UPDATED 19:04 EST / NOVEMBER 02 2020

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Arista Networks soars on strong earnings beat

Cloud networking company Arista Networks Inc. is riding high today after reporting third-quarter earnings that easily topped expectations, plus strong guidance for the next quarter.

The company reported a profit before certain costs such as stock compensation of $2.42 per share on revenue of $605.4 million, down 7.5% from a year ago. Still, it was well ahead of Wall Street’s estimate of a $2.22-per-share profit on revenue of $581.6 million.

Arista Chief Financial Officer Ita Brennan said in a statement that the company had seen “continued improvement in underlying business trends in the quarter, with the Arista team working diligently with customers, supply chain and other partners to navigate the new COVID-19 operating environment.”

Arista is primarily known for its high-speed networking switches that it sells to co-called hyperscale data center operators such as Facebook Inc. and Microsoft Corp. But in recent times it has also emerged as a serious competitor in the enterprise campus switching market that its larger rival Cisco Systems Inc. dominates.

“Our customers are validating our traction as we migrate from legacy to cognitive client to cloud deployments with a cumulative of 40 million cloud networking ports shipped by Q3 2020,” said Arista Chief Executive Jayshree Ullal. “Despite some COVID-19 turbulence, we believe Arista will only emerge stronger.”

Arista also sells management software for cloud based networks, and it’s clearly looking to bolster this part of its business with its acquisition of network threat detection startup Awake Security Inc., announced in September. Awake’s artificial intelligence-based threat detection platform relies on something called federated learning, which allows it to perform threat analysis on the customer’s infrastructure, thereby aiding privacy since sensitive network activity data stays inside the network.

In a blog post after the acquisition was announced, Ullal said the plan is to integrate the threat detection monitoring technology from Awake with the existing network monitoring features the company offers as part of its products.

It may be some time before Arista sees any material benefit from that acquisition, but in any case the company’s prospects are already looking good in the near term. For the fourth quarter, Arista forecasts revenue of $615 million to $635 million, well above Wall Street’s estimate of $609 million.

“Arista is a vendor in transition, moving from products to services, and while its product revenue is down its services revenue is up,” said Constellation Research Inc. analyst Holger Mueller. “A year ago services revenue was less than 20% of product revenue, but now it’s more than a quarter, and that gives Arista a fighting chance to grow again. It’s showing remarkable cost discipline too.”

Arista’s stock rose more than 9% in after-hours trading as investors backed the company’s optimism.

Photo: Arista Networks

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