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Why Pinterest, Arista Networks, and Casa Systems Slumped Today

By Dan Caplinger – Nov 1, 2019 at 4:35PM

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Despite good news throughout much of the market, poor earnings hit these stocks hard.

Major benchmarks did well on Friday, with multiple indexes either hitting or flirting with new record highs. Investors were happy with how strong the jobs market is in the U.S., proving its resilience even in the face of tariff-related headwinds and the threat of a possible recession. Yet for some companies, bad news on the earnings front sent their shares down sharply. Pinterest (PINS -1.08%), Arista Networks (ANET 0.45%), and Casa Systems (CASA) were among the worst performers. Here's why they did so poorly.

Pinterest can't keep growth investors happy

Shares of Pinterest dropped 17% after the social media company announced third-quarter results that didn't live up to high expectations. At first glance, revenue growth of 47% year over year and a 28% rise in the number of monthly active users across the globe to 322 million might have seemed encouraging. Pinterest even eked out a small profit on an adjusted basis. Yet despite Pinterest guiding full-year revenue toward the high end of previous guidance, investors are worried by the pace of deceleration in the company's growth. Growth-hungry investors simply wanted clearer signs of future success than they got.

Screen shot from Pinterest showing eight different images.

Image source: Pinterest.

Arista shares fall out of the cloud

Arista Networks saw its stock plummet 24% following its release of third-quarter financial results. The cloud networking solutions provider's revenue rose 16% compared to Q3 2018, and adjusted net income climbed 27% year over year. Yet what spooked investors the most was CEO Jayshree Ullal's cryptic comment that "we expect a sudden softening in Q4 with a specific cloud titan customer." Ullal didn't give details, but with both Microsoft and Facebook among Arista's biggest customers, the networking specialist's shareholders are nervous that the news could mean a big deceleration in future sales growth. That'd come at a particularly unfortunate time for the business as Arista pivots toward a greater emphasis on recurring revenue.

Casa Systems can't make a connection

Finally, shares of Casa Systems plunged 36%. The converged broadband solutions provider reported third-quarter results that included reversing year-ago profits with a significant net loss. Executives were quick to explain the situation, as CEO Jerry Guo and CFO Maurizio Nicolelli pointed to weakness in the cable product business along with it taking longer for Casa's backlog of business to turn into current sales. A key customer also requested new features on a big order that caused delays. Until industry conditions get clients spending again, Casa Systems could face a longer-term slowdown than just a single quarter.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Arista Networks, Facebook, Microsoft, and Pinterest and recommends the following options: long January 2021 $85 calls on Microsoft. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Arista Networks Stock Quote
Arista Networks
$121.35 (0.45%) $0.54
Casa Systems, Inc. Stock Quote
Casa Systems, Inc.
$3.47 (%)
Pinterest Stock Quote
$24.63 (-1.08%) $0.27

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