Arista up just 1% from Q4. Worried about it?

Arista up “just 1%” from Q4 sequentially. And you are all worried about it??? You must be kidding!!!

2014 from $115 to $117 million sequentially		up 1.7%
2015 from $173 to $179 million sequentially		up 3.4%	
2016 from $245 to $242 million sequentially		up 1.2%
2017 from $328 to $335 million sequentially   	      **down** 2.2%
2018 from $468 to $472 million sequentially		up 1.0%

Doesn’t anybody look up these things before they worry?




Arista adj earnings were up 78% yoy, but they were DOWN 3% sequentially (gasp). Maybe we should worry about that too?

2014 from 27 cents to 26 cents sequentially	down 3.7% 
2015 from 53 cents to 50 cents sequentially	down 5.7%	
2016 from 80 cents to 68 cents sequentially    down 15.0%	
2017 from 104 cents to 93 cents sequentially   down 10.6%
2018 from 171 cents to 166 cents sequentially   down 3.0%

Wadda ya know? It was down the least percentage this year!




Let me give you an idea where I’m coming from on this. I’m in Europe at the moment so I was going to bed when Arista announced and I didn’t bother staying up and reading it. Then I was busy this morning. When I finally had some time I read the board posts first, and all I read was gloom and doom. (A bit like Square was, after-hours down 7%.)

Then I took a glance at the results and I posted the above two posts. Now I actually sat down and read the results, and for the life of me I don’t see the gloom and doom!

• Revenue of $472.5 million, up 42% and up 1% sequentially. (So last year they were up 43% in the first quarter and this year they are up 42%. So?? We should sell off 10%. Look, last year revenues in the quarter were 143% of the year before, this year it’s 142%! That’s a rounding error! It’s nothing at all.)

• GAAP gross margin of 64.1%, up from 63.9% yoy. (That’s improving gross margins, not falling.)

• Adj gross margin of 64.4%, up from 64.2% yoy. (That’s improving gross margins too, not falling.)

• Adj net income of $134 million, or $1.66 per share, up 78% from $72 million, or 93 cents. (That’s earnings up 78% (!!!), for God’s sake!)

So we should all write Arista off because of these terrible results?

Not me.


PS Now to find some time to read the conference call!


Sorry I reversed these, but obviously it doesn’t change anything:

2016 from $245 to $242 million sequentially           down 1.2%
2017 from $328 to $335 million sequentially   	        up 2.1%


The concern (or at least my concern) has nothing to do with the current quarter. It is the forecast. While the next quarters are a very difficult comparison, we are set to see a large drop off in growth down to 25% from the heady 40%+ growth the company has delivered the past year.

Is ANET a bad business? Absolutely not. Their numbers are amazing, especially profitability.

The question is their valuation currently given their forecast.
The 2nd question is competition. You can read (or better yet listen) to how the CEO equivocated when asked about competition and white boxes.



Saul, the doom and gloom is due to the guidance for growth to slow to 25%. It is certainly still TBD if that is real or simply being very conservative with guidance. Also, it seems that Tinker had some potentially impeccable/lucky timing by selling some ANET and buying some SHOP just a few days back.

Gary Alexander on Seeking Alpha suggests buying on any dips.

Arista: Buying On Every Dip $ANET

Sticking with my 10-12% ANET position (wherever that ends up landing today)


Is ANET a bad business? Absolutely not. Their numbers are amazing, especially profitability.
The question is their valuation currently given their forecast. - A.J.

I agree with A.J.

A brief review of the financial statistics leads me to believe that ANET has been overbought and is now overpriced. There’s no doubting it’s a quality business with solid financials, but with valuation stats such as Price/Sales of 12.1 and a forward PE of 32.59 (with profit margins ~ 28%), it’s priced as if it’s still the fast/high flyer it was when it burst onto the scene. ANET is not that rocket any longer. I expect the multiple to contract over time.


At $240 and about $8 in EPS this year, ANET is trading at about a 30 forward PE. EPS grew over 70% last year and 78% in the 1st quarter just posted.

To me that is not an expensive valuation.


In my observations, and this is simply my opinion…earnings releases are heavily traded by short term traders due to expected volatility. If there is anything even remotely possible to spin and create a little anxiety to trigger some selling , they put on the pressure which leads to some short term gains for the traders on the right side of things.

Also, rather frequently, by the time the next earnings come about, the blips the day of earning release have reversed and the stock continues doing it’s thing.

When we look at a report like this, it’s good but not mindblowing…seems that’s enough these days to trigger short term significant swings. Keen traders are cashing it in, then they leave and move on the next thing. Once they leave things slowly return to normal.

I stopped paying too close attention to movements with a couple days of earnings, instead focusing more on what happens in the weeks following.


33x fwd PE for slowing growth to 25% [and possibly less, of course] and shrinking margins doesn’t scream ‘super expensive’ but is definitely above both ‘cheap’ and ‘fair value.’

P/S of 12 is also quite expensive.

If ANET could promise us all 25% growth and flat margins for the next 5 years I would buy at this price. That would be cheap for sure.



If you have not listened to the conference call, listening to that answer is worth it in my opinion. You will gain much more insight. I’ve seen politicians parse their words less.

Let me know if you feel the same way.



The disconnect is simple,cloud titans booming in growth and spending. It will never get better than this if you sell critical products to them. Arista forecast is for 1/2 of the growth rate of spending Titans had this past quarter.

When there is a big disconnect like this it is worth examining. Usually it means something is happening. I believe, as AJ referred to, it is increased use of white boxes that are taking up more use cases that use to belong to Arista.

Arista would not discuss this topic (except for one meaningless blurb that even then was artfully stated) and no mention as to how well cEOS is doing in the white boxes. Now that might be good spin. Was not touched.

Arista announced some new products. Perhaps Arista is trying to redefine the high end again w the new products as it finds its way where more of its use cases are going to white boxes. As I believe that is the answer to this disconnect between titan soending growth and Arista growth slow down.

The profitability and truly top notch management is evident. World class w out doubt.



I’m still up a nice 22% in Arista… a top 5 holding along with PAYC, SHOP, AMZN, and AYX.

Today’s sell off has given me a chance to add a few more ANET shares. Others may want to do the same. A year from now I doubt you will regret it.

Still yawning and sipping coffee with the wife,



Anyone have a link to a replay of the conference call?

I can’t find it for the life of me.

This should do it for ya.

Click on the “Past Events” tab at the top.


33x fwd PE for slowing growth to 25% and shrinking margins…

Excuse me Najdorf, but where are the shrinking margins? I already showed the gross margins were up a little from a year ago.

Net margins were hugely up, from 30.2% to 35.3%! That’s hardly shrinking margins!


It may be competition from other white boxes. Or more likely it could be that while growth in the Cloud is great , in the Enterprise they are having trouble replacing Cisco as rapidly as they would like. It still sounds like a “good business” to me. And well managed too.

Selling half before earnings has worked well lately. But I don’t know what to do with the cash in some cases. Should I buy back some ANET? 10% off is a “on sale” price but it’s not a super bargain. Few tech stocks are cheap

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ok, took the plunge on the drop today - sold calls to get a bit better price. Management looks impressive, worth the high multiple

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Oops - meant sold puts.

For a look at Arista’s profit margins: