U.S. Markets closed

Arista (ANET) Q4 Earnings Beat on Strong Revenue Growth

Zacks Equity Research

Arista Networks, Inc. ANET reported solid fourth-quarter 2018 financial results, wherein both the bottom line and the top line surpassed the respective Zacks Consensus Estimate, and increased year over year.

Net Income

On a GAAP basis, net income increased to $170.2 million or $2.10 per share from $103.8 million or $1.29 per share in the year-ago quarter driven by top-line growth. For full-year 2018, net income decreased to $327.9 million or $4.06 per share from $422.5 million or $5.35 per share in 2017 due to higher operating expenses, which is largely attributable to legal settlement.

Quarterly non-GAAP net income came in at $182.2 million or $2.25 per share compared with $137.3 million or $1.71 per share in the year-ago quarter. The bottom line beat the consensus estimate by 21 cents.

Arista Networks, Inc. Price, Consensus and EPS Surprise

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

Revenues

Quarterly total revenues increased 27.3% year over year to $595.7 million and was above the company’s guidance of $582-$594 million, driven by healthy overall demand with strength across the business, particularly in the cloud titans vertical. The top line surpassed the Zacks Consensus Estimate of $589 million. Product revenues improved to $503.2 million from $407.2 million while Service revenues rose to $92.5 million from $60.7 million. For full-year 2018, revenues increased 30.7% year over year to $2,151.4 million.

Other Quarterly Details

Non-GAAP gross profit was $382.1 million compared with $308.3 million in the prior-year quarter. Non-GAAP gross margin was 64.1%, down from 65.9% and was just above the mid-point of management’s guidance of 63-65%. This was reflective of healthy mix of cloud titan revenues as expected and some incremental costs related to the previously announced trade tariff.

Total operating expenses were $181.4 million compared with $167.8 million in the year-ago quarter. Operating income came in at $193.6 million compared with $139.4 million a year ago. Non-GAAP operating margin improved to 37.3% from 36.1% in the prior-year quarter.

Cash Flow and Liquidity

For full-year 2018, Arista generated $503.1 million of cash from operating activities compared with $631.6 million in 2017. As of Dec 31, 2018, the cloud networking company had $650 million of cash and cash equivalents with $228.6 million of non-current deferred revenue balance compared with the respective tallies of $859.2 million and $187.6 million a year ago.

Outlook

Arista is well positioned with its key cloud customers and is focused on expanding presence across all the verticals. For first-quarter 2019, the company projects revenues in the range of $588-$598 million. The company anticipates non-GAAP gross margin of 63-65% and non-GAAP operating margin of approximately 35%.

Looking Ahead

While driving the cloud area networking, Arista boasts the number one market position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. The company has successfully integrated two M&A transactions, Mojo Networks for Cognitive Wi-Fi in the campus and Metamako for ultra-low latency networking, which remain additional tailwinds for business growth. Moreover, it is earning a strategic role with customers deploying transformative cloud networking. Arista aims to sustain profitable revenue growth and healthy cash generation in 2019 and beyond on the back of industry-leading product offerings.

Zacks Rank and Stocks to Consider

Arista currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Altice USA, Inc. ATUS, Plantronics, Inc. PLT and TESSCO Technologies Incorporated TESS, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Altice currently has a forward P/E (F1) of 36x.

Plantronics currently has a forward P/E (F1) of 9.9x.

TESSCO currently has a forward P/E (F1) of 19.6x.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?

From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.

This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.

See Stocks Today >>