Congrats Mike
I’m planning on holding ANET.
Story still intact
Thanks everybody! 
So, at least 4 after-hours additions on the dip from this board.
Hi okapimoon, it’s nice to see you back on the board. I see you’ve made three posts this year. I really remember your excellent stock analyses back in 2014/2015.
Saul
I wasn’t around back then, but I will note that I recognized the screen name okapimoon due to stellar performance in the combination of the 2017 Rule Breaker, Stock Advisor, and Hidden Gems stock picking challenge.
Here are the top 4 by average finish:
Rank Player SA RB HG Ave
1 okapimoon 4 5 14 7.7
2 oceanbluela 1 20 7 9.3
2 mday1 13 2 13 9.3
4 jmcolley 31 16 1 16.0
I hadn’t checked recently, but I am presently 27th out of 29 folks who are in all 3 challenges for 2018. Glad my real portfolio is doing better than my contest picks.
Rank Player SA HG RB
27 volfan84 146 34 40
4 Likes
I’m not buying here (certainly not selling) until I understand the reason for their anticipated slowdown in growth which has the chance of being sandbagging, but also has a chance of being truly concerning.
The company is forecasting “mid-20% growth” next year if I heard them right on the few minutes of the call I listened to. This would mean a pretty decent sized drop in growth, though earnings growth has been outpacing revenue growth.
Anyway, its food for thought and something to consider while reading the transcript.
Take care,
A.J.
5 Likes
Now if I happened to be short Nvidia then I would be a mess
Arista Networks: Buy This Stock On Negative Volatility $ANET
I couldn’t paste the link from my iPhone but the comments from this article on SeekingAlpha are pretty balanced and are updated for the latest quarter
Here are the numbers:
Total Revenue (millions) Q1 Q2 Q3 Q4
2016 242.2 268.7 290.3 328.0
2017 335.5 405.2 437.6 467.9
EPS (non-GAAP) Q1 Q2 Q3 Q4
2016 0.68 0.74 0.83 1.04
2017 0.93 1.34 1.62 1.71
Gross Margin (non-GAAP) Q1 Q2 Q3 Q4
2016 64.6 64.1 64.6 64.4
2017 64.2 64.4 64.4 65.9
Operating Margin (non-GAAP) Q1 Q2 Q3 Q4
2016 28.9 27.9 30.0 32.3
2017 30.2 36.3 38.6 36.1
Current (2017 Q4 Earnings):
Net Revenue Growth (billions)
2016 Q4 TTM Revenue = 1.129
2017 Q4 TTM Revenue = 1.646
YOY TTM Revenue Growth = 45.8%
EPS Growth (non-GAAP)
2016 Q4 TTM Earnings = 3.29
2017 Q4 TTM Earnings = 5.60
YOY TTM EPS Growth = 70.2%
P/E (Check Current Price) = 307.96/5.60 = 55
1YPEG = 55/70.2 = 0.78
Yes, yes, those numbers look great… but I am also not at all impressed with guidance.
For the first quarter of 2018, we expect:
Revenue between $450 and $468 million.
Non-GAAP gross margin between 63% to 65%, and
Non-GAAP operating margin of approximately 32%
From the report at https://investors.arista.com/Communications/Press-Releases-a…
So not only is revenue coming in flat to negative for the quarter, but operating margin is also taking a dip. I’ll know how I feel better after I can go through the call, but I’m certainly not buying here without finding out why guidance seems so light.
Matt
Long ANET
MasterCard (MA), PayPal (PYPL), Skechers (SKX) and Square (SQ) Ticker Guide
See all my holdings at http://my.fool.com/profile/TMFCochrane/info.aspx
22 Likes
BTW, one of my first posted analyses on the “Weekly Analysis Board” (which seems currently to be on sabbatical) was on HUBS which at the time mid-2015 I rated a (risky) 4 out of 5.
Let me echo what Saul said, okapimoon! I learned so much on that board from you and Neil. I am pretty sure I never would have peeked at a 10-K filing if it weren’t for your encouragement!
Matt
5 Likes
I’m not buying here (certainly not selling) until I understand the reason for their anticipated slowdown in growth which has the chance of being sandbagging, but also has a chance of being truly concerning. - A.J.
I understand your concern, A.J… It’s valid. I believe the price action in ANET today is linked directly to CSCO’s report yesterday. CSCO’s core business was threatened by ANET. CSCO tried litigation. Didn’t work. So CSCO decided that it would have to move from its equipment-based model to a software-based model revolving around subscription services and deferred revenues. That’s right, CSCO is now copying ANET. The shift was inevitable. As we discussed on this board years ago, enterprises were moving to “white boxes” i.e., generic equipment energized by software versus the old “black box” equipment that you simply installed and ignored. CSCO has always been a fierce competitor that historically used its ample cash to buy growth. CSCO didn’t develop the new software on its own. Last year, CISCO bought some heavy-hitter software developers to help with the task. The CEO made it very clear he is reducing Cisco’s reliance on the shrinking market for high-priced hardware and pivoting to software and services that manage and protect networks. The demand for these new generation switches and routers appears to be rising/accelerating as corporations upgrade older equipment. Cisco’s new products help customers better monitor data traffic, control user access, and diagnosis and fix problems.
Toss in the fact that CSCO will be repatriating ~$65 Million, so the company has lots of cash to throw into new product development.
Now, consider ANET’s earnings report. The financial metrics were fine. What threw people was the forward guidance (essentially flat). Could this be a sign that CSCO is beginning to have an impact? It seems that way. Given that ANET is so richly priced, any reduction in revenues and margins would be reflected in the share price.
The market gains/losses recorded by these two firms in the coming quarters bears close watch.
18 Likes
Because of this board I checked into after hours trading with Fidelity. Was able to add at $261.99! Thanks everyone.
John
Yes, yes, those numbers look great… but I am also not at all impressed with guidance.
Hey Matt:
Right…that looks like 40% YoY revenue growth for the 1st quarter 2018 vs 43% for the 4th quarter 2017 then correct?
I am also very interested in reading the earnings report and trying to get a feel of growth issues.
But to keep this in perspective, when we compare to CSCO growth rates…3% in the most recent reported quarter:
https://www.investors.com/news/technology/cisco-has-a-pile-o…
Archrival Arista Networks (ANET) has a market valuation of $22 billion. That high market cap, coupled with a deal premium and the fact Cisco has earmarked $25 billion for share repurchases, could put Arista out of reach, analysts say. Arista, which reports fourth-quarter earnings late Thursday, has been grabbing share in the data center switching market from Cisco.
ANET still has substantial growth projected at 40% YoY in the 1st quarter 2018…quite impressive vs CSCO.
But the market hates uncertainty esopecially with a stock that has run up so aggressively in last 1-2 years…uncertainty like litigation, distant guidance, etc.
But again…I really want to read the earnings call because at first blush…I am not yet seeing all the fuss.
3 Likes
Let me echo what Saul said, okapimoon! I learned so much on that board from you and Neil. I am pretty sure I never would have peeked at a 10-K filing if it weren’t for your encouragement!
And now, Matt, you’re way ahead of me in analysis, and should be encouraging me!
okapimoon
2 Likes
I don’t believe all of the fuss is flat to negative sequential revenues. There is some seasonality that affects that number.
It is the growth rate that is concerning. Not necessarily the growth rate for next quarter, but the “mid 20s growth” rate or the 20% - 30% growth rate the company mentioned at a recent analyst day. That would signify a pretty decent slowdown.
Let’s remember that if earnings continue to outpace revenues, this still portends well for the long term growth of the company.
A.J.
1 Like
A.J.,
or the 20% - 30% growth rate the company mentioned at a recent analyst day
Could you source this?
I don’t recall seeing that previously, and think it would have been of note. I do recall reading on multiple occasions in posts about Pure Storage that one of their mentions of 30% annualized growth rate over the next few years was a possible concern to the thesis for them, but I don’t recall seeing such a low revenue growth rate number bandied about for Arista.
Also, from the context of the Pure Storage 30% CAGR, it didn’t sound like that was something they were providing as guidance for what they’re expecting for their performance.
Not necessarily the growth rate for next quarter, but the “mid 20s growth” rate or the 20% - 30% growth rate the company mentioned at a recent analyst day. That would signify a pretty decent slowdown.
Thanks AJ:
Can’t you link that reference for the slowdown to 20%?
There was no indication that ANET is slowing down in its market share grab from CSCO but if you are instead suggesting a more general market decline in router, cloud services, etc. as an explanation for a slowdown, that could have implications for many other stocks as well…that would be very interesting to read and contemplate.
IMO, and without advantage of reading the earnings call…this “analyst day” you mentioned was already known before todays earnings…seems more a reaction to the recent stock runup the past couple years than something company specific.
They beat consensus in every earnings over the past 5 that I looked back at so assuming the same in Q1, 2018, they would be still 40% YoY on revenue…compared to CSCO 3%.
3 Likes
Guidance for 2018 has not yet been provided. However, at a December 5, 2017 presentation at a Wells Fargo conference, CFO Ita Brennan emphasized that a forward looking normalized revenue growth rate could range 20-30%, and a sustainable level of operating margin could be in the lower 30% range.
https://seekingalpha.com/article/4147115-arista-networks-buy…
During the call, I believe they talked about “mid 20s” but I can’t source that as I had it on in the background.
A.J.
They beat consensus in every earnings over the past 5 that I looked back at so assuming the same in Q1, 2018, they would be still 40% YoY on revenue…compared to CSCO 3%. - dumaflotchie
While you focus on Y-o-Y revenue growth, it appears quite a few folks focused on the flat (lower actually) Q-o-Q revenues $459M versus previous quarter’s $468. As they ask throughout the business world: “What have you done for me lately?”
It’s game on between CSCO and ANET.
IMO, and without advantage of reading the earnings call…this “analyst day” you mentioned was already known before todays earnings…seems more a reaction to the recent stock runup the past couple years than something company specific.
Correct. The analyst day was back in December. However, in conjunction with the statements on the call, it just begs the question as to why the company has somewhat wishy-washy guidance that is a decent sized slowdown.
They have always undersold themselves which I think is great. And this could be the very same thing.
I’m not trying to sound the alarm bells here, just trying to inspect it further.
A.J.
I’m not trying to sound the alarm bells here, just trying to inspect it further.
Same here. A sequential decline accompanied with a decline in op margins would be concerning to me, at least without inspecting it further. I believe that’s all AJ and I are saying.
Matt
Long ANET
While you focus on Y-o-Y revenue growth, it appears quite a few folks focused on the flat (lower actually) Q-o-Q revenues $459M versus previous quarter’s $468. As they ask throughout the business world: "What have you done for me lately
True but as you know, the 1st quarter has historically been their weakest so sequential is not that meaningful IMO:
Same thing happened between Q4 2016 and Q1 2017
4 Likes
True but as you know, the 1st quarter has historically been their weakest so sequential is not that meaningful IMO - dumaflotchie
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.