Fellow Fools,
when reading through the transcript of the earnings call, all figures and even guidance for Q1 looked good. But then I stumbled over this:
we will face some tough comparables for year over year revenue growth as we move through 2018. And with this in mind, I would reiterate Jayshree’s comments from last quarter with respect to top line growth moderating to a more typical mid 20s for the year.
This surely would be a massive deceleration vs today.
What you guys think?
LNS
reading on, this quote corroborated it:
you’ve seen the guidance for Q1. So obviously I think the comparables for Q1 have us growing 40% year over year, with the guide - the upper end of the guidance that we just gave you. I think for the rest of the year, we said kind of mid 20s for the total year. I don’t know that there’s any particular linearity to that that we can see at this stage. But that’s kind of the two bookends
If Q1 grows by 40% and accounts for roughly 20% of rev, this implies an average growth rate of 20% for the remaining three quarters. Combined, this would result in a growth rate of 25% for the full year.
20% growth is not a bad number at all but it is a pretty massive deceleration from today. They attribute this to the strong base period (i.e. 2017). It will be difficult to grow another 40+% on top of that.
Bottom line: strong and healthy business with a long runway for further growth but maybe the price has gotten a little ahead if itself (being based more on 40% growth, not 20%)
LNS
you’ve seen the guidance for Q1. So obviously I think the comparables for Q1 have us growing 40% year over year, with the guide - the upper end of the guidance that we just gave you. I think for the rest of the year, we said kind of mid 20s for the total year. I don’t know that there’s any particular linearity to that that we can see at this stage. But that’s kind of the two bookends
LNS and ALL:
Yep…that was the key passage IMO!
After some review, I believe Putnid said it best:
That factoid might not be all that meaningful to you or me but, given all that I’ve learned about “investor” behavior over the course of 40+ years, sequential declines (regarding both revenues and margins) bug a whole lotta people.
Initially, I thought that this was just the usual Q4 to Q1 revenue decline event that historically was routine. But based on the passage you referenced, there will be something else…in-year sequential decline and a substantial one at that…that hasn’t been “routine” previously to my knowledge.
The Bull thesis of course is that ANET is eating everyone’s lunch, trendsetting and on top of the latest technology.
The Hibernating Bull thesis is that while the above may be true, 400G is a while away from mainstream, 100G has a long tail suggesting that a new displacement threat from “ingenuity” (ANET’s forte) is not required by their market, ANET’s stock has really run up massively in last couple years, its PE is already richly valued with forward PE of 41 and they are very vague on guidance with “book end” analogies.
So again for me, Putnid’s comment regarding market sentiment says it all…we will have gone from blowout revenue growth to substantial reduced growth rates into the 2nd through 4th quarter in a stock already richly valued…that is a huge emotionally negative overhang IMO. Previous TTM growth rates were in the range of 34-51% as I recall.
For me with so may other skillets on the fire, not buying any more…although commonly we would expect to see the market attempt to gain back share price losses…I doubt in the medium term, this will be sustainable. The reduced growth rate had to happen eventually…it always does…but as Putnid said, emotionally…a near 30-40% clipping in growth over a year is a lot to handle with a high PE stock.
That said, for a long term holder…20-30% growth against competitors’ 3%, taking market share, ingenious technology…those are great long term numbers if they can continue that over next 5 years!
Part of the thesis for the selloff seems to be attributed to Cisco patent challenges. Arista has denied the allegations, but has been refactoring their software to avoid challenges.
IBD posted about it: https://www.investors.com/news/technology/how-cisco-legal-ba…
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Invest wisely my friends
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