Arista Networks Stock Forecast: IoT Means Growth

Arista Networks Stock Forecast: The internet “cloud” has changed the way people interact with technology. Instead of being limited to desktop and laptop computers, it is possible to access the web and web-based applications through a wide variety of mobile devices.

The transition to cloud technology has also changed who and what is connected. Now, an endless array of objects are getting smart upgrades, allowing users to control them remotely with internet commands. Smart homes are just one example of this emerging trend.

While the cloud has rendered on-site datacenters all but obsolete, substantial infrastructure is needed to support this on-the-go anytime/anywhere/anything internet access. If demand keeps growing at current rates, industry leaders predict internet traffic will double from 2019 to 2022.

The Internet of Things (IoT), a collective term for connected devices, will go from 18 billion unique items in 2017 to more than 28 billion by 2022.

That leaves a lot of work to be done if infrastructure is to support such growth – and companies capable of designing and implementing such infrastructure are in an excellent position to profit. For investors, the question is which company is most likely to succeed? Some believe the answer is Arista Networks.

What Does Arista Networks Do? 

Arista dates back to 2004. Two experienced entrepreneurs with years of service as Cisco executives decided to test out a new concept in the technology field.

A few years later, they were joined by a third former Cisco executive, Jayshree Ullal, who was named Arista CEO in October of 2008. Ullal has been recognized for leadership excellence in global forums, and he was included on Barron’s 2018 and 2019 lists of World’s Best CEOs.

Arista held its IPO in June 2014. Shortly thereafter, Cisco filed suit against the company for copyright infringement. The matter was finally settled in 2018, giving Arista an opportunity to focus attention and resources on developing technology and growing its customer base.

One of Arista’s first moves was the acquisition of Mojo Networks.

With Mojo came its flagship product: Cognitive WiFi. Cognitive WiFi is currently one of Arista’s biggest assets. The system gives wireless networks the ability to learn, predict, protect, and progress through advanced big data analytics and cutting edge automaton.

Today, Arista Networks [NYSE: ANET] presents itself as a pioneer in the cloud networking space, and it offers advanced solutions for campus environments and large-scale datacenters.

The platform is based on Arista’s unique Extensible Operating System (EOS), which features single-image consistency across hardware platforms.

In-service upgrades and application extensibility are made simple through modern open core architecture. To date, Arista reports it has shipped more than 20 million cloud networking ports to clients around the world.

Unfortunately, despite its successes, Arista stock price has dropped in 2019. Investors and analysts are looking carefully at the root cause of this decline to determine whether the company can recover – and if so, when the best time will be to buy.

Arista Networks by the Numbers

Arista Networks [NYSE: ANET] announced positive second quarter numbers in its most recent earnings report.

Revenue went up by 17 percent year over year to $608.3 million, and adjusted net income came in at $198.6 million – roughly $2.44 per share.

This is higher than analysts expected. Predicted revenue was closer to $607 million, with earnings per share around $2.20.

In his remarks, CEO Jayshree Ullal pointed out that the company’s “leadership in cloud-area networking is now widely recognized by industry analysts, partners and customers.” However, though Arista announced strong second quarter results, share prices went down by 17.1 percent in August 2019.

This decrease appears to be a response to leadership’s remarks that Arista expected limited growth for the remainder of the year.

Specifically, Arista Networks [NYSE: ANET] has already experienced slowed demand from cloud customers, and while that is expected to pick up towards the end of the year, it is unlikely to reach levels seen in previous years. Does that mean investors should avoid the company? What is the Arista Networks stock forecast?

Is Arista Networks a Buy? 

It’s true that Arista Networks [NYSE: ANET] leadership has predicted short-term slowing of revenue growth. The company expects revenue between $647 million to $657 million in the next quarter.

This dovetails with analyst estimates of approximately $651 million. Adjusted gross margin is expected to stay between 63 percent and 65 percent, which is in line with second quarter’s 64.7 percent.

However, those short-term predictions don’t give the whole picture – and Ullal’s discussion of long-term strategy was quite positive. He pointed out that the company’s original data center sales didn’t achieve remotely impressive results until five years after product began shipping.

Ullal indicated that the focus on growing the company’s share of the campus market is likely to see results in fewer than five years, since the brand is already highly regarded in the industry. In addition, he is expecting strong results from work in progress on developing new channels, new partners, and new systems integrators.

Ultimately, CEO Ullal explained that he expects today’s work in growing campus market share to eventually bring in revenues between $500 million and $1 billion. Along the way, the company might not be able to report consistent gains, but over time the plan will pay off handsomely.

Investors with confidence in the company – and in Ullal’s leadership – may have an opportunity to buy in to Arista Networks [NYSE: ANET] at a nice discount. Of course, this stock isn’t suitable for those with short-term goals – it could be some time before the gamble pays off. Investors that can afford to wait should consider this company a buy.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.