-Mobile US, Inc. TMUS and Clearfield, Inc. CLFD, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Turtle Beach has a trailing four-quarter earnings surprise of 46.4%, on average.

T-Mobile has a trailing four-quarter earnings surprise of 19.4%, on average.

Clearfield has a trailing four-quarter positive earnings surprise of 45.6%, on average. The company’s earnings beat the Zacks Consensus Estimate in two of the last four quarters.

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