Arista stock plummets as investors don’t get the “near-perfect” returns they want

According to a Piper Sandler analyst, Arista Networks Inc. perhaps needed a “near-perfect” earnings report to meet Wall Street standards, given its “near-peak” valuation.

Yet Arista shares ANET,
retreated about 7% in Thursday’s extended session as the networking giant simply met expectations with its latest revenue and revenue outlook, even as it easily beat profit expectations.

“While margins are surprisingly strong, shipping times, which we estimate [greater than] $100 million, led to some disappointment,” Piper’s James Fish wrote in a note to clients.

As some recognized revenue will be shifted into the current quarter, he added that the outlook for the first quarter, which was in line with expectations on paper, could be seen as actually weaker than expected as the consensus did not take into account the push -out.

The networking giant expects revenue of $1.52 billion to $1.56 billion for the current quarter, while analysts tracked by FactSet were modeling $1.53 billion in revenue.

Arista executives also expect a gross margin of 62%, while the consensus opinion implied expectations for a gross margin of 63%.

For the full year, management reiterated its goal of revenue growth of between 10% and 12%.

“Many may find the overall guidance for 2024 to be reiterated as conservative, but we view it as prudent given the cyclicality of the space, uncertainty with Ethernet AI shipments, and the introduction of a new CFO,” Fish wrote, while maintaining a neutral rating on the stock.

Evercore ISI’s Amit Daryanani wrote that “the lack of upside revenue” likely pushed the stock lower in the aftermarket, though he said the company “remains well positioned to support top-line revenue growth in next few years” and for most likely “we will do so with better end-market diversity than what we have seen historically.”

Daryanani added that “AI opportunities continue to look like considerable upside leverage,” adding a management comment that Arista has won four out of five races it has entered, “with the one lost remaining within of the InfiniBand fabric”.

In the fourth quarter, Arista reported net income of $613.6 million, or $1.92 per share, compared to net income of $427.1 million, or $1.35 per share, in the quarter. ‘last year. On an adjusted basis, Arista reported earnings per share of $2.08, up from $1.41 a year earlier and above the FactSet consensus of $2.08.

Revenues totaled $1.54 billion, up about 2% from a year earlier. Analysts were looking for $1.53 billion.

“We are cautiously optimistic about achieving our AI revenue goal of at least $750 million in AI networking in 2025,” CEO Jayshree Ullal said on the earnings call.

Arista shares have gained 36% in a three-month period and 111% in a 12-month period.

network rival Cisco Systems Inc. CSCO,
releases quarterly results Wednesday afternoon.

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