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Why Arista Networks, Inc. Stock Popped 16.6% in November

By Steve Symington – Dec 5, 2017 at 9:00AM

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The data center software leader jumped after a stellar quarterly report last month. Here's what investors need to know today.

What happened

Shares of Arista Networks Inc. (ANET 0.45%) climbed 16.6% in November, according to data from S&P Global Market Intelligence, after the data center software specialist announced better-than-expected quarterly 2017 results

The stock popped more than 11% on Nov. 3, 2017 alone. That was the first trading day after the company confirmed that its revenue had climbed 50.8% year over year to $437.6 million, far above its previous financial guidance for between $405 million and $420 million. Trending toward the bottom line, gross margin was 64.4%, above guidance for 61% to 64%. In addition, adjusted net income more than doubled over the same period to $128.2 million, or $1.62 per share, trouncing consensus estimates at the time for $1.19.

IT employee working in a large room of servers

IMAGE SOURCE: GETTY IMAGES.

So what

Arista's top line was driven by a combination of product revenue, which grew 49.6% to $380.3 million, and service revenue, which rose 59% to $57.3 million. The company also introduced its new Arista Any Cloud software platform during the quarter, which aims to reduce operations costs by simplifying the process of integrating and managing hybrid cloud environments.

"I am proud of our record results and profits in Q3 2017," added CEO Jayshree Ullal. "Our performance validates our meaningful traction with customers as they evolve from legacy to universal cloud networking designs."

Now what

If that weren't enough, Arista told investors it expects fourth-quarter revenue to arrive between $450 million and $464 million, which was comfortably above expectations at the time and good for growth of roughly 39% at the midpoint. Arista also called for adjusted gross margin in the range of 63% to 65%, a modest increase from the gross margin guidance range that leaves room for even more profits to flow to the bottom line. 

All told, there was little not to like about Arista's strong third-quarter report last month, and it was no surprise to see the stock rally to a fresh 52-week high as a result.

Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Arista Networks. The Motley Fool has a disclosure policy.

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