Arista Networks Inc. (ANET) reported better-than-anticipated fiscal 2023 fourth-quarter earnings. The top line was in line with Wall Street expectations. The company also issued a slightly better-than-anticipated 1Q 2024 revenue outlook. However, the company’s Q1 gross margin guidance was a notch lower than analysts’ expectations. The mixed results took a toll on the shares of the networking switch provider, ending Tuesday’s trading session at $265.51, down $15.37, or 5.47%, from the prior close. Notably, so far this year, the stock has gained about 20%.
The Santa Clara, California-based company reported fourth-quarter revenues of $1.54 billion, an increase of about 21% from $1.28 billion in the similar quarter of fiscal 2022.
For the recent quarter, which ended December 31, 2023, Arista posted net income of $613.64 million, or $1.92 per share, up from $427.09 million, or $1.35 per share, in the quarter ended December 31, 2022.
Excluding stock-based compensation expense, intangible asset amortization, acquisition-related costs, gain on strategic investments, tax benefit on stock-based awards, and income tax effect on non-GAAP exclusions, the 4Q 2023 non-GAAP net income was $664.33 million, or $2.08 per share, compared with $445.15 million, or $1.41 per share, in 4Q 2022.
Analysts polled by Zacks Investment Research had anticipated Arista to report adjusted earnings of $1.71 per share on revenues of $1.53 billion.
Commenting on the company’s quarterly results, Ita Brennan, Arista’s outgoing CFO said, “Our outstanding performance for 2023 epitomizes our focus on profitable revenue growth, expanding our enterprise and campus footprint while leveraging R&D and go-to-market investments across the business.”
Segment wise:
- Product revenues grew by 19.50% y-o-y to $1.31 billion.
- Service revenues were $230.12 million, an increase of 28.90% from last year.
Looking forward, the cloud solution provider projects fiscal 2024 first-quarter revenues in the range of $1.52 billion to $1.56 billion (the midpoint is $1.54 billion). Economists surveyed by Zacks anticipate Arisa to report revenues of $1.53 billion.
Furthermore, Arista’s management forecasts a first-quarter gross margin of 62%, a notch below the 63% margin anticipated by the market. Analysts also anticipate the company’s revenue growth to ease to 12% in FY 2024 from roughly 34% in FY23.
During the earnings call, Chief Executive Jayshree Ullal expressed a sense of cautious optimism regarding the prospect of attaining the company’s AI revenue target, set at a minimum of $750 million by the year 2025.
The mixed quarterly results are expected to keep the stock of Arista range-bound in the short term.
The historical price chart indicates that the stock of Arista Networks is facing resistance at the $265 level. The next major support is anticipated to be around $240. Additionally, the stock is trading above its 50-day moving average, while the stochastic indicator is descending toward the bearish zone. Therefore, we anticipate Arista’s stock to remain in a downtrend in the near term.
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