Cross post from the Anet board regarding slowing revenue growth.
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Here are the revenue growth rates for ANET over the last couple years.
revenue growth rates in percent
2015 53 42 40 42
2016 35 37 33 34
2017 39 51 51 43
2018 41 28
Looking at the numbers, I'm not sure the revenue growth is slowing, more of a reflection of the 51 number in the second quarter of 2017, just a tough comp.
The first quarter average for 2017 and 2018 is 40%, and the second quarter average is 39.5%.
Anyhow, I also liked:
gross margin expansion
net margin expansion
great cash flow
optionality moving into enterprise and now their 1st acquisition
They look to have FCF above $850 M for the year, just printing cash so I expect more acquisitions to come.
Jim
24 Likes
Looking at the numbers, I’m not sure the revenue growth is slowing, more of a reflection of the 51 number in the second quarter of 2017, just a tough comp.
The first quarter average for 2017 and 2018 is 40%, and the second quarter average is 39.5%.
Anyhow, I also liked:
gross margin expansion
net margin expansion
great cash flow
optionality moving into enterprise and now their 1st acquisition
They look to have FCF above $850 M for the year, just printing cash so I expect more acquisitions to come.
Jim
Thanks for the update and perspective. I am happy with the numbers and the longer term outlook. I took advantage of the post earnings drop to add to my position today (after selling another lower conviction position).
dave
2 Likes
Yes, some of the “slow down” has simply been difficult comparables.
If you take the Q2 growth for 2017 and 2018 of 51 and 28%, $100 becomes $193, whereas if both 2017 and 2018 were a more linear 35% each, then $100 becomes $182.
The two year, non-linear growth out does the two year linear 35% growth.
You would need 2 year linear growth of 39% that comes to $100 turning to $193 to equal the total sales ANET had using 51% growth followed by 28% growth.
So yeah, it does seem as if growth has not slowed down if you go on a two year calculation and assume that growth from the last two years will continue into the next two years. 39% growth is enough to make ANET an astounding investment given its ability to print cash. That indeed is clear.
Meanwhile, Saul and I were not wrong to sell out ANET. ANET, year to date, has trailed even NVDA (not that NVDA has done bad, but it has from a comparison perspective).
What this means however, is if the two year calculation holds into the next two years in a more linear fashion, then ANET will surprise to the upside next year, or it will need to give a higher revenue growth estimate for 2019. Either of which will be quite good for the stock price.
For those continuing to hold, and not selling because of tax issues and no compelling reason to do so is a good decision with the right investor, may work out very well despite having a less than stellar 2018, as 2019 looks like it will be better dressed up and easier to understand than 2018.
May be worth analyzing later this year if I need to look for other risk/reward investments. I still am not real high on the campus markets for ANET. It will take multiple years to start producing anything material. Nevertheless, the numbers are the numbers, and the numbers look prettier for the next two years (even if the 2, two year periods, turn out to effectively have the same growth rates.
Tinker
Tinker
20 Likes