Companies in nearly every industry have realized the value of keeping and analyzing information, and using the power of the cloud has become extremely important for those looking to make the most of their data. Arista Networks (NYSE:ANET) has used an open-source philosophy to fight against big-tech rivals, and many clients appreciate the company's different approach to helping them get more value from their information technology efforts.
Coming into Thursday's third-quarter financial report, Arista shareholders believed that the solid growth the cloud and data center business has seen lately would continue. Arista didn't disappoint on that front, blowing past expectations and seeing a better performance ahead.
Let's look more closely at Arista Networks to see how its results are making people more optimistic about its future.
More record results for Arista
Arista Networks' third-quarter results included some unprecedented growth. Sales were up by more than half to $437.6 million, and that was far better than even the ambitious 44% growth rate many investors were looking to see. Adjusted net income doubled from year-ago levels to $128.2 million, and adjusted earnings of $1.62 per share dramatically exceeded the consensus forecast for $1.19 per share among those following the stock.
Arista continued to see growth from across its business. The key product line saw revenue climb 50%, while the services side of the business posted an even faster growth rate approaching 60%. Gross margin held up well, falling by just a tenth of a percentage point to remain above the 64% level. Most importantly, Arista kept its expenses in check. Even with much faster revenue gains, Arista spent just 14% more on research and development expenses, 22% more on sales and marketing costs, and identical amounts on overhead compared to the third quarter of 2016. Interest expense was also down for the period, adding to the boost in Arista's bottom line.
CEO Jayshree Ullal kept things very simple. "I am proud of our record results and profits in Q3 2017," Ullal said. "Our performance validates our meaningful traction with customers as they evolve from legacy to universal cloud networking designs." CFO Ita Brennan was also happy with the way Arista performed and executed during the quarter.
What's ahead for Arista Networks?
A key part of Arista's future success will come from its efforts to help enterprises simplify the way they take advantage of all of the new capabilities in information technology. The Arista Any Cloud software platform will make it easier for users to integrate and manage hybrid clouds across both private cloud data centers and public cloud providers. By allowing users to go beyond the boundaries of any one network, Any Cloud provides for consistent operations, security, and telemetry for a user's entire IT system in an orchestrated and well-managed way.
Arista's growth has been noteworthy. The company made the top 10 in the list of 100 fastest-growing companies from Fortune in September, joining a long list of accolades that Arista has brought home in recent years.
Guidance for the fourth quarter showed Arista's ongoing trajectory. Sales of between $450 million and $465 million would be above the current consensus forecast. Although Arista doesn't give explicit earnings guidance, calls for adjusted gross margin of 63% to 65% and operating margin of 30% to 32% mark improvements from previous guidance and suggest greater levels of efficiency within the tech company.
Arista Networks investors celebrated the news, and the stock soared 10% at midday Friday following the announcement. With no end in sight to the upward path toward adoption of cloud computing and data center optimization technology, Arista has carved out a lucrative niche that could pay off for years to come.