Why Arista Networks Inc (NYSE: ANET) stock is under pressure

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Arista Networks Inc (NYSE: ANET) stock lost over 5.3% on 6th May, 2020 (as of 12:49 pm GMT-4; Source: Google finance) after the company gave lower-than-expected guidance for the second quarter. Cash, cash equivalents and investments ended the first quarter at approximately $2.6 billion. The company has authorized a three year $1 billion stock repurchase program commencing in Q2 2019.

Meanwhile, the company had closed the acquisition of Big Switch networks in February 2020. The company is experiencing early traction and complementarity with Arista’s Data ANalyZer, DANZ, offering and entering into the network packet broker space. The company is expanding in the campus the cloud networking principles, introducing exciting cognitive WiFi suite of features with the support of Google Hangouts, Microsoft Teams and Zoom as well as open config-based automation model. Arista’s cognitive campus portfolio was launched last summer to address the explosion of clients, users and IoT devices with software-driven automation.

Moreover, the company is managing the global capacity with the contract manufacturers in San Jose, Mexico, Malaysia and coping with some inventory and component shortages. Lead times vary and have doubled recently for some of the popular products. Arista is working in lockstep with the customers in supporting their business continuity and planning throughout 2020.

ANET in the first quarter of FY 20 has reported the adjusted earnings per share of $2.01, beating the analysts’ estimates for the adjusted earnings per share of $1.81. The company had reported 12 percent fall in the adjusted revenue to $523 million in the first quarter of FY 20, beating the analysts’ estimates for revenue of $517.8 million.

Service revenues formed about 21% of total revenue, up from 19% last quarter, due to strong service renewal activity in the period, along with a lower product revenue number. International revenues for the quarter came in at $122.4 million or 23.5% of total revenue, which had fallen from 25% in Q4. Shifts in geographical mix on a quarter-over-quarter and year-over-year basis were mainly due to the level of revenue and the location of deployments by the cloud titan customers. The company has posted the gross margin in Q1 of 65.6%, which is well above the guidance of about 63% and up from 65.2% last quarter.

For the second quarter, the company is projecting revenue to be in the range of $520 million and $540 million. The analysts had earlier forecast revenue of $542 million for the same period.

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