Arista Revenue Up 58% as Q4 Outlook Slows: Rapid Earnings Reaction
Arista's own forecast for next quarter calls for far smaller gains than this one delivered. We look at which parts of the profit picture hold up.
Arista Networks reported a steep rise in third-quarter revenue, up 58.5% to $3.66 billion, surpassing its $3.3 billion forecast. After-hours trading saw shares climb by around 8%. While Q3 grew 20.5% compared to Q2, the company's Q4 outlook of $3.9 billion to $4.0 billion suggests a significant slowdown, with growth expected to increase by only 7% to 9%.
Gross margin is deteriorating due to a shift in revenue mix towards product sales, which earn less than services. Product sales now account for 87% of revenue. Operating margin remains robust as operating expenses grew at a slower pace than sales. The earnings release presents no gross margin forecast, and non-GAAP earnings per share benefit from a $134.5 million gain from strategic investments.
Investors should monitor whether Q4 revenue meets or exceeds the $3.9 billion to $4.0 billion guide and whether gross margin stabilizes as product sales continue to expand.
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